This article was written in 2014 and may contain out of date information. Browse more recent articles.
We don’t need rent control here in Ireland. That’s what the Private Residential Tenancies Board said this week.
Interestingly enough, a couple of months ago they also said that rents in Dublin went up by 10.5% in the year between June 2013 and June 2014. That’s a pretty sizable increase. And by all accounts, rents are continuing to rise at an alarming rate.
In June the average monthly rent for a house in Dublin was €1,275. If rent continues to increase by 10.5% annually, then next year a tenant will be paying €1,409. The year after he’ll be paying €1,557. And in just seven years, the rent on that average house could more than double to €2,565. Very few incomes can keep up win rent increases of that size.
But we don’t need rent control Ireland?
The average worker in Ireland earns €35,784 per year. If he’s single, he’s taking home €28,450 of that.
If an average worker is paying the rent on an average house – then he’s currently paying out a staggering 54% of his take home pay to keep a roof over his head. If he’s renting an average one bedroom apartment at €957 per month, then he’s forking over more than 40% of his income.
The PRTB actually says that sustainable rent is 30% of net income. So by their own reckoning, average rent is already unsustainable in Dublin.
Rents nearly back to boom levels
In their report, the PRTB points out that rents are still below where they were at the end of the boom. But actually they are catching up fast. At the very peak, an average Dublin house was renting for €1,445. So as of June, there was only €170 in the difference between renting a house in 2007 and renting a house in 2014…
However, average incomes have fallen from their peak of €37,470 in 2008 to €35,784 now. But that’s only half the story. Incomes have fallen sure, but new taxes of all sorts have reduced disposable income substantially too. An average Joe was taking home €160 more per month in 2007 than he is now, and that’s only if he’s lucky enough to have maintained his salary (which he probably hasn’t).
Pointing out the €160 fall in net monthly income is my way of highlighting that rental affordability in 2014 is now almost exactly the same as it was in 2007 - and that’s if your salary hasn’t been cut. Oh, and rents are rising now too.
So what does rent control actually look like?
Well, I’ll speak from personal experience here. I lived for a number of years in a rent controlled city. Each year, that city’s rent board set the amount that landlords could increase rent by. The increase is tied to inflation. Over the last seven years in that city, rent increases have ranged from 0.1% to 2.2%.
Taking into account those seven increases, rents have increased by 10% for existing tenants over the last seven years. A property rented in 2008 for €1,275 would now cost around €1,400 if a tenant had remained in place during that period. If he moves out, the landlord can then set the rent at whatever he wants for a new tenant.
Ireland’s landlords are not encumbered by any such regulation. They can apply whatever rent increases they choose as long as they can show that comparable properties in the same area are currently fetching rents that are similar to the increases they are seeking. This means that someone who rented a house last year for €1,275 could easily have his rent increased to €1,400 or more this year. This single increase would be the same as seven years’ worth of increases in a rent controlled jurisdiction.
I’m not saying we should copy the model I’ve highlighted above, but we have a huge and growing rental sector in Ireland. In the years from 2006 to 2011, the number of households that were renting from private landlords more than doubled from 145,000 to 305,000.
And almost everyone needs to rent a home at some stage in their life. Many have no choice but to rent their homes. Shouldn’t there be some form of regulation that protects tenants from unaffordable rent increases?
Irish tenants are already paying more than 40% of their incomes in rent. The lack of stability in the rental sector means that tenants cannot plan adequately for the future. And how can they save for deposits to buy homes when they can have their rent increased by 10% or more? Never mind the Central Bank deciding to double deposit requirements to 20%.
So why is the PRTB saying that we don’t need rent control?
The Rent Stability in the Private Rented Sector report is detailed and measured and it recognises that there are serious issues in the rental sector that should be addressed. The report looks at rent control in other jurisdictions, the typical Irish landlord, affordability for tenants, the rise of professional landlords and Real Estate Investment Trusts.
It also offers six examples of the types of rent regulation that could be implemented in Ireland. Some of these offer four year tenancies which would give rent certainty to tenants for that period of time. Others involve linking rent increases to an index like the Consumer Price Index – basically working like the example I detailed above.
The report also says that if we had introduced index linked rent control in 2000, average rents in Dublin would actually be €194 per month more than they are now. Putting my tongue in my cheek here, I would suggest that if they had published the report next year, then rents would be the same!
Anyway, it seems that the main reason the PRTB says that “rent controls were not considered appropriate at this time” is that they reckon rent control will reduce the available stock of rental units. How come? Well most Irish landlords are non-professional. They have one or two properties and in a poll, 29% of them said that they wanted to sell their properties as soon as they could. The report reckons that introducing rent control could encourage these landlords to sell up faster because their potential income could be reduced by rent control.
Also, 27.5% of buy to let mortgages are in arrears, and a third of those are behind by two years or more. Basically, these 40,000 rental properties could be repossessed which could threaten supply as well.
So, I think what they are saying is that rent control could drive landlords to put 88,500 rental properties up for sale. And the banks might repossess a load of them as well and that’s why we shouldn’t introduce some sort of rent control.
In a round-about way, what they seem to be saying is that rent control should not be introduced in any form because landlords might pull out of being landlords and supply would reduce, thus affecting tenants.
I’m afraid I don’t really buy this. The rise of professional landlord trusts show that there is money to be made now in rental properties in Ireland. A few back-of-envelope calculations of rents vs purchase prices in major apartment schemes around Dublin will verify this pretty quickly too. So my feeling is that where one landlord sells up, it is most likely that another will take his place. Plus property prices are increasing so the buy-to-let landlord should also benefit from capital appreciation.
So when the poor beleaguered tenant's rent goes up by another 10% next year, we can point him to the 137 page Rent Stability in the Private Rented Sector report which explains in great detail why we don’t need rent control in Ireland.
A little bit of disclosure here. I rent my home. But I am also a small non-professional landlord and I think rent control is a good thing - if you hadn't guessed that by now.