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A rent freeze is a terrible idea that Ireland will regret

Picture the scene, if you will, five years from now, in the Dáil. Taoiseach Simon Harris is on his feet in the chamber, trying to defend his Government’s decision to end the rent freeze legislation introduced in 2019. For the past five years, rents have been frozen in place, giving, according to Harris, “valuable breathing space to renters in the market during the worst of the crisis”. But now, he says, faced with a slow exodus of landlords from the market and fewer properties available to rent than ever before, “the time has come to provide some incentive for more people to rent their properties”.

The outrage at Harris’s words is predictable. Ruth Coppinger calls it “a tax on working people”, which is not surprising, because she calls everything a tax on working people, but she is joined by Sinn Fein, the architects of the original rent freeze, and Fianna Fáil, fearful of a third decade of opposition, in decrying the relaxation of the rent freeze as a shameful attack on working families. Paul Murphy rises from his spot on the backbenches to intone that rather than getting rid of the rent freeze, the Government should be abolishing rent altogether.

Back here, in 2019, the rent freeze proposed by Sinn Fein and backed by Fianna Fáil is growing in momentum. To be fair, it’s called an “emergency” rent freeze, which presupposes that at some point, the emergency will end, and everybody’s rent will start going up again – though what Government will be brave enough to take that decision remains to be seen:

“Mr Ó’Broin said “rents in the private rental sector have got completely out of control”. The rent freeze is “absolutely an emergency measure” that would have to be complemented by increased capital investment in housing.

A Government source said the Fine Gael-Independent coalition is not “ideologically opposed to any solution to help tenants while protecting supply” but said there is no evidence to show a rent freeze has worked.”

It is of course true that rent in Dublin has gone beyond affordable levels for a great many people, though it’s worth noting two things. First, a rent freeze does not actually reduce anyone’s rent. What you are doing is freezing rents at the current upper limit. There is no actual reduction, which is why the Sinn Fein bill also proposes a month’s rent back to renting families in the form of a tax credit.

Second, the problem with the rental sector is a demand and supply one. Put simply, there are too many people hunting for too few homes. The less demand there is for accommodation, the lower rents will be.

But the Sinn Fein solution tackles the supply and demand situation by negatively impacting supply, and increasing demand. On the one hand, it explicitly incentivises people to enter rental accommodation by giving them a tax break equivalent to a month’s rent. This is substantially greater than mortgage interest relief, for example. It also, over time, makes renting relatively cheaper compared to home ownership – because while rents are fixed, the price for buying your own home is not. So demand for rented accommodation should, naturally, increase as compared to current levels once this proposal is introduced.

On the other hand, it is at least likely that a rent freeze will negatively impact supply. Because there is no freeze in the price of homes themselves, the cost of acquiring a home which you intend to rent out will increase relative to the amount of rent you can expect to gain back from it. In other words, freezing rents means that over time, rental accommodation becomes more and more expensive to supply.

When you increase demand and reduce supply, you create a bottleneck in the market, but with no price mechanism to release it. So, you’ll have a situation where lots of people want rental accommodation but where it’s not really in anyone’s interest to provide it. This will in turn pile more pressure on the Government to step in and build more homes, but the same cost considerations that drive private landlords away from investment with a rent freeze would also impact the Government, driving the costs to the state even higher.

What happens in the end is that rather than releasing pressure, the rent freeze legislation builds more and more pressure in the market, and in the end, the crisis deepens.

In addition, of course, your existing stock of housing gets worse, as landlords, saddled with a declining income (in terms of inflation) from a rental property, stop investing in improving that property, because there’s no incentive to do so. “I could get €400 more a month if I put in a new kitchen” becomes “there’s no point putting in a new kitchen because the rent is frozen anyway”.

But of course, you’re getting ready to type, in the comments: You right wingers at Gript would say that, wouldn’t you? You hate working people and are on the side of the landlords.

Well, here are those well-known right-wingers at the Washington Post, noting that rent controls are the one thing that pretty much every economist agrees is a bad idea:

“Rent control is supposed to protect poor, deserving tenants from the depredations of greedy landlords. And it does, up to a point. Research on rent control shows that many of the beneficiaries are low-income, and that controlling their rents makes it more likely that they’ll stay in their apartments for a good long time.

The problem is that rent control doesn’t do anything about the reason that rents are rising, which is that there are more people who want to live in desirable areas than there are homes for them to live in. Housing follows the same basic laws of economics as other goods that consumers need: When the demand for a product consistently exceeds the supply, prices will rise until the quantity demanded is equal to the amount that suppliers have available.

As long as there’s no new construction, controlling that natural increase is just a game of musical chairs. You can change which people get to live in a city, but you still leave just as many people out in the cold. Actually, a few more, because rent control also reduces the incentive to supply rental housing.”

There is no other product for which the Government would seriously consider a price freeze. If Sinn Fein were proposing a freeze on the price of a litre of milk, every single person currently supporting their rent freeze policy would laugh at it as absurd.

If this nonsense passes, we’ll end up with a terrible law that’s almost politically impossible to repeal, along with fewer houses, less investment in existing housing stock, and hardly anybody extra getting decent accommodation than those who already do. But of course, we’re human, so “my rent won’t go up next year” will be enough to make this, like many other awful ideas, popular.

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