Landlords body: Rent controls have made matters worse

[Brendan Burgess]

Report claims rent controls have backfired and worsened crisis

Study claims rent pressure zones have added to rent pressures

www.irishtimes.com

Government measures to control rents have backfired and in many cases have led to an increase in rents, a new report has claimed.

The study by economist Jim Power suggests that Rent Pressure Zones (RPZs), introduced in 2016 to limit rent price increases, have resulted in significant “rent rigidities” and an inefficient two-tier system where the proper maintenance of rental properties is no longer economically viable.

This has prompted many smaller landlords to exit the market and to be replaced by institutional landlords with new stock at higher rents.

A longstanding complaint against the RPZ system is that new rental properties or tenancies are excluded from the restrictions and can be put on the market at any rent.

“The real losers are tenants at the lower end of the market,” Mr Power said

Market​

The report, commissioned by the Institute of Professional Auctioneers and Valuers (IPAV) and the Irish Property Owners Association (IPOA), concludes that the Irish rental market is not functioning in an effective manner and that RPZs are undermining the market and not achieving what they are intended to achieve.

 

[Rasputin]

On an aside, I never increased rents prior to the introduction of the RPZ system, but the way this policy works, you are almost forced into it. I wouldn't say I am unique in increasing rents after the introduction of RPZ where I never did before. I am in the process of getting out of the game and selling up as I have no clue what's next, but am pretty sure it will make things a lot more difficult for me. Every time they tinker in the housing market, it seems to make things worse as they just come up with short term soundbite policies to react to the loudest narrative at the time, and don't have a vision of what a functioning housing system should look like or even what they really need to achieve.

 

[Firefly]

I think RPZ are a terrible idea and think repeated government intervention in the housing market has made things worse. However I'm not sure I agree with this:

"In his report, Mr Power suggests that the majority of landlords exiting the market are those that in the past charged rents that were less than market rates and are now only able to minimally increase rent on their properties because they are subject to RPZ rules."

I would have thought landlords who were renting their properties at rents that were less than market rates would have been happy with the 4% RPZ limit. Also, we know that a lot of landlords were leaving the market before the recent increase in inflation, so their costs hadn't gone up that much either.

 

[Leo]

I would have thought landlords who were renting their properties at rents that were less than market rates would have been happy with the 4% RPZ limit.

But if they weren't raising rents prior to the introduction of the controls, I doubt the imposition of restrictions and potential penalties would encourage them to start doing so.

 

[Dermot]

The maximum increase in an RPZ zone is 2%, not 4 %

 

[Firefly]

But if they weren't raising rents prior to the introduction of the controls, I doubt the imposition of restrictions and potential penalties would encourage them to start doing so.

I think I get what you mean, but if they weren't increasing the rents anyway and keeping them below market rates, then I'm not sure limiting the increase to 4% initially and then 2% makes any difference to them?

 

[Sarenco]

I would have thought landlords who were renting their properties at rents that were less than market rates would have been happy with the 4% RPZ limit

There was a two-year freeze on increasing rents immediately prior to the introduction of the RPZ regime. Market rents rose very substantially during that two-year period so a lot of landlords got stuck renting at 20-30% discounts to market levels.

With rapidly rising maintenance and other costs and no ability to raise rents (beyond 2% pa), a lot of these rentals are no longer economically viable as a long-term investment.

It is axiomatic that, over time, rent controls reduce the quantity and quality of available rental properties. It was entirely predicable that the RPZ regime would exacerbate our housing crisis.

 

[7 of 9]

I would have thought landlords who were renting their properties at rents that were less than market rates would have been happy with the 4% RPZ limit. Also, we know that a lot of landlords were leaving the market before the recent increase in inflation, so their costs hadn't gone up that much either

I have an excellent tenant, who repairs everything themselves and keeps the house in perfect condition. It's now 50% of the market rate. It's making very little profit but takes no effort on my part. If they leave I plan to sell. I would not pass this discount onto another tenant.

 

[NoRegretsCoyote]

There was a two-year freeze on increasing rents immediately prior to the introduction of the RPZ regime.

Market-wide RPZs should always have been a temporary measure, maximum three years.

After that some kind of pragmatic approach at property level should have been brought in. Rents in payment should not be allowed to remain untethered from market rents forever, but landlords should be capped at closing more than a third of the gap a year, or 5%, whichever is higher. That would strike the right balance between consumer protection and respect of landlords' legitimate property rights.

The current situation where landlords are basically stuck below market rents in perpetuity is not just, and not very different from laws that were struck down by the Supreme Court in the early 1980s.

 

[PebbleBeach2020]

I think I get what you mean, but if they weren't increasing the rents anyway and keeping them below market rates, then I'm not sure limiting the increase to 4% initially and then 2% makes any difference to them?

It does if they were and are charging anything from 25-50% under the market rent. I know landlords who wouldn't charge market rent but would be happy to bring up rents at a more meaningful rate.

The alternative is they sell up and rental pool is reduced further. Thus is what's happening. And SF are becoming more and more popular by spooking landlords with their threats about what they'd do if they were in government etc.

