THE Central Bank’s proposed mortgage lending regulations — through the introduction of a 20% deposit requirement for borrowers — have drawn criticism from the Government, property market interests, and the ESRI, for its likelihood to restrict the ability of people to get mortgages to buy housing.
The ESRI state that “Irish house prices still appear to be undervalued” and that “most commentators have identified a lack of housing supply as the main policy concern in the Irish housing market at present”.
Instead, they want to give a different “signal to the market”, ie tell property developers that financial institutions will be allowed give lots of people lots of credit to buy homes, and thus they should start building again.
Prices will stabilise, their theory says, and we will have another generation of happy homeowners living the property dream.
Of course the reality will be developers and sellers pushing up prices in the knowledge that borrowers will be able to get mortgages at multiples of their incomes and deposits.
Doesn’t this seem eerily familiar?
Wasn’t the expansion of unsustainable borrowing for home ownership one of the fundamental causes of the crash?
Have we learned nothing from the fact that 130,000 households are still in mortgage arrears?
If the concern of policymakers and economists is to provide young families and low to middle income earners with high quality, affordable, secure housing in sustainable communities, then clearly this is not the way to do it.
There is a need to explore alternative ways of addressing this need rather than creating another housing bubble and unsustainable levels of indebtedness, poverty, and stress.
One obvious area that offers great potential is the private rented sector.
Many people looking to buy a home are doing so, not because of some insatiable desire to own property, but simply because of the failure of the private rented sector to meet their needs.
The private rented sector now accounts for a fifth of all households.
In urban centres it is even more significant with almost 40% of people renting in Galway, 35% in Dublin, and 29% in Cork.
However, the recent annual report of the national housing charity, Threshold, detailed chronic failings “that need to be addressed before anyone living in a rented dwelling can really consider it their long-term home”.
Threshold has found that “loopholes in the law are enabling landlords to remove tenants from their homes and then re-advertise the same properties at substantially higher rents” and they are “increasingly witnessing such economic evictions, where families are forced to leave their homes because of exorbitant rent hikes”.
In the absence of any regulation, rents have increased dramatically, in some cases up to 40% in the last four years.
The introduction of rent control is imperative to change this and provide a functioning housing system that can meet people’s needs.
The youth campaign We’re Not Leaving recently produced a report that pointed out Germany only allows increases in rents for sitting tenants of up to a maximum of 20% over three years, with some cities permitting no more than 15%.
The Netherlands has rent control between and within tenancies where the initial rent for a unit is regulated and there is a maximum rent for each dwelling based on a points system awarded according to size, quality, area etc.
This shows that the argument that rent control reduces supply is not true. These countries have a much larger provision of rental properties than Ireland.
The issue of supply could also be addressed by the use of the 43,707 vacant properties in Dublin (including 16,321 apartments), 6,168 vacant units in Cork City, and 3,755 in Galway City.
Refurbishing and rebuilding derelict units or converting the thousands of empty retail and office buildings into suitable accommodation could also help supply.
Nama’s €3bn development fund should focus on funding local construction workers to undertake that work and provide low-cost rental accommodation rather than funding the large developers and real-estate investors.
Another issue raised by landlords and property economists is that rent control would contravene their private property rights enshrined in the Constitution. It is true that Article 43.2 protects “the right of private ownership”.
However, Article 43.2.1 states that this right “ought to be regulated by the principles of social justice” and the State may, “delimit by law” these rights for “the common good”.
Essentially, the Constitution protects the right to private property but states that these rights can be superseded by laws and measures (such as rent control) that are in the interests of social justice and the “common good”.
An expert on housing and property law, Padraic Kenna of NUI Galway, has detailed how there is no property rights impediment to rent regulation at an Irish and European level.
He has pointed out that the European Court of Human Rights has established that rent controls are accepted as a means of state control on the use of property in the general interest.
For example, in 2013, the ECHR held in a Dutch case that laws on rent control which imposed caps on rent increases of 2.5%, 1.2%, as well as rent reductions, did not impair landlord’s property rights.
So there is nothing stopping the Government from passing regulation to restrict the rate of rent inflation in any one tax year to, for example, 5%, and then recouping a higher rate of tax on rental incomes where a landlord has breached this cap.
We need a national debate about who really benefits from the current housing and property market based around homeownership, and spiralling house prices and rents.
The big beneficiaries remain the banks, developers, estate agents, solicitors, landlords, and increasingly, international capital and vulture fund investors who are buying up huge swathes of Irish residential property (often from and with Nama).
They all have a vested interest in a rising property market.
It is unsurprising, therefore, that property commentators, who are generally in some way connected with one of the above interests, argue against rent control.
The truth is, rent regulation along with significantly increased security of tenure for tenants, and improved standards, would help to make the private rented sector a realistic long-term housing option.
It would also immediately help address the homelessness crisis.