Supply not rent controls will lead to reduced rents and more choice – It’s time to support a functioning private rental sector
Our Managing Director Peter Horgan shares his opinion on how we could create a functioning private rental sector (PRS) as part of the solution to increasing housing supply, which would in turn ease pressure for renters. He highlights why increasing supply and not rent controls will lead to reduced rents and more choice for renters.
As clearly indicated in the recent Daft report increased supply leads to lower rents. The report states that: ‘National decline in the rate of increase in rents has been driven by more multi-unit development supply coming onto the market in Dublin.’ The contrast between rental inflation in Dublin versus the rest of the country further highlights the benefits of increased supply of apartment schemes for the private rental sector. Rental growth in Dublin was 2.5% yoy in Q1 versus 7.2% on average for the country and 8% in Ireland’s second largest city Cork.
Construction of these PRS apartment schemes has been largely funded by foreign institutional capital, providing debt and equity financing to the sector. However, the removal of Co-living and Build To Rent (BTR) planning designations, further tightening of rent controls, higher interest rates and higher construction and operating costs have hit the viability of these schemes. Thus this flow of capital has stopped. The government has partly stepped in, acquiring apartment blocks for social and affordable housing through the Land Development Agency (LDA) and Approved Housing Bodies (AHBs). We welcome this move however if we are to build 50,000 houses a year and have a functioning housing market that provides for all tenures of occupation, we need a fully functioning private rental sector.
John Fitzgerald wrote in a recent article that ‘Ireland’s system of rent regulation stifles expansion of accommodation supply’. He says that ‘for a highly mobile young population, who are emigrating, returning or coming to Ireland for the first time, house purchase is not always a suitable short-term option. We need a healthy supply of homes to rent, as well as homes to buy.’
There is a steady flow of young people who want to move to Ireland to work and need rental accommodation. In our newest residency Rathmines House, the first office-to-resident conversion launched by Grayling Properties, 70% of our residents have just moved to Ireland. The building was renovated into a high-quality residential development with 110 self-contained studio apartments and best-in-class, high-spec, stylish communal spaces under Co-living planning designation.
Ireland’s industrial strategy and FDI policy is to attract multi-nationals bringing employees from all over the world and they need rental accommodation.
Current housing policy and restrictive regulation is preventing the flow of people who want to be more mobile, who choose to rent but do not have options. I note that there are diverse needs around housing and accommodation as a whole which Housing for All aims to address and this is vitally important.
Rent controls have failed to lower rents. At the same time, the sector has been disincentivised, seriously limiting the supply needed to meet future demand. Current rent pressure zone (RPZ) policy must be transformed to encourage supply.
Build to Rent (BTR)
Government policy needs to recognise the role of Build to Rent in delivering accommodation supply, diversifying the pipeline of accommodation. Increased supply of rentals in Dublin through institutionally built apartments has led to a fall in rental growth while in regional cities, where we have rent controls but no increase in supply, we continue to have unsustainable rental growth.
According to the Daft report, more than 125 purpose-built rental developments opened since 2016, adding about 10,000 new rental homes. On October 1st last, there were almost 1,500 homes available to rent in Dublin compared to just 800 on the same date a year previously. The reports states that, since then, the availability of rental homes in Dublin has fallen, rather than risen.
Increased supply since 2016 has been driven predominantly by BTR and Co-living planning designations. Rental inflation will rise again when the supply of new schemes falls. We are already starting to see the early warning signs of falling supply with the latest CSO figures showing Dublin apartment planning approvals falling by more than 50% in a year.
Due to growth in the PRS we are seeing improving affordability for tenants in the Dublin rental market. The Central Bank is forecasting wage growth at an average of 4.9% out to 2026, which is nearly double current rental inflation of 2.5%. This is a welcome development however the hard work of the last 10 years that has created this outcome is being undone by current regulations and policies.
BTR and Co-living must be reintroduced to stimulate the next wave of supply.
Transform current regulation
To help increase supply, government must reintroduce BTR and Co-living planning designations and at the very least rationalise and amend rent controls taking a more forward looking and longer term approach.
Pat Farrell, CEO, Irish Institutional Property (IIP) recently pointed out that ‘private investors have the long-term capacity and commitment to fund Irish residential and real estate markets at the scale required into the future.’
Accommodation supply cannot be increased without private investment alongside state support. Investment in Ireland’s PRS must be encouraged with a focus on making the sector attractive to the capital that’s needed.
The current system of rent controls is not working. A better option would be to attach the control to the tenancy not the property. Thus, when a tenant leaves, rent can be re-set to the market rent. Market comparisons could be based on BER ratings and amenities offered. This would incentivise landlords to invest in their properties resulting in a better rental product for tenants and improved energy efficiency.
It is starkly evident and well documented that the private rental sector is prevented from functioning as a vital part of the housing supply solution – supply is far from meeting demand. This is due to restrictive, short-term regulation and government policy which only serves to reduce supply and increase the cost of renting, as well as preventing people from living where they choose to.
Certainly, a level of regulation is needed to protect tenants but currently, regulation is interfering with supply of rental accommodation to meet demand.
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