Effect of rent controls? Higher rents and reduced supply

Sarenco

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As widely predicted on here, Minister Coveney's rent control measures have failed to halt galloping rental inflation and have co-incided with a further reduction in the supply of rental properties to the market.

The only tangible result of the Minister's measures is to benefit one cohort of tenants (incumbents) over another (new tenants).

Will Minister Coveney acknowledge that his policies are making things worse, not better, in the rental market?

https://www.rte.ie/news/business/2017/0508/873528-daft-rental-report/
 

Brendan Burgess

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Commenting on the introduction of Rent Pressure Zones, which were designed to reduce rent rises in areas where particularly high increases have been seen, Mr Lyons said: "Regulatory measures designed to limit rent increases could only ever have a very limited effectiveness in a market with such a scarcity of supply.

"Indeed, there is evidence to suggest that rent increases for sitting tenants have been only half the size of increases faced by new tenants. The more appropriate solution remains to increase supply.
Of course, an existing tenant may have to leave their property and would then become a new tenant and face the higher rents in new lettings.

A terrible piece of legislation.

Brendan
 

Superstitious

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As an accidental landlord/house hunter the way government is dealing with the housing crisis is really frustrating and frankly upsetting. I'm not even sure who Simon really thinks he was helping.
I rent my two bed apartment to a lovely couple at about 20% below market rate at 1000 a month. I value people over profit.
I rent a two bed house myself and my landlord just got in before the act and upped our rent by 10% to 1575.
As we were looking for a house ourselves to buy and that we would probably not find anything in area. (Kids settled in creche)we stayed put.
Buying a house we thought would be a simple thing on the north side for a budget of just under 400k. But we have spent the last 4 month looking for something. Queuing at times with 50 people to have a look at a house that has a asking price of 325 and after the bidding process exceed asking price by 20 to 30 % so priced out of our reach as we would have to do work and we have to keep saving for deposit as we are second time buyers.
I have to go to my accountant today it looks like my tax bill for rental will be 3500. As soon as my apartment comes out negative equity probably next year I'm selling up. So another couple at the mercy of rental market. And it goes on and on.
 

Mrs Vimes

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Of course, an existing tenant may have to leave their property and would then become a new tenant and face the higher rents in new lettings.

A terrible piece of legislation.

Brendan
But a landlord isn't allowed to increase the rent for a new tenant by more than an existing one? I know there is a formula for how many months it has been since the last rent review but still pretty much the 4% per annum.

I think the most unfair aspect of the law ias that a landlord who has refrained from putting up the rent for a reliable, longstanding tenant is now stuck with the same rent for a new, unknown quantity.
 

odyssey06

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But a landlord isn't allowed to increase the rent for a new tenant by more than an existing one? I know there is a formula for how many months it has been since the last rent review but still pretty much the 4% per annum.
That's what the law says, but in practice it seems that the changeover of tenants affords a landlord an opportunity to go above the 4% without it being spotted?
 

Sarenco

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This story in today's Irish Times perfectly demonstrates the distortions caused by the rent control measures -

http://www.irishtimes.com/business/economy/ires-reit-may-set-record-for-rent-for-two-bed-in-sandyford-1.3075622

"Apartments at Ires Reit’s latest development in Sandyford, south Dublin, are set to rent from €2,570 for a two-bed apartment when the scheme launches on July 4th, setting a possible new record for the area.

The Maple, at Beacon South Quarter, is a newly-built development of 68 apartments – four one-bed, 55 two-bed and nine three-bed apartments. It was constructed by the property fund, Ireland’s biggest private landlord, specifically for the rental market, and Ires Reit promises “well-appointed, spacious apartments” with private garden areas, at the location.

Tenants will pay a premium to live there, however, with one-beds due to hit the market at €1,925, two-beds from €2,570 and three-beds from €2,750.

The rates are far in excess of what might be expected in other schemes in the area, and may be an effort by the property investment trust to overcome challenges posed by rental restrictions, by setting rents high to begin with."
 

