Key Post PRTB & Housing Agency report advises against rent control

DKM have published a report on behalf of the PRTB

[broken link removed]

I attach their Executive Summary

Here is a summary of their Executive Summary

The private rented sector has experienced significant growth in the past number of years with one in five households now renting in the private rented sector. However recent trends indicate that the sector is becoming increasingly constrained, as evidenced by trends in rising rents which, in turn, are impacting on affordability, particularly in Dublin. The mortgage arrears problem is one of the biggest remaining challenges from the financial crisis, particularly for the BTL sector which continues to show an escalation of the number of arrears cases and currently lacks any resolution strategy.

While the impact of rent regulation is uncertain, given where the Irish housing market is at present, the introduction of rent regulations in Ireland is likely to exacerbate the current problems being experienced in the market.

Threshold disagrees, but they don't seem to have any arguments to back up their disagreement.

http://www.independent.ie/business/...s-on-the-need-for-rent-controls-30689035.html

I have searched, but I can't find any well argued case for rent controls.

Thanks for posting Brendan. That's a fine piece of work by DKM in terms of detail, international comparisons, etc.

I wonder will the government take any heed of the recommendations (which appear to me to be entirely sensible)? We can but hope...

The discussion on rent control is being portrayed as a personal fight between Alan Kelly and Michael Noonan.

I have only once heard this report being mentioned in the media. It's very clear - rent controls or rent stability doesn't work and could cause bigger problems.

Brendan

As a landlord I'd love rent controls, no skin off my back. And lock in now at the highest rents ever (or thereabouts) it's a no brainer for landlords. Because as far as I'm concered Alan Kelly hasn't a clue and has been from pillar to post with this and that for the last year or so, while doing nothing, I looked at Daft yesterday and was shocked that rents for what I rent would be now 50 Euro more each week, and what's more, I could find only 4 comparable properties whereas a couple of years ago there were pages and pages comparable. Methinks if other landlrods like me who don't increase rents now start looking at Daft as I did, (new rule about comparing properties nearby, plus the fear of rent certainty to landlords) then landlords will be increasing right now.

As I'm a bit of an old hand, reminds me of when they went with the mad Bacon suggestion about 15 years ago, what a mess.

Government interference in the property market has never ended well! However we do need to take note that the current shortage of available rental accommodation in Dublin has created a sellers market with virtually unlimited ability to continually hike up rents to a level where many existing potential tenants are being completely excluded from the market. This is ultimately going to cause a knock on effect for the economy and the further creation of jobs in the capital (some FDI companies are already wary of expanding due to unavailability of suitable employee accommodation). Rent controls will not effect these issues as the main requirement is for additional accommodation which rent controls cannot address.
The issue is gone well past crisis point and apparently there are no solutions in the pipeline. Generally a rising demand is met by an increase in the product/service demanded. However the existing dependency on largely non-professional landlords and the seemingly significant costs of providing new apartment stock (despite the high rents) has resulted in virtually zero new available properties for rent in the Dublin market. The NAMA development option has been discussed and presumably put aside. The whole issue is likely to get much worse before it gets better. Whatever ultimately comes from this proposal will not amount even to a sticking plaster for the problem. We need a task force with the ability to take whatever appropriate action is needed to resolve the issues before they get much worse.

I just heard Sr. Stan being interviewed on the radio claiming that the ESRI supported rent certainty. I can find no evidence of that. In fact, the ESRI is down as one of the publishers of the report referred to in this thread which advises against it.

Brendan Burgess said:

I just heard Sr. Stan being interviewed on the radio claiming that the ESRI supported rent certainty. I can find no evidence of that. In fact, the ESRI is down as one of the publishers of the report referred to in this thread which advises against it.

Click to expand...

So why on earth would she state it as fact!?

I was wondering if I had misheard her, so I went to the podcast:

[broken link removed]

She said the following at around 59 minutes

"People are asking for rent certainty...
Alan Kelly wants rent certainty for tenants and for landlords
But FG seems to have an ideological problem with interfering in the market
A small number of private sector experts seems to be advising them...
Other experts who advise the government like the ESRI and like the OECD say that rent certainty is the way to go"

I have emailed the ESRI for clarification.

This is what the OECD has said
Housing and the Economy: Policies for Renovation


– Easing the relatively strict rent controls and tenant-landlord regulations that are
found in some Nordic and continental European countries could significantly increase
residential mobility by improving the supply of rental housing and preventing the
locking-in of tenants. (Page 4)

– Redesign regulations that bring rents far out of line with market values or tilt the
balance of tenant-landlord relations disproportionally in favour of either party. Strict
rental regulations are associated with lower quantity and quality of housing and their
benefits for tenants are not certain. Indeed there is no clear evidence that average
rents in countries with stricter controls are lower. Moreover, especially if they are
poorly targeted, rental market regulations may have undesirable redistributive effects
among different categories of tenants. (Page 5)

On checking the OECD further, I found the following from SIPTU last week:

[broken link removed]

“Many other European countries have had such systems in place for many years, indeed decades, and have seen solid and sustainable investment in the rental sector at the same time. The argument against rent control also flies in the face of advice from bodies such as the National Economic and Social Council (NESC) and the OECD which have acknowledged that increased rent regulation can have a positive impact on the private rented sector."

