The Economic and Social Research Institute has said there is a “clear need” for reform of rent controls.
In its Quarterly Economic Commentary, the ESRI said the existing system causes frequent confusion regarding what increases landlords are permitted to implement.
It said rents are not allowed to rise “in real terms” when account is taken of inflation.
It said that the Government has adopted a “more severe form” of controls which research shows results in reductions in new construction, mobility, supply and maintenance of properties.
The ESRI examined three options for reforming rent controls: revising the existing caps which are currently set at 2%, allowing landlords freely reset rents when homes become vacant or introducing reference rents where landlords can adjust letting costs based on the size or location of a property.
It said reference rents would be more difficult to introduce in the short term.
The ESRI said the Government could consider allowing landlords increases which would be calculated by inflation plus a certain percentage but adds this could lead to letting costs falling behind market rates.
It cautioned that allowing landlords increase rents when properties become vacant could incentivise property owners to try to evict tenants.
In the commentary, the ERSI said “with all the available options, policymakers will face a trade-off between protecting current tenants’ affordability and the need to increase rental supply by retaining landlords, encouraging investment and new construction into the sector.”
The ESRI said the evidence shows the existing system “has been broadly effective in relation to their aim of limiting rent increases for properties in designated areas”.
On housing output, it forecasts 34,295 homes will be built this year and 37,413 next year, which would fall short of the Government’s targets of 41,000 in 2025 and 43,000 in 2026.
The ESRI said housebuilding needs to increase by at least 20,000 per annum.
It has highlighted a funding gap which is the “actual amount of credit required to fund the construction of the required number of housing units and the actual amount of credit in the financial system at a point in time.”
It said if the Government was to step up funding it would also require an additional €5 billion from the private sector.
It said the recent decline in completions was caused by a drop in investment by international funds which was driven by the cycle of higher interest rates in recent years and concerns over existing rent controls.
But it said other factors have been hampering increased construction including the viability of building projects, connections to utilities and planning issues.
In its Quarterly Economic Commentary, the ESRI forecasts that the domestic economy will grow by 3% this year and 2.8% next year but this is before the effects of US tariffs which it said will reduce growth to 2.8% and 2.1% respectively.
However it warned the effect of the trade war will be more significant in future years with effects on growth, employment, consumer prices, inflation and possibly interest rates.
“The overall impact of tariffs will be greater for the Irish economy if the US specifically targets pharmaceutical products.”
It said the immediate risk for the economy would be from lower corporation tax receipts paid by multinationals in Ireland and the impact on the public finances would be the biggest impact of the trade war.
The ESRI said some of the effects of lower investment now would not be felt for some years.
Article Source – ESRI says ‘clear need’ for reform of rent controls – RTE
