The rent trap — how we can tackle the current crisis

LAST week’s focus here on the rent crisis presented the stark facts of Ireland’s private rented sector. Over the last few years, the number of properties available to rent has fallen by 85pc — at a time when the number of people in rented accommodation has risen steadily. Meagre supply and strong demand have combined to drive up rents, particularly close to urban centres, which are natural job creators. Rents in some parts of Dublin have risen by more than 60pc in the last five years.

How can this be solved? The core solution is simple: Ireland needs more supply. But how? Certainly, a one-off contribution can come from Ireland’s vacant space. I say space, rather than just homes, as I suspect that Ireland’s cities and towns have a significant volume of free space in desirable locations.

If you walk down any main commercial street, have a look up above the ground floor. What goes on inside the first, second and often third floors? In many cases, these valuable locations are simply wasted as partially used storage rooms. And it seems our city and county councils know very little about what is actually vacant — merely which properties claim a rates rebate for vacancy.

That said, there is likely to be a significant boost to supply from the obvious candidates: empty homes. I live in Dublin 7 and across the road from me, three houses in a row went up for sale last year. The first was sold to investors, a married couple who are renovating the property and will rent out the half-a-dozen units to students in DIT. The second was sold to a married couple, who hope to raise their family. The last, however, was sold to an “investor” who has left it vacant (and crumbling) ever since.

In other countries, a significant annual property tax is used to encourage owners to use, rather than waste, their real estate. In Ireland, however, we got rid of our property taxation in a bout of classic 1970s auction politics. This has bred a culture that encourages sitting on property, rather than getting it used. The reintroduction of a property tax recently — albeit a small one by international standards — proved a significant political struggle.

The much bigger part of the solution to Ireland’s lack of supply, though, will come from building new homes. Particularly when it comes to rental property, the semantics of ‘homes’ not ‘houses’ is important. As research from the Housing Agency has highlighted, the bulk of new demand for housing in Ireland’s cities and towns will be from one- and two-person households.

So what Ireland needs is to figure out, once and for all, how to efficiently build something other than rural one-offs or three-bed semi-ds. Most of Ireland’s apartments did not result from having figured this out during the Celtic Tiger, rather they are the product of tax incentives. Once the incentives stopped, the construction of apartments stopped.

‘Apartment’ itself is a loaded word. What Ireland — and in particular Ireland’s rented sector — needs is much more of all forms of ‘non-house’ housing. This certainly includes standard 20-somethings’ apartments in five- and six-storey blocks. But it also includes student accommodation, where the estimated shortfall runs into tens of thousands of units.

It also includes options for downsizers. Some of this will be assisted living communities, where a range of services and amenities are offered to a specific class of resident, namely older persons. But much of the shortfall for Ireland’s older persons is in general housing, without any services.

Across all these forms of housing — both sales and rental — cost of construction are too high relative to people’s everyday incomes. This is the single most important job facing the Department of Housing. Why are costs so high? How much lower are they in other countries? And what can we learn from other countries to lower the costs here?

A lot of commentary focuses on issues such as security of tenure and rent freezes. And there are changes that can be made. One would be to force landlords to choose between amateur and professional, between the right to evict a tenant so a family member can move in and full mortgage interest relief. Another would be a special class of long-term lease, where rents are linked to CPI.

However, these changes would only affect those with a home to live in already. The problem of Ireland’s rental sector is one of success. Ireland’s population is growing – and as employment growth picks up, this will put greater pressure on the rental market. More demand needs more supply, so ultimately the only real solution is to get building.

‘Most apartments are the product of tax incentives – once they stopped, the construction stopped’