RPZs tackle the symp­toms, not the cause

Sunday Independent (Ireland) - Property - - SUNDAY PROPERTY - Ro­nan Lyons is as­sis­tant pro­fes­sor of eco­nomics at Trin­ity Col­lege and au­thor of the Daft.ie Re­ports

‘Rent Pres­sure Zones are the equiv­a­lent of a health min­is­ter ban­ning high body tem­per­a­tures’

EAR­LIER this week, the lat­est Daft.ie Rental Re­port con­firmed that the streak of ris­ing rents con­tin­ues. In Dublin, rents have now risen for 23 con­sec­u­tive quar­ters – nearly six years – and have risen a to­tal of 66pc since 2011. Out­side Dublin, the in­crease has been some­what smaller (40pc) and shorter (17 quar­ters), but the trend is now com­mon across the whole coun­try.

It is im­por­tant to put those trends in con­text. Ad­just­ing for gen­eral in­fla­tion, the long­est streak of ris­ing rents that I can find in the post-World War II era in Ire­land is at the start of the Celtic Tiger. Rents in Dublin rose by more than 100pc in real terms in the seven years be­tween 1995 and 2002. It is now look­ing likely that, in length if not in the size of the in­crease, that record will be bro­ken in the very near fu­ture.

Ul­ti­mately, rents are ris­ing be­cause of the chronic mis­match be­tween strong de­mand and weak sup­ply. The coun­try needs at least 15,000 and prob­a­bly closer to 20,000 new rental homes built each year. But cur­rently al­most no new rental homes are be­ing built.

The ma­jor­ity of new ‘com­ple­tions’ each year are ei­ther one-off homes (which never come on the mar­ket, for sale or rental) or prop­er­ties built dur­ing the bub­ble be­ing in­hab­ited for the first time now. And the bulk of the re­main­ing new homes – per­haps no more than 3,000 in 2016 – are houses built in es­tates for sale, not apart­ments and not for rent.

In this kind of mar­ket, a sys­tem like Rent Pres­sure Zones could never work. Put your­self in the shoes of a land­lord in the cur­rent mar­ket. You put up a home for rent in a Rent Pres­sure Zone, for €1,000 per month. You are inun­dated with en­quiries and ar­range for an open view­ing. Thirty in­ter­ested par­ties turn up.

The first prospec­tive ten­ant says they are in­ter­ested in the prop­erty. Fully aware of their rights, they ask for proof that the €1,000-a-month rent is no more than 4pc above the rent charged to the pre­vi­ous ten­ant a year ago. The land­lord, new to this Rent Pres­sure Zone thing, says “OK, well, let me get through this and I’ll get back to you on that.”

Next in the queue says, “Look, I don’t re­ally care who was here a year ago or what they paid. I need some­where to live and I can pay €1,000. I’ll pay €1,050 if needs be.” Who is the land­lord go­ing to go with, even with the best of in­ten­tions?

Rent Pres­sure Zones were in­tro­duced be­cause rents were ris­ing due to a scarcity of sup­ply. But they can never work for pre­cisely the same rea­son: where ten­ants have no bar­gain­ing power, they are not go­ing to po­lice rent in­creases.

This is cer­tainly true for new ten­ants. What is less clear is what has hap­pened to rents for sit­ting ten­ants. The head­line in­dices of rents – both in the Daft.ie Re­port and in the RTB’s re­ports – mea­sure rents for new leases. Un­til now, nei­ther has been able to say any­thing about how of­ten and how much rents are in­creased within a lease.

For this week’s Daft.ie Re­port, we or­gan­ised a sur­vey of more than 4,000 ten­ants, ask­ing them the path of rents they have paid in re­cent years. The find­ings are note­wor­thy: ‘sit­ting rents’ have in­creased by an av­er­age of 27pc in the last five years, com­pared to over 50pc for ‘mar­ket rents’.

This is even more dam­ag­ing for the Rent Pres­sure Zones. Not only are they most un­likely to work, it seems that their prime ben­e­fi­cia­ries – sit­ting ten­ants, who know ex­actly what the rent was a year ago – are the renters least in need of pro­tec­tion.

In­deed, if the rents of sit­ting ten­ants were mea­sured ac­cu­rately, it may be the case that nowhere in the coun­try is a Rent Pres­sure Zone cur­rently.

Ul­ti­mately, the whole sys­tem of Rent Pres­sure Zones was based on a poor un­der­stand­ing of the hous­ing sys­tem. It was the equiv­a­lent of a Min­is­ter for Health ban­ning high hu­man body tem­per­a­tures, be­cause of the dan­ger they pose to our health.

The level of rents is ef­fec­tively the tem­per­a­ture of the mar­ket. If you don’t like the symp­toms, you can’t sim­ply ban them. You have to tackle the un­der­ly­ing dis­ease. The dis­ease here is a lack of rental homes, in par­tic­u­lar apart­ments, due to high con­struc­tion costs. That is what pol­icy should fo­cus on.

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