Tuesday 30 May 2017

Warning Coveney's rent-cap plan will 'hit investment and new home supply'

Minister Simon Coveney
Minister Simon Coveney
Michael Cogley

Michael Cogley

Government plans to cap Dublin and Cork rents will discourage big landlords from the market here, potentially hampering the supply of new homes.

Housing minister Simon Coveney's scheme to tackle rents may have unintended consequences for the supply of new houses, stockbroker Goodbody has warned.

Analyst Dermot O'Leary said the scheme, to introduce rent caps in high-demand areas across Dublin and Cork would "reduce the motivation" among investors to enter the Irish private residential sector.

The minister's plan to limit rent increases to 4pc per year on dwellings in "Rent Pressure Zones" (RPZs).

"From an investor's perspective, the motivation to enter the Irish private residential sector is reduced by this policy and should have knock-on negative implications for new supply," said Mr O'Leary in a note.

"In the context of the attempt to entice large-scale institutional investment into the sector, this is a retrograde step."

Mr Coveney's plan to impose the caps for three years came under immediate attack from Fianna Fáil, which complained about a lack of consultation in the lead-up to its publication.

Areas that are designated as RPZs must have an average rent registered with the Residential Tenancies Board above the national average - and rising at a year-on-year rate of 7pc for four out of the last six months.

While new and "substantially renovated" properties will be exempt from the plan, Mr O'Leary believes that will also have an impact.

"Turnover of the stock is likely to reduce as tenants hold on to their property.

"Given that properties that have recently been 'substantially refurbished' are exempt, there are likely to be many disputes about this definition among landlords and tenants," he said.

Davy analyst David McNamara said the threat of further State intervention may spook investors.

"The optics of further Government intervention in the market is obviously negative in terms of investment, but Ireland is not unique in an international context in introducing rent controls," he said.

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