Rent controls may seem an appropriate way of addressing the rising cost of accommodation in Ireland, but at best they are a short-term solution that would provide questionable benefits and create long-term problems.
The shortage of high-quality, affordable rental properties is a symptom of a much deeper malaise: namely the lack of planning in the housing market. Ireland has experienced one of the worst property crashes of any western economy and the market is still dysfunctional.
That there is a shortage of accommodation, particularly in Dublin, should not come as a surprise to anybody. Unfortunately, there are no quick fix solutions, but with an election looming, that is exactly what may be prescribed. Alan Kelly, the environment minister, is said to be considering a range of measures, including the possibility of a rent cap.
The most common form of rent control is pegging increases to inflation. According to an analysis of the Irish rental market conducted by Seamus Coffey, an economist at University College Cork, rents have increased by 8 per cent since 2003, but the consumer price index has risen by 20.1 per cent over the same period. This suggests that there could, in fact, be a much bigger rental crisis if the market had been tied to the rate of inflation.
The biggest drawback of rent controls is that they would discourage investment in the sector, and that is what is needed more than anything.
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There is a significant undersupply of housing. A total of 11,000 housing units were completed in 2014, according to the Central Statistics Office. The Economic and Social Research Institute estimates that between 22,000 to 25,000 units are required each year until 2030 to meet projected population growth.
The two biggest barriers to increasing the supply of new homes are the lack of finance available for property developers and bottlenecks in the planning system. Access to credit is improving, but slowly. The government needs to use the upcoming budget to incentivise equity-based finance and other forms of non-bank funding.
The land component of a new home in Ireland costs ten times more than in Denmark, which underscores the scale of the challenge ahead. There needs to be a complete overhaul of land zoning systems and the planning process needs to be made much more transparent and efficient.
In large urban areas, and Dublin in particular, the construction of high-density, family-friendly apartments needs to be encouraged with sufficient transport links. To ensure house prices do not rise at high rates in the future, renting needs to be a viable alternative to purchasing.
What is needed is a change to the legislative framework for the rental market. We must move towards the availability of long-term contracts, with an agreed rent review process and security of tenure, for all types of housing.