The Government's decision to set up a commission to examine rents is being seen by the property industry as a blow to investors in the residential market.
The commission is expected to examine rent levels, which have been rising in line with the increase in house prices. Escalating rents have made it more difficult for young workers and students to find accommodation and some landlords have been refusing to renew leases with existing tenants unless they agree to pay substantially higher rents.
The commission is to look at ways of improving the security of tenure in the private rental sector and may well recommend some form of rent control. However, the Irish Auctioneers' & Valuers' Institute warned last night that any artificial interference with rents would be "unconstitutional and would further reduce the supply".
Mr Aidan O'Hogan, managing director of estate agency Hamilton Osborne King, also warned that rent controls would scare off investors and lead to a reduced rental stock. He said a better approach would be to encourage landlords to fix rents for longer periods in return for some tax concessions. There has been clear evidence since last summer that despite the withdrawal of interest relief on residential investments, apartments and houses are still being bought for investment purposes. A combination of historically low interest rates, poor return on bank savings and the prospect of significant capital appreciation has enticed investors back.
Before the first Bacon Report last April investors were buying up to 80 per cent of some Dublin apartment developments. In the first three months of this year investors were the main buyers when the last round of Section 23 apartment developments were offered for sale.
Mr Ken MacDonald of Hooke & MacDonald, an agency specialising in the new homes market, said the Government and Bacon had lost an opportunity to redress the damage to the rental market last April by not reintroducing interest relief to areas where accommodation is in short supply.
He criticised the Government for discriminating against small investors while allowing big players to enjoy interest relief on commercial property. The expectation that financial institutions would fill the void left by private investors in the apartment market has not materialised, because of the high management costs involved and because yields are lower than in the commercial market.