Why rent control is not the answer we need
The Ronan Lyons column
Published 04/09/2016 | 02:30
The latest Daft.ie report was released last week and showed that, for the first time, the average rent nationwide has surpassed its Celtic Tiger peak. From 2004 to 2008, rents rose significantly and peaked in early 2008, with a national average rent of €1,029. Having fallen sharply between 2008 and 2010, rents started to rise again.
The most recent rise in rents, during the second quarter of 2016, was almost 4pc, nearly double the size of the typical three-month increase recently. It means that the average monthly rent in the country is now €1,037, €100 more than the same period last year. While this is a countrywide phenomenon, rent increase are most acute in the main cities: in Dublin, Cork and Galway, rents are typically between 5pc and 10pc above their previous peaks.
What has been driving these increases is the lack of availability of homes to rent.
Typically, the middle of the year is the busiest time in the rental market, as lots of students and lots of listings try to pair off.
Looking at the total number of properties available to rent shows how much the market has changed since 2011.
Throughout 2011 and 2012, there were consistently about 17,000 homes available to rent at any one point nationwide during the first four or five months of the year.
Availability then peaked in July, before falling steadily for most of the rest of the year.
What is dramatic, however, is the fall-off in supply since then. In 2011, there was an average of 17,500 homes available to rent at any time nationwide. So far in 2016, there have been fewer than 3,800.
For every five homes available to rent in 2011, there is just one available to rent now.
Compared to 2011 and 2012, the most recent years have seen very little surge in mid-year and then a fall-off afterwards.
And as the supply of rental homes has fallen by 80pc, rents have increased - by up to 60pc in some parts of Dublin. This is mostly definitely not a crisis that has emerged overnight. This is something that has been building up for the last five years.
But why are rents rising? The 40pc increase in rents since then reflects not just a lack of supply but also very strong demand. Strong demand should be seen always and everywhere as a good thing.
This reflects companies, domestic and international, creating jobs, couples starting families and people moving here - or moving back here - because they see their future here.
All of these are good things.
The measure of a healthy housing sector is how it responds to new demand. Over the last few years, Ireland has grown - both demographically, with the population rising, and economically, with employment increasing substantially and average incomes rising more modestly. This extra demand requires somewhere to live but unfortunately, very few new homes have been built. As I have pointed out before, this is predominantly due to the high cost of construction in this country compared to costs in other countries - and compared to incomes and affordability here.
Is the solution simply to impose greater limits on the rate at which rents can increase? This has been proposed by many, including some who work with those at risk of homelessness. While there will be short-term beneficiaries of such a move, it does nothing to address the underlying problem, which is a lack of homes.
Rising rents can best be thought of as a signal from the housing market that new accommodation is needed. If we ban rents from rising, this prevents that signal from operating and, where rents are only on the cusp of viability, this will limit new construction. Those who ultimately lose out will be those on lower incomes, who will have no new homes built for them.
That is not a call for inaction, however - anything but! If we want to reverse the increase in the number of families becoming homeless, we need to tackle the root problem - a lack of homes - rather than hiding the symptoms.
The Rebuilding Ireland plan launched a few weeks ago is a welcome start. In particular, it shows that addressing the chronic and worsening housing shortage is a priority for the new Government.
But what we need next is a lot more detail. Why, for example, does it cost somewhere between 25pc and 50pc more to build an apartment in Dublin than in other high-income cities?
Until we know the answers to this and similar questions, it is likely that future rental reports will show ever higher rents.
Ronan Lyons is assistant professor of economics at Trinity College Dublin and author of the Daft.ie Reports