Supply of new homes for rent to plunge in 2025 as investor deals stall

Analysis by property agents Savills included in its pre-budget submission says the PRS sector had been responsible for 5,000 new homes per year, mostly apartments, in Dublin in 2022 and 2023.

However, that is expected to drop to just 1,600 next year, a decline of 68pc.

Savills blamed rent caps, introduced to curb soaring rents, for turning institutional investors off the Irish market.

Its pre-budget submission calls for an easing back of the caps, which limit rent increases to 2pc a year for existing properties, in order to boost investor confidence and housing supply.

Institutional investors were a tiny part of the market before 2016 but quickly came to dominate investment in new apartments, initially buying up schemes and subsequently underpinning new developments with forward purchase agreements that gave developers certainty to undertake capital-intensive and relatively slow developments.

The large-scale purchases by funds have been controversial, earning PRS investors the nickname cuckoo funds because ordinary buyers are largely priced out of the market segments they dominate. But Savills’ submissions argues deals backed by institutional investors had been the most successful part of the housing market before rent caps and other factors, including the sharp rise in interest rates, prompted them to slash investment here.

Without PRS investors, apartments are regarded by most experts as unviable – a report last week by the Department of Finance said the average cost of delivering a new apartment in Dublin in 2022 was €496,000. The cost of building a three-bed semi-detached house was €359,000.

Planning density rules mean than in many urban areas only the more expensive apartments can be built despite a lack of demand for ordinary buyers for such properties at the prices they’re being delivered.

“Easing rental caps is essential for attracting the international capital needed to sustain and grow our private rented sector,” Savills managing director Mark Reynolds said.

The report also backs extending the Temporary Development Contribution Waiver Scheme, which was introduced to provide relief to developers from high construction costs during the inflation spike, by temporarily not charging local authority levies.

The waiver scheme, which has already been extended, has helped hurry up the number of homes under construction with central Government making up the shortfall in local authority funding.

The Savills submission also calls for increased subsidies for home buyers, saying the Help To Buy Scheme, a tax refund for first-time buyers, should be extended until the end of 2028 and the property value threshold should be lifted to €614,000 in Dublin, from the current €500,000.

​In the commercial property market – where office and retail property prices have been hammered since the pandemic and where activity levels have plunged – the submission says slashing stamp duty from 7.5pc to 2pc would help restore activity levels with a rise in transactions helping recoup the reduced tax take per property deal.