C: Tierra Mallorca / Unsplash

Time to admit it: Rent caps in Ireland have been a disaster.

It has conveniently been forgotten now – as almost all bad ideas are – but there was a time in Ireland, not that long ago, when rent caps were going to solve the problem of rising rents. Indeed, Ireland has widespread caps on the rate of increase in rents, once a property exists in a so-called “rent pressure zone”, or “RPZ”.

Since 2016, in fact, increases in rent in RPZs has been limited to 4% per year, or the rate of inflation. This changed last year, when the allowed increase in rent on an annual basis changed to just 2%. Citizen’s Information has the details of the law as it stands:

Since, 11 December 2021, annual rent increases in RPZs are capped in line with the rate of general inflation or 2% a year, whichever is lower. So, if your landlord reviews the rent every 12 months and the rate of general inflation is 1.5%, then your rent can only be increased by a maximum of 1.5%. However, if the rate of general inflation is higher than 2%, for example, 3%, the rent can only be increased by a maximum of 2%.

It is a bit more complicated if your landlord has not reviewed the rent for a number of years, as the 2% cap applies every year. So, for example, if you moved into rented accommodation in December 2016 and the rent hasn’t changed since then, the general inflation rate would apply when calculating the rent increase. This is because the inflation rate between December 2016 and December 2021 was 6.6%, which is lower than the 10% that would apply under the 2% per year condition (2% per year for 5 years = 10%). The RTB’s Rent Pressure Zone calculator applies both of these conditions and calculates the allowable rent increase for you.

From 16 July 2021 to 10 December 2021, annual rent increases in RPZs were only capped at the rate of general inflation, as set out in the Harmonised Indices of Consumer Prices (HICP). But, due to rising inflation these rules were changed to include the new 2% per year condition. This was introduced under the Residential Tenancies (Amendment) (No. 2) Act 2021. The RTB has published a guidance document highlighting the changes this legislation brought in and what they mean for landlords and tenants.

Between 24 December 2016 and 15 July 2021 rent increases in RPZs were capped at 4% per year.

So, that’s fairly clear then: Rents, by law, can only increase by the rate of inflation, or 2%, whichever is lower. The problem is that, well, it hasn’t worked, as the latest DAFT survey shows:

THE NUMBER OF homes available for rent across Ireland has dropped to a new all-time low and led to a further spike in rents around the country, according to Daft.ie.

The fourth-quarter rental report from the property advertisement website notes that there were just 1,397 homes available to rent on 1 February nationwide. This is the lowest amount since Daft began tracking availability in January 2006.

In Dublin, 712 homes were available to rent at the start of this month, less than one-quarter of the average seen for February over the last two decades.

Outside of the capital, Daft notes that availability is less than one-third of the pre-pandemic level of February 2020 with 685 homes available to rent.

The average rent nationally now stands at €1,524 per month, an average of 10.3% higher than the same period in 2020.

This should not shock. Rent controls do not work. They have never worked, and they were never going to work in Ireland. Indeed, many sensible people pointed this out at the time. There are several reasons why they do not work, all based on a simple extrapolation of what a smart landlord will do, when faced with rent caps:

  • Rent caps encourage rent increases

Because rent caps only apply to existing tenants, landlords are always incentivised to set the initial rent higher. Were you going to set your rent at €1,400 per month? Well, the rent cap means that you won’t be able to increase it much later, if you need to, so you might as well advertise the property at €1,600, and see if someone will bite. This way, you get your price increase through on day one. It actually encourages rents to rise faster, not more slowly.

  • Rent caps discourage landlords in general

One notable thing about the Daft report is how few properties are available to rent in Ireland. The number of small landlords is collapsing. In part, that is because it increasingly makes more sense for a landlord to sell the property, pay off their own mortgage, and take the profits, than it does to continue renting. Why? Because the risk increasingly is that a tenant moves into your property, stays for years, and there is no way to get rid of them. All the while, inflation eats away at the rent you get, and eventually, it is no longer profitable to offer the property for rent at all. Landlords are making this calculation in Ireland in huge numbers, and it is showing in the declining number of properties. Which, in turn, pushes rents higher again for those who remain in the market.

Take these two factors together, and you end up not with a land of milk and honey where the rent increase problem is solved, but in a land with fewer properties to rent, for higher initial prices. This has happened everywhere this policy has ever been tried, and it should not shock that it is now happening in Ireland.

Of course, the people who demanded this policy to begin with are nowhere to be seen in the face of its obvious failure – Sinn Fein, the left wing opposition, and many Government back-benchers. In fact, they want even more of it. If at first you do not succeed, just have the confidence of Eoin O’Broin:

Sinn Féin has called for the urgent introduction of a three-year rent freeze and a refundable tax credit for renters after the latest Daft report showed a 10% spike in rents.

Mr Ó Broin called for a ban on rent increases across the country.

“Rents are higher than they have ever been, so the idea that a three year emergency ban on rent increases would have any negative impact on future levels of investment is simply nonsense. If you can’t make a return at the current levels of rents, then you’re clearly not a good business person and you should get out of the rental game.”

This is just plain economic illiteracy: We live in an era of inflation and rising prices. Telling landlords that any new tenants will have their rent frozen for three years will either do the first thing above – encourage them to push for as much as they can get on day one – or the second thing, and encourage them to sell and get out of landlording altogether. And of course, as soon as there are no landlords left, O’Broin will be crying about that, too. The man’s a menace.

The only ultimate solution to rising rents is to increase the supply of rental accommodation. That means either building more houses, or encouraging landlords into the market. The Irish Government appears to have a plan for neither of those two things.

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