Business Irish

Monday 24 October 2016

Kelly's rental crisis remedies will go through the mixer

Published 23/08/2015 | 02:30

Minister Alan Kelly is probably at this very moment trying to cook up a complex fudge to keep all sides happy
Minister Alan Kelly is probably at this very moment trying to cook up a complex fudge to keep all sides happy

Environment minister Alan Kelly is seeing first- hand, with the latest water charges row, that coalition government can be tricky.

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And it could be a tricky re-run when it comes to his proposals for sorting out the rental crisis, which will also have to go through the coalition mixer.

Rents in Dublin rose by another 8.5pc in the last 12 months, following a 15pc jump in the previous year. The average monthly rent for a house in Dublin is now around €1,368.

Landlords have been putting up rents because they can. Limited supply of housing stock is the source of the problem - and it will take several years to fix.

In the meantime, charities, campaigners and other groups are calling for the cap on rent allowance to be lifted so that people under financial pressure can stay in their rented homes. But they also want to see rent controls.

A year ago, Kelly ruled out rent controls, saying more houses were needed and would be provided. Then in March, he said he was drawing up plans which would see a raft of changes, including fixing rents for three years and having rent increases linked to the rate of inflation.

But we haven't seen the plan yet.

Last week, he said the new plan would be introduced as soon as possible.

Fianna Fail came up with its own solution to the crisis in a policy statement published last week. This seems to involve tax reliefs and incentives all round - for landlords, reluctant negative-equity landlords, first-time buyers, deposit savers - you name it.

Included in the party's plan is a sort of 'rent control light', where rent increases would be pegged to average rents for similar properties in the area within certain bands, but new properties and new agreements would be exempt.

Who do you help in this crisis - the landlords or the tenants? Bear in mind that there are over 320,000 privately rented households, up from 195,000 in 2006.

Fianna Fail wants to help both, but ends up with a fudge, having to financially incentivise landlords not to put up rents.

This is an extremely difficult nut for Kelly to crack. Give tenants what they want by capping rents and he will alienate tens of thousands of landlords, some of whom have invested heavily in their business.

Legal issues over their constitutional rights have already been raised by the sector as a shot across the bows.

He could also undermine residential property values, which would impact on the value of state-owned banks like PTSB and AIB. These banks are boosting their financial performance by writing back some previously anticipated losses as house prices recovered.

It could undermine the value of Nama's land bank and housing stock. It could prevent further investment in housing stock by large (mainly foreign) investors.

Tens of thousands of homeowners have come out of negative equity as their property values rose.

Even the Private Residential Tenancies Board is against rent control, last year suggesting it could drive landlords out of the business, thereby reducing the stock of rented houses - and making things worse.

The vested interests stretch to the Dail itself, where around 40 TDs are believed to be landlords.

As a Labour minister getting it in the neck about people being driven out of their homes by rental increases, Kelly might not care too much about how any of those groups mentioned above might feel. But the Minister for Finance Michael Noonan will.

Expect a complex compromise fudge of remedies which tries to keep all sides happy but doesn't include a straightforward ban on rent increases.

More sludge from our reformed banking system

Well, from fudge to sludge as another week bought another banking customer redress scheme.

What is it about banking? The more it appears to change, the more it stays the same.

The latest sludge slide of negative publicity for banks saw AIB offer to refund thousands of customers who took out credit card protection insurance while already partially covered for it.

Meanwhile Bank of Ireland mortgage customers, including those on trackers, received letters trumpeting the benefits of fixed rates, which would actually disadvantage most of them.

The story of the scorpion and the frog comes to mind. Except when the scorpion stings the frog halfway across the river, it just finds another frog to jump on.

This kind of commercially cute approach does appear to be in the nature of banking - unfortunately it isn't always called out by the Central Bank.

In AIB's case, it has confirmed that it will offer refunds to a possible 110,000 customers who took out credit card protection insurance because they may have been provided with insufficient information when they bought the product.

AIB said: "Customers may have been provided with insufficient information when they purchased this product and that a particular element of the cover for unauthorised use may not have been of value, as customers were already indemnified under the credit card terms and conditions for certain losses."

By saying "may", the bank is offering to refund people without any admission that what it did was wrong. People were either given enough information or they weren't. Even if some but not all weren't, then they should say that.

The lack of clarity about it suggests the bank is doing the right thing by giving refunds - but isn't entirely convinced that was in the wrong. The Central Bank approach appears to concur and once AIB offers everyone a refund, then it's a case of "no harm done". It is pragmatic - but it isn't the most hard-hitting response.

Glanbia powers ahead despite spilled milk

There may be no point crying over spilled milk, but what about cheap milk? Dairy farmers who have borrowed to fund post-quota milk production expansion, may be feeling a little nervous as they have seen prices fall by 25pc to 30pc this year.

Reassurances came from Agriculture Minister Simon Coveney that it is all temporary - but there was little respite from Glanbia CEO Siobhan Talbot last week.

She announced better-than-expected half-year results which saw earnings per share rise 25pc. But she signalled that milk prices look set to stay low into next year.

Farmers will have to just tough it out.

Glanbia's plc results were boosted by currency shifts, but even stripping that out, it was a solid performance.

Farmers selling to Glanbia Co-op will look at the performance of the joint venture it has with Glanbia plc and see that its performance was the weak link in the Glanbia chain.

The joint ventures and associates segment of the plc saw revenues fall by 11.5pc in the first half of 2015 compared with the same period in 2014. But strip out the currency boost and the drop was 20.4pc.

Weaker global dairy prices did the damage here - and there isn't much the co-op or Siobhan Talbot can do about that.

Solid growth in nutrition and ingredients helped lift Glanbia shares by 3pc. They are now up 41pc since January and 70pc since Talbot took over the top job, back in November 2013. Farmers in the south-east can take comfort that the value of their plc shares has risen so sharply.

The question is for how long. Weaker emerging markets, weaker international share prices and concerns about China could mean the farmers won't be the only ones to feel the heat.

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