Subscriber OnlyOpinion

Rent pressure zones were meant to curb rents. Eight years later, they’re still shooting up

In RPZs such as Dublin, rents for new tenancies were up 6.5% and 5.1% for existing tenancies in 2023. In Limerick rents for new tenancies were up 25%. What’s going on?

The solution is not the supply of yet more too-expensive rentals but reducing demand for the sector through a sustained increase in the output of social and meaningfully affordable housing. Photograph: Aerial.ie

Lorcan Sirr
Sat May 25 2024 - 07:00

Under legislation introduced in 2016, rent increases have been limited to a maximum of 2 per cent in rent pressure zones (RPZs). Yet annual rent inflation is far above these limits. According to the Residential Tenancies Board’s (RTB) official data, in the year to the end of 2023 the standardised average rent in new tenancies grew by 9.1 per cent and in existing tenancies by 5.9 per cent nationally.

In RPZs such as Dublin, rents for new tenancies were up 6.5 per cent and 5.1 per cent for existing tenancies. Limerick saw rent inflation for new tenancies up 25 per cent in the year, and 15 other counties had new tenancy rent inflation of more than 10 per cent. How can this be in areas where rent increases are limited and with RPZs covering 74 per cent of all rented dwellings?

The difference between new and existing tenancies is important. A new tenancy is a lease for a property that is brand new or one that has not been previously used for renting for more than two years. Rents here are allowed to be set at the market rent, which is the most the landlord thinks they can get. Although some landlords have been leaving the market in recent years, thousands of new built-to-rent apartments have been built, all set at the market rate. Moreover, these developments often cluster near each other, increasing the average local rent as they dominate supply in an area.

There are other exemptions that allow landlords to charge more than the 2 per cent limit, such as a “substantial change” in the size of the property, or measures that improve the building energy rating.

READ MORE

But the State itself is part of the problem. The use of the private rented sector as de facto social housing has also pushed more than 68,000 households into private renting. There are almost 10,000 Housing Assistance Payment households in Dublin city alone, reducing overall supply. More than half of those renting received some form of housing assistance in 2022.

Although the RTB insists its data on rent inflation should not be used to measure compliance with RPZ limits, that does not rule out noncompliance as a factor in rent inflation. Many tenants have experienced unscrupulous landlords seeking more rent than they are entitled to and the fear of whether or not to challenge them. In 2022 just 3 per cent (203 cases) of landlord-tenant disputes in the RTB were for “rent review not in line with RPZ”. A further 2 per cent were for rent being “more than market rate”.

The Housing Commission report suggests that “noncompliance with RPZ regulations is an issue in Ireland”, and distinctions in rent inflation between new and existing tenancies indicates that, in part at least, there is a greater level of noncompliance in new tenancies.

The blind eye turned to the continued use of properties as short-term lets, nearly all illegal if they are in an RPZ, is another factor in reducing the potential supply of homes to rent. There are currently 18,105 entire properties available on Airbnb in Ireland, with 3,572 in Dublin alone, 501 in Galway city, and 178 in Cork city. Policy has failed when we have tourists living in apartments and homeless families living in hotels.

And clearly a key goal needs to be to accelerate the supply of social and affordable housing to take pressure off the rental market.

Nobody ever asks, however, what would happen if rents for new properties actually fell? Bizarrely, no planning has been done for this.

Firstly, legislation never envisaged rents falling, so there is no process to reset leases to lower rents in existing tenancies. Tenants would have to move accommodation to avail of lower rents.

The development of new properties for the rental market would also stall – since when prices fall, output reduces. Such output has already stalled for other reasons, and, desperate for housing, the State has stepped in, agreeing leases with developers to build apartments for use as social housing.

There are currently thousands of these leases, many for up to 25 years with some paying up to 95 per cent of market rent and built-in three-year rent reviews to the Harmonised Index of Consumer Prices, which are effectively upwards-only. Leases totalling €2.8 billion (or €10 million a month) are already agreed. One leased property costs €968,100 over the lifetime of the lease, enough for three directly-built permanent social houses. Rent inflation may therefore still impact the taxpayer, even if it falls for everyone else, and the State won’t own any of the housing at the end of the leases.

Any fall in rent could lead to increased vacancy as some landlords ride the storm with empty units rather than face a rent drop and 2 per cent per annum recovery thereafter. Approved housing bodies and landlords with borrowings might find themselves in balance sheet difficulties if their loan to asset values change. Between households who use renting as a proxy for social housing and the hundreds of thousands of tenants who want to be homeowners (only 14 per cent rent by choice, according to Threshold), at nearly 19 per cent of all households the private rental sector is twice the size it should be.

The solution to rent inflation is two-fold: firstly, the resourcing of local authorities and the RTB for more effective enforcement of short-term lets and noncompliance with rent regulations, and better data collection and analysis.

The second solution is not the supply of yet more too-expensive rentals but reducing demand for the sector through a sustained increase in the output of social and meaningfully affordable housing (€250,000-€350,000) for households earning less than €80,000 per annum and priced out of home ownership.

It costs the State €309,000 on average to directly build a house or apartment, including land. The Land Development Agency has identified State lands with the potential for up to 67,000 new affordable homes in 10 cities and towns, with more to come. In 2023, the State delivered just 3,045 homes for affordable purchase. RPZs work, but not effectively, due to poor data, a reliance by the State on the private sector to do public sector heavy lifting and a lack of proper enforcement. And renters pay the price.

Dr Lorcan Sirr lectures in housing at the Technological University Dublin

LATEST STORIES