Páid

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That's what the law says, but in practice it seems that the changeover of tenants affords a landlord an opportunity to go above the 4% without it being spotted?
It is up to the new tenant to "police" this. A new tenant is entitled to;
Additional Requirement for New Tenancies in Rent Pressure Zone
In the case of a new tenancy in a rent pressure zone, a landlord is required to furnish the tenant, in writing, with the following information at the commencement of the tenancy:

(i) The amount of rent that was last set under a tenancy for the dwelling;
(ii) The date the rent was last set under a tenancy for the dwelling;
(iii) A statement as to how the rent set under the tenancy of the dwelling has been calculated having regard to the rent pressure zone formula.
If they have suspicions that the landlord has increased the rent above 4% I presume they may contact the RTB with the document / copy of their lease and the RTB can verify the previous rent if the tenancy was registered.
 

Firefly

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This story in today's Irish Times perfectly demonstrates the distortions caused by the rent control measures -

http://www.irishtimes.com/business/economy/ires-reit-may-set-record-for-rent-for-two-bed-in-sandyford-1.3075622

"Apartments at Ires Reit’s latest development in Sandyford, south Dublin, are set to rent from €2,570 for a two-bed apartment when the scheme launches on July 4th, setting a possible new record for the area.

The Maple, at Beacon South Quarter, is a newly-built development of 68 apartments – four one-bed, 55 two-bed and nine three-bed apartments. It was constructed by the property fund, Ireland’s biggest private landlord, specifically for the rental market, and Ires Reit promises “well-appointed, spacious apartments” with private garden areas, at the location.

Tenants will pay a premium to live there, however, with one-beds due to hit the market at €1,925, two-beds from €2,570 and three-beds from €2,750.

The rates are far in excess of what might be expected in other schemes in the area, and may be an effort by the property investment trust to overcome challenges posed by rental restrictions, by setting rents high to begin with."
I scanned that and saw 1,925 for a one-bed and thought it must have been somewhere like Adelaide Rd or Fitzwilliam Sq, but Sandyford???? I genuinely feel sorry for anyone renting and/or trying to buy in Dublin and can't for the life of me understand why more skilled people aren't emigrating!
 

Thirsty

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I presume they may contact the RTB with the document / copy of their lease and the RTB can verify the previous rent if the tenancy was registered
if the property has been renovated or off the market for a stated time (can't recall exact figure now) then the rental clock starts again at market rates.
 

odyssey06

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It is up to the new tenant to "police" this...
If they have suspicions that the landlord has increased the rent above 4% I presume they may contact the RTB with the document / copy of their lease and the RTB can verify the previous rent if the tenancy was registered.
That's the theory... it's not exactly robust aggressive enforcement. The onus is the new tenant, who doesn't know for sure if the rent is right or not, or if there have been recent renovations, who may not want to rock the boat with new landlord... I can't see there being too many reports by new tenants unless they had some previous knowledge of where they are renting now.
 

Sarenco

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I scanned that and saw 1,925 for a one-bed and thought it must have been somewhere like Adelaide Rd or Fitzwilliam Sq, but Sandyford???? I genuinely feel sorry for anyone renting and/or trying to buy in Dublin and can't for the life of me understand why more skilled people aren't emigrating!
Absolutely.

We now have the perverse situation where somebody renting an apartment in an industrial estate in an outer Dublin suburb will be required to pay a material premium over the rent paid by a tenant in similar accommodation in one of Dublin's most desirable neighbourhoods simply because of the start date of their tenancy. Randomly discriminating between tenants (and landlords) in this manner is clearly unfair but more importantly it's bad for our economy and we all suffer as a result.

The IDA must be pulling their hair out when they read these stories.

Professor Ronan Lyons nailed the problem in the latest Daft Rental Report:-

"Indeed, the survey undertaken for this Daft.ie Rental Report suggests that for many - although by no means all - sitting tenants, there has been no dramatic increase in rents. This may mean that the Rent Pressure Zone system makes things worse, rather than better, by amplifying the insider-outside nature of the rented sector.

Sitting tenants now enjoy not only a discount relative to the market rent, but also protection of that lower rent into the future. Meanwhile, movers in the private rented sector face not only far higher rents but almost no availability in the market. In such a market, it would be a brave prospective tenant who would ask the landlord to see proof that the rent they would pay is only 4% higher than a year previously!

The message from the rental market to policymakers is the same as it has been for over five years now: more supply is needed. Until policymakers understand why it costs so much to build a two-bedroom apartment here, compared to anywhere else in Europe, that's unlikely to happen."


https://www.daft.ie/report

The shocking thing from my perspective is that I have yet to hear a single politician call out the RPZ system for what it is – a really, really bad policy.
 

