Nine months after its release, the recommendations of the report of the Housing Commission are finding new prominence in the context of recent comments from the Taoiseach about the need to attract international capital. As members of that commission, we welcome the renewed attention on the substance of the recommendations to bring about a stable housing system.
While just one of 83 recommendations within the report, it is the recommendation relating to the regulation of market rents (recommendation number 33) that is currently getting the greatest share of public attention. This calls for the reform of the current system of rent pressure zones (RPZs) to be replaced with a new permanent system of reference rents.
Collectively, we opposed this recommendation in the commission report and feel it is important to highlight the reasons for this opposition, as well as lay out an alternative view that would be more appropriate to a goal of achieving an increase in housing supply.
It is important to point out that there were areas of unanimous agreement in relation to the rental sector. All commissioners agreed that certainty should be provided to tenants on the path of future rents that they would pay. We also agreed that there should be a programme of legislative and regulatory reforms to make the private rental sector more attractive to both renters and landlords.
This should include more effective enforcement mechanisms for disputes, protections against unfair terminations and increased transparency about rents being paid. And, while relating to the social rented sector, rather than the private rental sector, the commission agreed that cost-rental should be the main form of supply for social rental accommodation and should account for 20 per cent of Ireland’s housing stock.
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Our disagreements on the majority recommendation in this area are for empirical and practical reasons, rather than due to ideological differences of opinion.
A wide range of international evidence shows the unintended impacts that can arise from permanent rent control. These include lower supply of new rental housing, exits from the sector of existing rental housing, a deterioration in the quality of the private rental stock over time and a reduction in mobility.
These effects are all found in a study by Konstantin Kholodilin, Rent control effects through the lens of empirical research, published last year in the Journal of Housing Economics. This study assessed 206 papers on rent control covering the period from 1967 to 2023.
As that study finds, rent controls do limit rental growth, but only for sitting tenants. By limiting mobility and supply, overly strict rent controls result in higher rents being paid by those who are not sitting tenants who must compete for a limited stock of new properties. These “outsiders” can often be working adults who are forced to live at home with parents for longer than desired.
This insider/outsider phenomenon is clear from figures published regularly in the Daft.ie report – since 2016, rents for “stayers” have increased by 20 per cent while open-market rents paid by “movers” have doubled.
We struggle to see how a reference rent can be ascertained in a market that is overwhelmingly rent controlled. With no tenancies set at market rents, it is unclear what properties would inform the reference rents
In addition, we have a practical opposition to the majority recommendation, relating to how such a system would work in practice. Specifically, we struggle to see how a reference rent can be ascertained in a market that is overwhelmingly rent controlled. With no tenancies set at market rents, it is unclear what properties would inform the reference rents.
The commission was clear, and unanimous, in its view that the solution to Ireland’s housing problems lies in the increase in all forms of housing – social, rental and owner-occupier. Given the overwhelming evidence of the adverse impact of overly strict rent controls on housing supply, it is our opinion that the recommendation in relation to reference rents is inconsistent with the wider recommendations in the Housing Commission report.
There is recent evidence of the increase in new rental supply limiting rental growth in Dublin, relative to the rest of the country.
To limit the impacts of rent control measures on supply but ensure certainty for tenants, our view is that rental growth limits should be retained for existing tenants, but that – as is common in other rent controls systems – rents revert to market after the end of a tenancy. The Government should also review the tight limits on rent increases.
It would be foolish to think that a reform of the rent control system will resolve Ireland’s housing problems on its own. There is a plethora of other areas that needs to be reformed including land availability, planning, standards and interest rates, among other issues.
Ireland was not the only country to have seen a fall in the construction of private rented sector stock during the period of higher interest rates of recent years. But with RPZs tightening considerably in 2021, the fall in Ireland has been greater than elsewhere, showing the impact that poorly thought-out rent controls and policy uncertainty can have on supply.
With interest rates now falling, investor interest should return as long as the other regulatory conditions are in place to support it. A less strict and more stable form of rent controls is part of the suite of reforms required if the country is going to attract the €20 billion-plus in capital that will be needed to meet the country’s housing needs.
Our interest is in achieving a housing stock that meets the country’s requirement. In the case of reforming the rental sector, the evidence is clear that modified rent controls, in particular allowing resets when a home becomes vacant and with greater opportunity for maintenance and improvement to be recouped, represents the best path forward to balance the concerns of sitting tenants with the needs of new ones.
Ronan Lyons, Michael O’Flynn and Dermot O’Leary were members of the Housing Commission