So Sister Stan was not intentionally deceiving anyone. She was merely repeating what Jack O'Connor said and she said ESRI instead of NESC.

Brendan

Here are the links to the NESC reports:

http://www.nesc.ie/en/publications/publications/nesc-reports/private-rental-sector/

Secure Occupancy
In international housing analysis and policy, the concept of secure occupancy is used, rather than traditional forms of rent control. In a number of the most successful market economies there are well-established, balanced forms of rental sector regulation that create secure occupancy. Drawing on these examples, we identify four elements of a secure occupancy model for Ireland:

 Introduce a system of rent regulation to provide greater certainty for tenants and landlords through a mechanism for disciplined market-sensitive rent adjustment;
 Change the existing system of four-year leases to a regime in which leases are effectively indefinite;
 Remove sale of the property as a reason for vacant possession; and
 Improve the existing dispute resolution procedures.

We emphasise that these provisions are proposed as part of an overall reform package that includes more favourable tax treatment of rental income and measures to enhance the supply of affordable rental accommodation.

...
Instruments that can be used to encourage the provision of affordable rental accommodation include low-cost loans, access to state land on favourable terms, tax incentives and loan guarantees. If state land is used for affordable housing, land ownership should be retained with a state body or a voluntary organisation with a long-term commitment to providing affordable housing.

Affordable rental accommodation could be provided by both voluntary housing bodies or by the private sector. In either case, the approach would involve the provision of a moderate level of subsidy in exchange for affordable rents.

In the context of secure occupancy, the appropriate tax treatment of rental income
is to have full relief of landlords’ interest payments. The best strategic approach is to have a simple regime for taxation of rental income, that provides clearer and better incentives for long-term investment in provision of good quality rental homes. More favourable tax treatment should be considered for landlords with tenants in receipt of rent supplement or Housing Assistance Payment (HAP).

So give tax reliefs and subsidies to landlords to provide rent certainty!

I can see why Fine Gael is ideologically opposed to this.

Brendan

A good piece from Dan O'Brien in today's Indo

"But despite the downsides[ of rent certainty], taking such a measure in the short term could meet the proportionality test - housing is such a basic need and a two-year rent freeze could allow time for more homes to be built. If there was an example anywhere which shows that the upsides outweigh the downsides, then it would be actively worth considering. I can't find such a case. [I have corrected a confusing typo in the original - Brendan ]

By contrast, the weight of evidence from across Europe strongly suggests that trying to hold down rents by means of regulation and legislation does more harm than good.

A study* last year of the 28 members of the EU found that "Rent controls appear to have a significant destabilising impact on the aggregate housing market" going on to add that "the drawbacks of rent controls in terms of unintended consequences for housing market stability and negative effects on labour mobility would advise against their use for redistribution purposes".

As has been said so frequently in relation to the housing crisis, the problem is one of supply. The State can influence the supply of housing in multiple ways, via regulation, taxation and the social housing system. Using these tools to address the roots of the problem, rather than rent controls to address its symptom, is the way to go."

And here are the conclusions of the European Commission's paper on the topic:


Rental Market Regulation in the European Union

According to this analysis, an efficient, fair and swift judicial system appears as a necessary step towards unlocking rental markets full potential.

Moreover, rent controls appear to have a significant destabilizing impact on the aggregate housing market, increasing the volatility of house prices when confronted with different shocks.

Finally, qualitative aspects of the tenancy contract negotiation do not have a first-hand impact on housing market
dynamics.

I acknowledge that this is here say, but I was recently told by a Counsellor friend that one of the main reasons why the Councils opted out of the direct provision side of rental properties to Rental Supplement was that a significant number of properties were extensively damaged by tenants and the servicing/repair costs of Council managed properties was significantly higher than those managed by the private sector. I.e. it is not the capital costs of providing additional Council Housing that is the main issue but the ongoing management/repair costs.
This would in turn raise the issue of why a type of private/public partnership approach was not taken by the Govmt. e.g Such as that mentioned above, Govmt providing sites and some tax incentives with pension Funds inputting capital and getting a reasonable return on their investment.

44brendan said:

I acknowledge that this is here say, but I was recently told by a Counsellor friend that one of the main reasons why the Councils opted out of the direct provision side of rental properties to Rental Supplement was that a significant number of properties were extensively damaged by tenants and the servicing/repair costs of Council managed properties was significantly higher than those managed by the private sector. I.e. it is not the capital costs of providing additional Council Housing that is the main issue but the ongoing management/repair costs.
This would in turn raise the issue of why a type of private/public partnership approach was not taken by the Govmt. e.g Such as that mentioned above, Govmt providing sites and some tax incentives with pension Funds inputting capital and getting a reasonable return on their investment.

Click to expand...

This suggests that landlords who accept rent supplement tenants \ engage in their partnership scheme are likely to face significantly higher servicing/repair costs, so the incentives offered would have to be sufficient to take that into account?

Why do councils face higher service repair costs ? is it because they are bad managers or because they have more difficult tenants.

The position re rent controls is simple. David McWilliams says its a no-brainer.
The oracle has spoken. End of story!!!!!!!!

"Rent certainty" is the stupidest slogan I have ever heard. What's next, "bread price certainty" or "oil price certainty"?

The dogs in the street know price controls don't work in combating inflation.

Increase the supply of homes and stop messing around.