It’s no secret that the housing and rental markets in Dublin are in a shocking state. According to daft.ie’s Rental Report from Q3 of last year, there has been an average increase of 57% in Dublin city rents since the market bottomed out in late 2011. Overall, rents throughout the capital are 10% higher than their previous peak of early 2008. Clearly, this is an unsustainable situation.
There are a number of factors that drive up rental prices, and chief among them is supply. Since the crash, new build statistics have fallen off a cliff, leading to a steady decline in supply at a time when the market is expanding. Simply put, people are snapping up rental properties all the time, and there are fewer and fewer to take their place.
Added to this, government restrictions on traditional flats and studio apartments have affected the lower end of the market, and there is a complete absence of any regulation of the short-term letting market, of which the likes of Airbnb are taking full advantage. We’re already seeing the devastating effects of this supply problem, as the homelessness crisis takes hold across the city.
What is the government doing about this? The short answer is: its policies are making things far worse. Just before Christmas, it published a second amendment to the Residential Tenancies Act 2004, stipulating among other changes that rents could only be raised by a maximum of 4% after existing two-year rent-free periods had expired, allowing for a further 4% per annum for three years after that.
At first glance, that appears to be a good solution for tenants who are being hammered by huge rents.
The government has seen a problem and has moved to fix it. People won’t have to pay as much rent, so things will get better, right? Wrong. This is nothing but a short-sighted fix to a much larger issue, and will have seriously negative repercussions unless something is done.
This move is a significant problem for many landlords. The vast majority in Ireland own one property, and many have become landlords by accident over the past decade. Their family or financial circumstances changed, which meant they could not afford to sell their home and, in a large number of cases, are themselves renting another property. Adding to their financial burden will only make more landlords exit the market as property prices rise.
The simple fact is, these inevitable property sales will do nothing but drive demand up even higher as supply is further curtailed, leading to more misery for tenants (and people trying to get on the rental ladder in the first place).
By focusing on a short-term populist issue (rent prices) and ignoring the elephant in the room (supply), the government has succeeded in making a bad situation even worse.
What we need now are serious incentives for the construction industry, and well as for landlords – throughout the country but particularly in Dublin. For landlords, this could include better tax breaks for allowing long-term tenancies; the removal or amendment of the unearned income clause to the tax code; and a change in the tax code to allow for relief against capital costs. Of course, local government could also build far more properties to complement these measures.
Landlords are getting far too much stick from the government, and no carrot to speak of. This might play well in the polls for now, but it will tighten the market even more, leading to further mayhem. The government is at a crossroads here, and needs to act with a clear long-term vision if it wants to reverse the terrible situation in which the rental market has found itself.