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The 13.7% cost of rent controls

If you believe those who advocate for them, rent controls are supposed to hold down rental prices. That was the plan, after all, when they were introduced: To stop people being crushed by massive increased in their rent, Government would simply ban landlords from putting the rent up.

The thing about this is that it would be silly to pretend that this policy has had no beneficiaries: If you were renting when rent controls came in, and if, by some miracle your landlord has not decided to sell up, or renovate, or use one of the other legal reasons for ending your tenancy, then congratulations: You are a beneficiary of the policy.

Everyone else, though? Those people looking for a new place to rent, or those whose landlords have decided that it is a good time to sell, or a good time to renovate the property?

Oh well:

Rents being sought on the open market in the final three months of 2022 were 13.7% higher than the same period in the prior year, the latest rental report from the property website shows.

At €1,733 per month, the average rent at the end of last year was 126% higher than the low point of €765 in late 2011.

The increase over the third quarter of last year was of the order of 2.7%.

Rental inflation is being driven primarily by a lack of supply of rental properties.

Why the dramatic increase? Well, RTE, there, suggests a lack of rental properties. This is undoubtedly a major factor. Another factor is immigration: More people chasing the same number of houses meaningfully shifts the supply and demand equation in favour of demand, and, when that happens, prices go up. It’s the basic economic fact that it is taboo to mention.

But the other fact is that rent controls impact landlord decision making. Put it this way: If you know you are not allowed to increase the price of your product for five years, say, then the sensible thing to do is to set the price – if the market will bear it – at a value you’d be content to be receiving in five years time.

Rent controls, after all, apply only to existing rentals. For a new rental, you can charge what you want.

In recent years, Government policies have overtly encouraged landlords to set high rents for any number of reasons:

First, as explained, you can’t increase them, really, once the tenants are in place. It makes sense then to set them high.

Second, measures like the eviction ban make renting risky: In recent weeks, the Irish Courts heard about a journalist from The Ditch website who had not paid rent in full in years, and owed his Landlord tens of thousands of euros. When landlords have to go to courts to get people like that out of their homes, then they have to price their rent for that risk.

There’s a further element to this, too: When you are lumbered with restrictions, you are also more cautious about who you rent to. You demand more references. You are more wary about first time tenants. You may stay away from those with unstable incomes, and offering rent allowance as part payment. All of this is human, and results in losers, and is an inevitable consequence of Government policy. Policy, by the way, largely driven by the left opposition.

Third, you may simply decide that none of this is worth your while and decide to take your winnings on the investment property gamble, and sell up: It is a good time to sell, because prices are high. A shrewd landlord might simply bank the cash, and wait for the property market to crash again, as it likely will at some stage in the near or distant future, according to the law of averages.

All of this results in more people chasing fewer properties at a higher price.

It is not all the fault of this Government, but it is a major factor in the rental crisis. The problem is that our politicians would much rather people suffer, it seems, than for even one of them to be brave enough to stand up and admit that the Government’s rent control policies have been a disaster.

They’re too afraid of being called pro-landlord. What we have here, my friends, is a virtue-signalling cycle of economic pain for tenants. Until voters wake up to it, we’re stuck. You can’t build your way out of this mess.

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