Rent costs soar ahead of Coalition market controls debate

Rents rose last month as the Coalition hotly debated the scale of market controls to cool rocketing private rents.

CSO figures published yesterday showed that, apart from car insurance, private landlord rents were the only item on the consumer price index that continued to climb steeply in the latest month and in the year.

Rent prices increased by a significant 0.5% in the month and are now 10.3% more expensive than October 2014, the figures show.

They are now around 30% more expensive than at the depth of the banking and economic bust, in late 2011, and are dearer than at any time since October 2008, the peak of the housing boom on the eve of the property collapse.

Detailed CSO figures also showed yesterday that rents started climbing in July 2012. October’s 0.5% increase comes after rents surged 1.2% in September, and brings rent inflation to 10% so far this year. Experts believe it is inevitable that with or without the new Government measures that the housing supply crisis will drive rents higher.

Surging rents have become such a hot election issue because so many people, from low-income households to young professionals, are trapped facing huge cost increases at a time when wages remain flat.

In contrast, mortgage costs, as measured by the CSO mortgage interest sub-index, fell again sharply in October, by 1.9%. They are now 9.3% lower than a year ago.

Mortgage lenders came under considerable pressure this year over the high costs of variable interest rates at a time when ECB rates were close to zero.

About half of all Irish mortgages are variable rate mortgages, which are not directly linked to the ECB reference rate.

The CSO’s overall price index fell 0.2% in the month and are now 0.2% below the price level in October 2014, as the cost of a long list of goods and services, including transport, clothing and footwear, furnishings, food and beverages all tumbled in the past year.

This week, Environment Minister Alan Kelly and Finance Minister Michael Noonan introduced a range of measures designed to cool the rental market.

Those measures included a two-year freeze on landlord rent reviews, as well as landlord mortgage reliefs to encourage landlords to rent to tenants on social security.

However, fears of even tighter controls linking rents to the overall consumer price index may have spurred landlords to raise rents earlier than they might have to beat any strict controls.

“Anecdotal evidence suggests an element of positioning as the rent controls debate intensified,” said Philip O’Sullivan, chief economist at Investec Ireland.

“And landlords probably put forward increases in case the Government brought in controls that would have tied rent to the CPI, which is very low in any case.”

Some landlords have front- loaded hikes in case “the more interventionist polices sought by the environment minister came to fruition,” said Mr O’Sullivan, adding: “But it is important to say that rents were rising for quite some time and there would have expected to rise strongly anyway because there is a shortage of houses.”

Any measures reducing the marginal cost of supplying housing should be beneficial, he said.

However, he added that there were many other constraints holding back housing construction, including banks’ reluctance to fund developments, even though demand for housing is demonstrably rising rapidly.

“I do not think that these measures will do anything for that,” Mr O’Sullivan said.

A presentation by DTZ Sherry FitzGerald at a housing conference this week showed that residential market activity, as measured by the percentage of all housing stock sold, remains at low levels.

At only 1% and 1.1% of all their second-hand private housing stock, Cork City and Dublin City had the fewest sales so far this year. Kerry, Roscommon, and Mayo, at 3.1%, have the most sales. Waterford recorded a 1.9% rate of sales.

The DTZ data showed investors, bank repossessions, and executor sales were among the largest groups selling residential property.

Mr O’Sullivan said the last budget was probably “a missed opportunity” to address the housing crisis, adding that measures announced this week, including building houses on special development zones in Dublin and Cork, although welcome, may well fall short of what is required because there are so few SDZ areas in the country in the first place.