Ireland needs to develop a broader and deeper rental market in order to protect itself against future financial shocks, deputy governor of the Central Bank Stefan Gerlach said on Monday.
Speaking at the Dubrovnik Economic Conference in Croatia, Mr Gerlach said it has been shown that economies with deeper rental markets suffered less in the financial crisis.
“Overall, a deep and well-established rental market... seems to be a mitigant against the effect of shocks to the broader economy and housing markets,” he said.
In Ireland and Croatia on the other hand, “credit-fuelled housing bubbles played a big part in both countries’ pre-crisis growth and subsequent decline”.
As such, Mr Gerlach said that it would be important for countries like Ireland to promote a “well-developed rental market as a genuine alternative to ownership, and an attractive investment proposition for potential landlords”.
“While many households may continue to buy rather than rent, we need to make sure that this choice reflects their preferences and does not merely reflect a poorly functioning rental market,” he said.
Mr Gerlach said that culture was a factor, but also idenitifed other issues included “the type, quality, affordability and, in particular, security of tenure of private rented accommodation”.
Indeed Ireland has the fourth lowest rental rate in Europe, at 26 per cent, behind Hungary, Spain and Greece. Switzerland (+60%) and Germany (54%) are at the other end of the scale.
One problem in Ireland identified by Mr Gerhlach is the absence of long-term rental contracts.
“ Lengthening rental contracts therefore seems desirable,” he said.
In this respect, given their long time horizon, institutional investors can “promote a well-functioning rental market that is so important for financial stability” Mr Gerlach said.
While Housing Agency figures for 2014 suggest that over 80 per cent of landlords in Ireland own one or two properties, the arrival of real estate investments trusts (reits) in 2014, may be beneficial in this regard.
Tax, Mr Gerlach said, can also influence households’ choices between buying and renting property, but should not do so.
“ Overall, it seems desirable for tax policy to be neutral between homeownership and renting,” he said, adding that to this end in Ireland, mortgage interest relief has been phased out, while property tax was introduced.
