The figures from the latest Daft.ie Rental Report earlier this week confirm the growing divide between the fortunes of the country’s sale and rental markets. In the sale market, new construction is starting to bear fruit. The additional supply, together with Central Bank rules that link sale prices to the real economy, is leading to a slowdown in inflation in the sale segment.
In the rental market, no such relief is being seen. Availability on the market is tighter now than at any point over the past decade. While availability is up slightly in Dublin compared to a year ago, both levels are well below anything like normality.
The evidence of the past decade suggests that Dublin needs at least 4,000 rental homes on the market for there to be enough choice among tenants that rents are pushed up. Currently in the capital, there are fewer than 1,500 homes to rent. This is a situation mirrored in other cities and indeed now countrywide.
In fact, that figure – 1,500 available when the city needs 4,000 – almost certainly understates the problem. The reason is that the rental sector now is so much more important than in the 2000s. In the 2016 Census, there were twice as many households in the private rental sector as in 2006 in Dublin – with even more growth in renting elsewhere in the country.
So, while 4,000 homes on the rental market may have been enough when Dublin was home to 60,000 renting households, that is unlikely to be enough when the city has 120,000 renting households.
The same holds true for the rest of the country – especially the four other major cities. Across Cork, Galway, Limerick and Galway cities combined, there were fewer than 250 rental properties on the market on November 1st. For urban areas with a combined population of almost half a million people, that is an astonishingly small number.
A shortage of rental homes did not emerge overnight. It was clear that this was an emerging issue as early as late 2009 in Dublin. Yet for a long time, policymakers did nothing as their primary focus when considering housing was on legacy problems of excess – such as ghost estates, negative equity and mortgage arrears – rather than on forward-looking problems of scarcity.
When a response came, it came not in the form of boosting rental supply, rather in the form of controlling rental prices. It may be tempting to think of Rent Pressure Zones as the rental segment’s equivalent of Central Bank rules on mortgages. However, the Central Bank rules are there to ensure that sale prices remain linked to fundamentals, rather than driven by credit or expectations.
In contrast, Rent Pressure Zone rules are an attempt to hide fundamentals. Remember, increasing prices are just a signal that there is more demand than supply. In a healthy market, that signal draws out new supply, driving prices back down.
But the nearly doubling of rents in Dublin has had almost no effect in drawing out new rental supply. The implication for policymakers should be obvious: tackle the underlying causes, not the symptoms.
Does that mean that Rent Pressure Zones should be scrapped? Many economies have perfectly healthy rental sectors and also have controls on rental inflation. Ireland could be one of those. However, rent inflation controls are, typically, the final element in those healthy housing systems, not the foundation.
In rental systems with an adequate supply of all the kinds of homes a diverse society needs, rent inflation controls act as a check on bargaining power within a lease. They are not a substitute for a prospective tenant’s lack of bargaining power in trying to find a lease.
I am ambivalent about whether Rent Pressure Zones should stay or go. Given inflation for new leases has been higher in the two years since they’ve come in than in the previous two years, it doesn’t seem like there’s much to keep.
But one key element could at least help rebalance the scales a little in a renter’s favour. That is the publication of a Rent Register, the counterpart to the Property Price Register. The PPR can never overturn the dynamic in the market – but it does give a prospective buyer peace of mind.
A Rent Register could do the same – with or without Rent Pressure Zones. No doubt there will be those who argue that this is violation of people’s privacy. That was argued before the PPR was published.
But ultimately, we live in a society where we share certain things for the greater good. While the rental sector waits for policymakers to fix rental supply, knowing what renters pay belongs in that category.