Firefly

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Re: RPZ, I think the intentions were good, but the effects of the policy were not looked into enough. It was political pure and simple, just like the bedsits.
 

odyssey06

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Re: RPZ, I think the intentions were good, but the effects of the policy were not looked into enough. It was political pure and simple, just like the bedsits.
If this was the 19th century and we had amateur gentlemen as unpaid politicians, without copious real world examples of the effect of price controls on supply and demand, I would be more forgiving of good intentions.

They are simply not good enough as the motivator for policies in a 21st century state with professional, fulltime politicians.
At certain times playing politics is forgivable, but not here.
This is people's day to day lives they're messing about with.
 

Sarenco

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Well, the Minister can't say he wasn't warned…

http://www.independent.ie/business/personal-finance/property-mortgages/minister-was-told-to-avoid-new-rent-caps-35387508.html

"In letters to Housing Minister Simon Coveney, two of the country's biggest residential landlords warned him off introducing rent caps, saying more consideration needed to be given to increasing availability in the private rental sector.

IRES Reit and Kennedy Wilson said rent controls, introduced by the minister last month, which are due to be expanded, will not work.

They urged Mr Coveney to focus on lowering construction costs and encouraging the development of new apartment rental schemes.

Both companies were critical of proposals to introduce rent controls, citing international examples of why they did not work."
 

Delboy

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RBB in the Dail today

He says that at least 15 of the 52 Balally apartments in the property have been vacant since it was put into the bad-bank.
“In May of last year, Dun Laoighaire/Rathdown County Council asked could they purchase 15 of the vacant units. They were told they could only buy the whole block,” he continued.
Nama has since sold the block as part of Project Gem to vulture fund Cerebrus, Boyd-Barrett claimed.
“Since that deal went through, Cerberus has started to move to evict the tenants… Five of the 21 that I have met are to be evicted in June.
Others have been told that they will have to pay another €250 a month in heating and hot water charges, previously included in rent. A back-door rent increase of 20%.
Less small time landlords and more of the bigger institutional investors like they have around the world is what we need in Ireland...thats been the mantra of the past few years.
Well the big boys are here and they have gone native
 

Sarenco

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Good article from Fiona Reddan in the Irish Times-

http://www.irishtimes.com/business/personal-finance/six-reasons-for-the-rental-crisis-and-why-free-beer-may-be-the-answer-1.3076718

“Curiouser and curiouser” cried Alice when she slipped into Wonderland. But there’s nothing curious about the crisis facing the capital’s rental market. A dearth of supply, the proliferation of Airbnb, professional landlords setting new market rates, rental restrictions which conspire to create an unequal playing field between sitting tenants and those new to the market, and the first one again, lack of supply, means that rents are roaring ahead.

Indeed such is the scale of the crisis that a drop in rents across the Irish Sea on the back of Brexit last month, means that the average rent in south county Dublin is now higher than the average rent in London, while it’s still cheaper to rent in most parts of Dublin than it is to buy.
 

SqueezedMiddle

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I just read on the journal about an apartment complex in dundrum where the residents were just give an extra charge on top of their existing rent for services.

Does this mean now that the rent quarter in the daft rent report are wrong.
Because obviously the rent is now the rent added to the extra sevrvice charges.

So now landlords buy device via service charge from management company and sell it on to the tenant.

An easy way out of rent control tells and just a distortion to the market again.
 

odyssey06

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Because obviously the rent is now the rent added to the extra sevrvice charges.
If the rent previously included these charges, then hiving them off and charging for them separately seems like a blatant way to get around the rent cap.
The RTB would likely side with the tenant who challenged that as it implies that the landlord mis-reported the level of previous rent.
If it's a new charge for something that wasn't previously considered part of the rent then I think there'd be no comeback?
 

SqueezedMiddle

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Well it's one of the reits who are doing it in the article I read, to existing tenants. I suspect they have run it by some very expensive lawyers first.
 

Ceist Beag

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As odyssey said, unless these service charges are new charges on the complex which were not present before (and paid for by the landlord up until now) then I don't see how any landlord could justify passing these charges onto tenants now, on top of their rent. I very much doubt the RTB would entertain this so if I were a tenant I would certainly challenge this unless the services being charged for are new services not previously available.
 
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