Housing experts claim Rent controls will not work

Two of the country’s top housing experts have said rent price controls will likely do little good, even as leading Coalition ministers continue to hotly disagree over limited measures to help cool the rental market.

Amid an apparent difference of opinion between Environment Minister Alan Kelly and Finance Minister Michael Noonan on the best way to tackle the housing crisis, widely anticipated measures were notably missing from last week’s pre-election budget.

As long ago as last February, Mr Kelly was hailed by the Labour Party Conference after saying he was readying a package of measures to cool an explosion in rental costs and rein in landlords from hiking up private rents. Such measures, he said, would not necessarily involve rent controls but could involve linking rents to the cost of inflation and other measures that provide private tenants with what is known as “rent certainty”.

Mr Kelly had signalled that any measures would be ready by the end of this year.

However, Annette Hughes at DKM Economic Consultants — who has co-authored major reports on housing for the Economic and Social Research Institute, as well as government housing agencies — said there is widespread evidence around the world that many forms of rent controls do not work.

Private landlords tend to anticipate the introduction of controls by “front-loading” price rises, she said, while the uncertainty about the Government’s intentions could damage investors considering providing more rental properties.

Finance Minister Michael Noonan
Finance Minister Michael Noonan

What was required was the implementation of measures long recommended over a year ago.

“We had a whole package of measures which we believed were necessary,” she said. “They were there for both landlords and tenants to form a strong rental sector.

“We came down very much against any form of rent regulations for all the adverse effects [found] in the literature.

“We still haven’t seen anything of substance” to tackle the housing shortage, she added.

Inflation figures show that private rents stand out as the few costs to have soared in recent years — even as most prices of goods and services have fallen. That leaves the Coalition open to opposition claims ahead of the election that it has lost control of the housing market.

Housing experts claim Rent controls will not work

Rents, which have climbed 10.3% in the past year, are almost 33% more expensive than at the depth of the banking crisis in late 2011 and are now higher than the boom-time levels of early 2008.

David Duffy, senior research officer at the ESRI, will tell an Eolas conference on housing today that rent costs are likely to continue to rise.

“Given the forecasts for the economy of continued growth and continued growth in employment and wages growth, in the short term anyway and in the absence of a significant supply coming on stream I would expect that you would continue to see growth in rents,” Mr Duffy told the Irish Examiner.

David Duffy, senior research officer at the ESRI
David Duffy, senior research officer at the ESRI

Mr Duffy, who has written extensively on residential property and house price changes, the affordability of home ownership, and the extent of negative equity in the Irish housing market, said that rent controls may not be totally effective.

He said rent controls do have the advantage of providing tenants with certainty. From a landlord point of view they could limit mobility in the rental market and reduce maintenance fees. However, there are other impacts which mean that it is hard to say that the overall impact would be positive or negative.

Meanwhile, Ms Hughes said that it was time for the rental market issues “to be dealt with once and for all”.

She said: “If you do not make a decision one way or another, you are going to have uncertainty and the risk with uncertainty is that you discourage people from entering the market and that has long term consequences for supply.”

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