Introduced back in December 2016, rent controls were supposed to temper an overheating rental market. The controls mean that landlords of properties in so-called rent pressure zones – which includes all of Dublin and much of the rest of the country – cannot increase rents by more than 4 per cent a year.
But while their impact since then has been significant, it hasn’t always been for the benefit of tenants.
Indeed back in January, Minister for Housing Darragh O’Brien said that the issue with rent pressure zones was that “4 per cent nearly became a target for landlords”.
But since the advent of the pandemic a further issue has arisen.
Not only have rent controls failed to rein in rental growth, now they’re also stopping rents from falling.
Stubborn rents
With hundreds of thousands on wage subsidies, a switch to working from home, more short-term lets back on the long-term market, not to mention significant uncertainty as the economy starts to unwind from the pandemic, and there’s no doubt that the market has softened.
Official statistics do not show the scale, however. According to the latest index of rents from the Residential Tenancies Board (RTB), rents are still increasing, up by 1.4 per cent in the third quarter of 2020, with an average rent in Dublin of €1,758 a month, up by 1 per cent on the year. More recent figures from Daft.ie show a drop of 3.3 per cent in the capital, but there are several reasons why the real rate of decline may be even greater.
Rather than drop rents in line with market demand, landlords are trying to find other ways of offering discounts to tenants without touching the “formal” rental rate.
As reported earlier this month, US property investment company Greystaris offering up to six weeks free rent on its Dublin Landings development, where rents are about €3,800 for a two-bed. And it's not the only one.
Ires Reit, Ireland's largest private landlord, is also offering a similar discount, with one month's free rent on offer for one-bed apartments at City Square, in Dublin 2, and Tyrone Court, in Inchicore, Dublin 8. While such discounts do not apply across the investors' 3,739-strong portfolio – a spokesman says the aforementioned units represent "exceptional situations" – it is a notable move nonetheless.
Offering a period rent free cuts the overall rent on a unit – for example at Dublin Landings it brings monthly rent down to €3,325 – but doesn’t affect the headline rate.
Another option, for tenants who run into financial difficulties during the pandemic is to offer a deferred payment plan, rather than a rent reduction. This is the approach favoured by some of the larger institutional landlords, including Ires Reit.
It means that while rent may be reduced on a temporary basis, it must be repaid at some point in the future. One reader who was offered a deferred payment plan was told that if they couldn’t come up with the full payment when the deferred period was up, they would lose their deposit.
Company policy, they were told, was that rent reductions couldn’t be entertained.
Another option is to simply leave the unit vacant. A recent RTÉ report found that two of landlord Kennedy Wilson’s developments – Capital Dock on the docklands where rents start at about €2,970 and Clancy Quay in Dublin 8 – are only about half full, while another, from Goodbody Stockbrokers, found a vacancy level of about 30 per cent in newly built luxury developments.
For landlords with big pockets, it seems leaving a unit empty may end up the better financial move down the line.
Why not cut rents?
A simpler solution would be to cut the rent. But this is where the controls are again working against tenants.
If a landlord was to formally recognise a cut in rents, by notifying the RTB of the new rent, then they would be bound by the aforementioned rules, which limit their ability to raise them again. It’s understood, however, that informal reductions do not carry this same weight.
Take a two-bed apartment on the market for €2,200. If the landlord was to cut the rent to €2,000, and notify the RTB of such, after one year the rent could be increased again to €2,080 (+4 per cent); after two years to €2,163 (up a further 4 per cent); and after three years to €2,249 (up 4 per cent again). So that’s almost three years before the rent would be back on the level it was before. If they just offered a temporary reduction, however, next year they can increase the rent to €2,288.
And this is complicated further by the Government’s mooted proposals come next December. Time is running out on rent-pressure zones and the Government must come up with a replacement by year-end.
Mr O’Brien said the Government is looking at “broader market protections”, which include linking rents to the consumer price index (CPI). Given the outlook for inflation this could be good news for tenants and is supported by organisations such as Threshold, which supports tennant rights.
But it also means that landlords have an extra reason to protect high rents now.
Think about what rent on that aforementioned property would be if rents were linked to the CPI; European Commission forecasts put inflation at 0.7 per cent this year and 1.6 per cent in 2022. If a landlord could only increase rents in line with the CPI then a €200 reduction last year would mean that by 2023 rent could only have increased to €2,046.
This is still 8 per cent, or €1,848 a year, below where the rent originally stood.
So landlords are trying to hold tight to the headline rents, until (if and when) the economy recovers, even if they must incentivise new and existing tenants in other ways.
Next time
Of course how long they can manage to do this will depend on market forces, which in turn will likely depend on the ultimate fall-out from the pandemic.
Meanwhile, as it prepares its next protective rules for the rental market, Government needs to consider how such measures work not only when the market is going up but also when it is falling.
