Saturday 27 December 2014

State tinkering makes the rental crisis worse

Published 20/06/2014 | 02:30

Rents have hiked by 15% in the last year in Dublin.
Rents have hiked by 15% in the last year in Dublin.

REPORTS emerged last week of a ban introduced on rent allowance tenancies in Dublin's Ballymun district.

The move has apparently been orchestrated to help "regenerate" the area and to "improve the social mix". It was, in part, spurred by lobbying from existing Ballymun residents – despite many being housed in recently-built state provided homes. Reduced rent allowances and increasing rents in Dublin have already made things extremely tough for tenants on the lower end of the rental ladder.

This latest twist does not help the cause of the "near homeless" a jot because any area which has become rundown and where new housing projects are underway can justifiably be said to be "regenerating".

But these cheaper areas are exactly where those on the lower rung go when they've been priced out of everywhere else.

Rents have hiked by 15pc in the last year say the latest figures from Daft.ie, but anecdotal evidence suggests this could be even higher.

The numbers counted sleeping on the streets of Dublin have increased 100pc over the last three years – 4,613 people are now living in emergency accommodation, such as hotels, 1,958 of these are newly homeless. There are now more than 130 families living in hotels in Dublin.

Next comes the recent ban on the traditional bedsit. City-based councils are now actively patrolling the capital's Pre 63 properties and closing down that traditional "last resort" of renters before the street – the dingy one room flat which shares a bathroom.

While the objective is admirable, the inevitable effect in a time of shortage is that hundreds of the cheapest rental units in the city have suddenly been removed from an undersupplied market. And the bedsit is the second from bottom rental rung before the hostel.

Next there is a danger that the state will drift into convoluted solutions to the rental market problems which avoid addressing the supply problem.

For example there has been a call from a number of charities and groups for some form of state/local authority rent controls to be imposed on landlords in a bid to keep rental accommodation affordable.

The Minister for Housing Jan O'Sullivan has talked about such a policy publicly.

But in other countries where rent controls have applied, they have had exactly the opposite effect to what was intended – further reducing supply of rental accommodation as discouraged landlords get out of the market, therefore reducing the quality of existing accommodation as those landlords remaining spend less on upkeep.

In Ireland, we have already seen how legacy "peppercorn" fixed rents for a lifetime, which dominated some city areas until quite recently, almost uniformly turned the accommodation in those areas into the very worst around.

In Germany where rent controls are prevalent, Irish people who rent for the first time there are often surprised to find themselves in an all-white painted shell with no kitchen white goods, no carpets, no fittings and no lightbulbs.

It is up to the tenants to spend thousands on these because landlords must recoup rents which are regularly 30pc below what the market suggests.

In America where fixed rent systems have been attached per tenancy (rather than per unit or by geographical area), we see vastly different amounts charged for similar apartments in the same blocks according to length of tenancy.

It has resulted in newer arrivals paying far above what might be expected for their units in order to subsidise the landlord for longer term tenants paying far below what is reasonable.

American rent control districts have also experienced a surge in all sorts of nasty tricks by less scrupulous landlords to try and constructively dismiss their longer term tenants.

Given our culture penchant for "below counter" shenanigans in Ireland, rent controls will similarly create a black rental market in which stressed tenants can only secure properties by illicitly topping up their rent payments.

In Germany controls have led to periodic housing shortages as landlords stay out of the market when rents are maintained for long periods below what is economically plausible. It has also caused an artificial spreading of younger city populations as new renters drift to peripheral areas with a higher availability of property.

The effect has also been to periodically discourage multinational investment as companies find they cannot house their employees anywhere near those key serviced areas where businesses need to locate because tenants will tend to stay put in better located homes for longer and fewer units become available. German style rent controls work on a series of tables applied to different areas and adjusted periodically in accordance with inflation.

In Ireland we'd require yet another bloated new state behemoth like Irish Water which would inevitably have to be funded by taxing landlords, in turn adding to the financial pressures for them leave the market, in turn diminishing supply.

All of the above is why almost all economists (including those on the left) tend to be convinced that rent controls can only make a bigger mess of things. There is only one plausible way to make rents cheaper and accommodation more readily available – to provide many more homes to live in. Anything else is a dangerous distraction.

Indo Property

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