 

[PebbleBeach2020]

Market-wide RPZs should always have been a temporary measure, maximum three years.

After that some kind of pragmatic approach at property level should have been brought in. Rents in payment should not be allowed to remain untethered from market rents forever, but landlords should capped at closing more than a third of the gap a year, or 5%, whichever is higher. That would strike the right balance between consumer protection and respect of landlords' legitimate property rights.

The current situation where landlords are basically stuck below market rents in perpetuity is not just, and not very different from laws that were struck down by the Supreme Court in the early 1980s.

I must say that this is the one of the most intelligent, logical and sensible summaries that would go a long way to halting the slide of landlords exiting the marketplace and perhaps also attracting new landlords and investors into the sector.

 

[Firefly]

There was a two-year freeze on increasing rents immediately prior to the introduction of the RPZ regime. Market rents rose very substantially during that two-year period so a lot of landlords got stuck renting at 20-30% discounts to market levels.

I agree with that, and I wouldn't blame a landlord being bitter about this. But would that cause the majority of them to leave the market? After all they were renting below the market rate at a rent they were happy with. Also, as rents have soared, the tenants they were happy with would be much less likely to leave.

With rapidly rising maintenance and other costs and no ability to raise rents (beyond 2% pa), a lot of these rentals are no longer economically viable as a long-term investment.

If by referring to "the rapidly rising maintenance and other costs" you mean inflation, then this is only very recent and landlords were leaving before this.

It is axiomatic that, over time, rent controls reduce the quantity and quality of available rental properties. It was entirely predicable that the RPZ regime would exacerbate our housing crisis.

I agree completely. I think rent controls have made the situation a lot worse and have been a factor in landlords leaving and as importantly preventing landlords entering the market. I am just questioning Mr Power suggesting "that the majority of landlords exiting the market are those who in the past charged rents that were less than market rates and are now only able to minimally increase rent on their properties because they are subject to RPZ rules".

I certainly think RPZ is a factor, but there are others such as the pro-tenant RTB and the associated long delays / cost when it comes to dealing with tenants who don't pay. Property prices have risen substantially also, giving landlords the ability to exit this unattractive market.

 

[Firefly]

The current situation where landlords are basically stuck below market rents in perpetuity is not just, and not very different from laws that were struck down by the Supreme Court in the early 1980s.

Such landlords have zero incentive to upkeep their properties too, unless they do a massive job thereby allowing them to increase the rent.

 

[Firefly]

It does if they were and are charging anything from 25-50% under the market rent. I know landlords who wouldn't charge market rent but would be happy to bring up rents at a more meaningful rate.

I think landlords should be able to charge whatever the market can afford. I am just questioning that "the majority of landlords exiting the market are those who in the past charged rents that were less than market rates and are now only able to minimally increase rent on their properties because they are subject to RPZ rules".

 

[NoRegretsCoyote]

I must say that this is the one of the most intelligent, logical and sensible summaries that would go a long way to halting the slide of landlords exiting the marketplace and perhaps also attracting new landlords and investors into the sector.

The situation that pertained circa 2015 was bad for everyone because tenants and landlords alike had poor rights. Tenants could be turfed out too easily, too quickly, and were vulnerable to high rent increases. Landlords had poor rights as it was long and arduous to remove a difficult tenant.

Tenants' rights have been strengthened a lot since then, too far in some regards, but very much in the right direction.

Landlord's right have not been strengthened at all, and weakened in a lot of others.

 

[Leo]

I think I get what you mean, but if they weren't increasing the rents anyway and keeping them below market rates, then I'm not sure limiting the increase to 4% initially and then 2% makes any difference to them?

Prior to the imposition of the limits they were free to reset rent when the tenants moved on as most do. It also may affect the value of the property, more so of course if the property is in a high-demand rental area.

 

[Firefly]

Prior to the imposition of the limits they were free to reset rent when the tenants moved on as most do.

I agree, but I suppose with the big jump in rent a lot of tenants would have stayed put (unless buying a house themselves etc)

It also may affect the value of the property, more so of course if the property is in a high-demand rental area.

I agree

 

[Leo]

I agree, but I suppose with the big jump in rent a lot of tenants would have stayed put (unless buying a house themselves etc)

Yeah, I was thinking more of the typical pattern here where people starting out working rent for a few years prior to purchasing, but the numbers of those renting longer term does seem to be increasing.

 

[NoRegretsCoyote]

Prior to the imposition of the limits they were free to reset rent when the tenants moved on as most do.

I think there was a kind of anti-abuse logic here to the prohibition on returning to market rents even when tenants had voluntarily left. The fear was that landlords would "trick" tenants on low rents into moving out, and then reset to a higher rent with a new tenant.

To me it's a complete duplication now that grounds for termination by landlord have been so restricted anyway, and are reasonably well enforced by the RTB.

As we all know the main impact is to make landlords leave the market.

 

[Firefly]

To me it's a complete duplication now that grounds for termination by landlord have been so restricted anyway, and are reasonably well enforced by the RTB.

As we all know the main impact is to make landlords leave the market.

Yip, and prevent new landlords entering the market.