One in five households rents privately. The rate is 40 per cent in Galway, 34 per cent in Dublin, and 29 per cent in Cork. The majority of rental households are headed by a non-national. And about one in three rental households receives rent support of some kind.
Between June 2015 and September 2015, rents rose by 3.2%, and since 2012, rents have increased by 25%. This is possible because of the existing 2004 legislation, which allows for rent increases every 12 months and allows for rent increases to reflect market trends. This affords landlords complete control over the price, and whereby none has an incentive to undercut another.
But what has been leading to these increasing rents?
· Low level of housing supply keeps potential buyers as renters for longer;
· Central Bank mortgage deposit rules keep potential buyers as renters for longer;
· Net inward migration of non-nationals increases demand for rental properties.
In spite of increasing rents and the rewards that go with it, Sherry FitzGerald recently released a report in which they estimated that in the year-to-date (September 2015) 33% of sellers were buy-to-let sellers and 18% of buyers were buy-to-let buyers. The point: landlords are leaving the market. Some of this can be explained by repossessions of buy-to-let properties taking some such properties out of the rental market. The general argument is that fewer landlords mean fewer rental properties. Some say landlords are being pushed out because of tax. This doesn’t wash when rewards are high.
And it is these high rewards that are hitting renters. The market is and isn’t a classic case of supply and demand. Yes, all the hallmarks are there, but the one clear difference is suppliers have all the power. To address this, you need some kind of regulation of the market.
As early as 2000 a government-established commission sought to make proposals that would please both tenants and landlords. And in May the National Economic and Social Council released a report stating that secure occupancy and supply-side subsidies are the preferred policy approach for solving rental market problems. The question turns on how you balance a landlord’s property rights with the social goal of facilitating a well-functioning rental market.
Last week the Residential Tenancies (Amendment) Act 2015 came into force. This is the Act that provided much-needed reform to the rental market. Measures include:
· Rent reviews will take place every 24 months, up from the current review period of 12 months;
· A deposit protection scheme will allow tenants to lodge deposits with the Private Residential Tenancies Board rather than the landlord;
· Landlords can be fined if they state that a tenancy must end for the purposes of sale but then do not sell;
· Rent arrears cases will be heard at the District Court rather the than Circuit Court (in addition to PTRB), thus reducing the cost for landlords;
· Housing Assistance Payment, given to low-income individuals and families, will be increased in high cost areas;
· Landlords who lease to tenants receiving rent support will be reward with a tax relief on mortgage interest.
All in all, these are big measures that provide security and certainty for both tenants and landlords.
The glaring omission is regulation of rent itself, separate to changing the review period from 12 months to 24 months. Rent increases will still mirror market trends, except that increases will take place half as often. The case against rent controls is that landlords will leave the market, current renters would be protected, and future tenants would be negatively affected.
My preference would have been for a form of rent regulation in which contract-formation would be left to the market and in-contract price changes would be regulated according to inflation. Under this scheme, landlords and tenants would agree to a rental price at the outset and until the lease is complete, rent increases during this period would be pegged to the Consumer Price Index. Once the lease expires, the landlord could, for example, negotiate a market-based rent with another tenant.
This balances things well: you afford landlords free market choice in the non-contractual setting and afford tenants regulated prices within the contractual setting.
The new regulations go some way to help alleviate the strain in the rental market, but I do not believe they are sufficient. At the same, they reflect a clash of ideologies between the two governing parties and hence reflect a compromise.