News Columnists

Friday 30 September 2016

Rent controls will only cut supply, just when we need more

Lorraine Courtney

Published 03/11/2015 | 02:30

Dublin is growing by about 10,000 households a year, meaning that 100,000 new homes are needed in Dublin over the course of the 2010s
Dublin is growing by about 10,000 households a year, meaning that 100,000 new homes are needed in Dublin over the course of the 2010s

The rise in rent prices is now being directly linked to Alan Kelly's attempts to bring in rent controls. Like so many other Dubliners, I spend around 50pc of my income on rent, a burden that keeps my anger bubbling in a low-level kind of way. But now I am truly angry. And I know that other people out there are too. When we're not numb with hopelessness, we're furious at the uncertainty Kelly's 'rent certainty' measures are causing.

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"The single biggest cause of rent hikes in the past six months is Alan Kelly. His half-arsed approach to so-called rent certainty has done nothing other than encourage landlords to increase rents in the meantime," a senior Government source has said.

Experts now believe landlords are seizing on the confusion to hike rents, while at the same time investors are staying out of the market. It's causing hassle within Fine Gael and if Kelly is allowed to go ahead with his plans he could destroy Dublin's rental market.

Yes, renting is too often unaffordable, unstable and subject to poor conditions and bad management. For far too long, private renting has been the Cinderella of housing policy, largely ignored, while successive governments dreamt up ways of helping first time buyers get on the ladder during the boom times. Talk of private renting was quiet, but now politicians have been forced to acknowledge that renting from a private landlord is the new norm - and an often unsatisfactory norm. But rent controls and rent certainty are a renter's enemy.

In 1989, as communism imploded, the Vietnamese foreign minister gave a press conference where be talked about the most idiotic mistakes socialists had made. One single policy stood out above all the others. Nguyen co Thach claimed it was even more destructive than American bombing. It was more destructive than the B52s and exerted far more long-term economic damage than the napalming of the jungles.

"The Americans couldn't destroy Hanoi," he said. "But we have destroyed our city." Overcrowding was a massive problem, buildings lay in disrepair. What was the malevolent policy behind this carnage? It was rent controls.

The story is the same wherever rent controls have been tried. Swedish economist Assar Lindbeck has said that rent control is "the most effective technique presently known to destroy a city, except for bombing".

Just look at Stockholm, where rent certainty does mean affordable rents. But imposing ceilings on rent just discourages landlords from putting their properties on the market. Because of this, Stockholm has a chronic shortage of legitimate housing and a thriving (and very expensive) black market. Everybody in Stockholm has a horror story about renting. When governments interfere in markets and try to control prices it only ends up with massive shortages - think about the food shortages in the Soviet Union's supermarkets. Right now in Kungsholmen, one of Stockholm's central islands, there is an average wait of 17 years. Yes, 17. And in the old town, it's 21 years. The waiting list hovers around 447,000 - almost half of Stockholm's population.

Economists are virtually unanimous in their assessment of rent control.

The only real support for the concept comes from some populist politicians, journalists and social critics.

Landlord-tenant relationships are self-correcting, and don't need government intervention.

Capping rents goes against the grain of the market - whether this is good or not, some of the side-effects can be very undesirable. In markets with rent caps and where demand outstrips supply, a landlord may discriminate on tenant rather than price. This could see people with lower incomes losing out because landlords might see prospective tenants with higher incomes as more reliable. If we limit the rent landlords can charge, fewer people will invest in rental property and there won't be enough rental housing to go around.

What's more, those who remain as landlords will feel less obliged - and less able - to maintain their properties.

In one study, 29pc of rent-controlled housing in the United States had deteriorated, compared with 8pc of uncontrolled housing.

Rent levels are high because there are too many people who have to rent, and not enough homes available for them to rent, driving up the prices people have to pay.

Dublin is growing by about 10,000 households a year, meaning that 100,000 new homes are needed in Dublin over the course of the 2010s.

Half-way through the decade, fewer than 10,000 have been built. The problem is particularly bad in Dublin, but nationwide only 3,606 new housing units were granted permission last year. Since 2012, approximately the same number of houses were granted permission annually.

The vast bulk of permissions granted continue to be for one-off houses and only 496 units were granted permission in Dublin last year.

Rents can only be reduced by increasing overall supply of all types of homes, so fewer tenants are competing over each available home. It really is that simple. Building new homes, including for rent, is the only way.

Irish Independent

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