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How a new report shows Rent Controls adding to the housing crisis

If you want two paragraphs to lay out the sheer scale of Ireland’s housing crisis in 2022, you couldn’t do much better than these two from TCD Academic, and economics supremo, Ronan Lyons, author of the new DAFT report:

In Dublin, for example, there were almost 1,750 homes available to rent on 1 January 2020, up nearly 30% from the 1,350 available two years earlier. Outside Dublin, the number available had also increased ‐ from 1,900 to 2,200. This meant that, on the cusp of covid19 in early 2020, there were roughly 4,000 homes on the market at any one point in time.

Availability of new rental homes has collapsed since then. On May 1st this year, there were just 851 homes available to rent nationwide ‐ down 77% year-on-year and a frankly unprecedented number in a series extending back to the start of 2006. The average number of homes available to rent nationwide at any point in time over the fifteen-year period 2006-2021 was nearly 9,200 ‐ over ten times the supply available currently.

There is not only a price crisis, in other words, but a “frankly unprecedented” supply crisis. With thousands of people competing for only 850 properties, landlords can basically set their own rents. And of course, that is fueling even more resentment of landlords, who are perceived as profiting from the misery of those seeking homes in this economy. Consequently, you won’t find a political party in the state with anything good to say about landlords, and more, you’ll find widespread political support for measures targeting landlords: Rent controls. Rent caps. Rent freezes. Ireland has rent controls already – and the problem is, they’re not working.

It might be counter intuitive, but these figures clearly show that the problem in the housing market is not demand, but supply. Some people will doubtless argue that immigration is to blame, or Ukrainian refugees are to blame, and so on and so forth – and, to be sure, additional demand into an already overheated market certainly is not going to help. But the real problem is simply that there are not enough homes coming onto the market either in the rental sector, or in the ownership market.

But for a moment, let’s talk about Rent Controls, and the disaster they’ve unleashed. This section of the report spells it out:

However, the introduction of Rent Pressure Zones, linked as they are with increasingly scarce supply, has driven a wedge between what might be termed ‘mover’ rents and ‘stayer’ rents.

Over the past five years, has surveyed sitting tenants and, by asking them their path of rents from the start of their lease, has built up a picture of ‘stayer’ rents to complement the more standard measure of market or ‘mover’ rents. Focusing on stayers, rather than movers, gives a very different picture not of the direction of rents but of the speed at which they have risen in recent years.

While market rents have risen by 38% since the start of 2017 ‐ and more than doubled in a decade ‐ rents for those who have stayed put are, on average, just 10% higher now than in early 2017 and about 40% higher than a decade ago.

If you have been renting since before rent controls were enacted, then your rents have risen slowly, by the legally mandated maximum amount. That is because once you begin a tenancy, your landlord is forced to increase the rent slowly. That provides a powerful incentive for people not to move: Because once you begin a new tenancy, the landlord can start your rent at the market rate. Rents for new tenancies, then, are increasing more than twice as fast as for older ones. This is a direct result of Government policy.

This is reducing the number of properties coming on the market. It is doing so in two ways: First, by slowing down the normal “churn” you would have in the rental market as people become terrified to give up what they have, and second, by disincentivising landlords. Once somebody comes into your rental property, they’re not going to leave, and your rental income may not keep up with inflation. When you add that to the whole raft of anti-landlord legislation in Ireland in recent years – longer notice periods, and so on – fewer and fewer people are willing to take the risk. The result is the same as it has been everywhere else in human history that rent controls have been tried: Fewer properties to rent.

After all, if you had an apartment or house in central Dublin, why would you risk a long-term rent when you can make more money through airBnB, or some other short term arrangement?

The other issue causing the crisis is better understood: The lack of new builds.

On both counts, voters have to take their share of the blame. Populism on housing – both in terms of demanding anti-landlord legislation and in terms of persistent objections to new developments – is having a real and measurable impact. It is hardly surprising, after all, that anti-landlord legislation results in fewer landlords.

In addition, politicians are insistent on always “rising standards” for new builds which, not surprisingly, also increases costs. And at the same time, the Government insists on competing across the board with the private sector: Builders needed for new homes are instead being pulled into retrofitting schemes, and the state is persistently outbidding private buyers and builders.

Taken in the round, housing policy in Ireland resembles little so much as it resembles Father Ted’s car: A little tap of the hammer to even out a dent here, another one there, and soon, you end up with a mess. This problem won’t be fixed until at some stage, somebody has the guts to start unwinding all of the mistakes made over the last decade, in the name of populism.

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