Rent Control and the Housing Crisis
Osal Kelly discusses how to put a lid on the bubbling housing market.
The housing crisis and homelessness have emerged as two major issues on the political agenda. The latest statistics show almost 90,000 households on the list for social housing, but even these figures are out of date, The Irish Times estimating that the number has now easily broken the 100,000 mark. Rents are soaring, having risen by 14% in Dublin in the last year and 9% nationally. Some Dublin tenants face increases of more than 20%. With these increases and with an enormous demand chasing a small supply of social housing, it is easy to see how so many are being driven into homelessness. Although Irish tenant law is quite strong on security of tenure in theory, this means little if landlords can still evict tenants with arbitrary rent increases. An obvious element of the solution is for the Government to introduce rent control beyond the current limited requirement that rent not be increased more than annually and not beyond the market rate.
Ireland is something of an outlier in Western Europe in its lack of rent control. In Europe and elsewhere, it is often backed up by rent boards to enforce the regulations. France and Italy both allow the initial rent to be freely negotiated but it cannot later be increased by more than a maximum amount linked to the increase in construction costs in France, or more than 75% of the cost of living in Italy. Rent limits in Germany depend on such factors as the age and location of the building. Sweden has a strict rent control system but allows for greater increases if the landlord makes improvements to a dwelling. Such systems contrast sharply with the Irish requirement that rent increases not exceed the market level: when demand hugely outstrips supply, it is the market rate that in itself becomes problematic. The advantage of these other rent control regimes is that rises in rent levels are not just left to the market.
Of course, there are vested interests in the sector who will oppose rent controls. Advocates of rent control will need to rebut some of their counter-arguments. A common claim is that rent controls in reducing the incomes of landlords would disincentivise them from making units available for rent and lead to a contraction in the supply of rental properties. However, there is actually little in the way of fact based studies to verify this claim. To test whether or not this is an accurate picture of the impact of rent control, it would be necessary to look at the market before and after its introduction. The problem, as economist Richard Arnott pointed out in a seminal 1995 paper on rent control, is that there are so many other variables in terms of the economy and housing and tax policy that it is difficult to pin any changes down to rent control alone. Perhaps due to this, it does not seem that there is clear evidence that implementing rent control would lead to a major impact on supply.
Furthermore, the structure of the market in Ireland specifically makes it unlikely that rent controls would lead to much divestment from the sector,at least in the short term. Speaking with LookLeft, Unite Research Officer, Michael Taft, emphasised the small scale of Irish landlordism, with the vast majority of landlords having only one or two properties. It is not mass landlordism, so the suggestion that the market is based around agents with the resources to respond to changes in the market with increased investment or divestment is simply not accurate. Indeed, many landlords could not afford to withdraw their properties from the market if rent controls were imposed, such is the crisis in the buy-to-let market, with nearly 40,000 buy-to-let mortgages in arrears. Rent Control has to be within a strategically reconfigured housing system which embraces all the current forms of tenure.
Michael Taft’s view is that “it may not affect current supply, but unless it’s done with a view to a rational expansion of supply, it could curtail future supply.” It is in this context that there is a need for the State to become a more important player in the supply of housing, and he argues for a semi-state enterprise that could learn from the Northern Ireland Housing Executive; he also contends that the State could influence the market by providing social housing for rent, which could be a stabilising force in terms of rent levels. Andrew MacLaran of the Trinity College Geography Department similarly believes that rent control needs to be in the context of a new housing system that is needs-based, commenting that the “number of social housing units developed in the 1950s, when the country was broke and emigration was at extraordinarily high levels, belies the nonsense of contemporary political commentary which asserts that ‘we cannot afford it’.” Dr MacLaran continued: “There is a role for rent control but this has to be within a strategically reconfigured housing system which embraces all of the current forms of tenure.”
Rent control may not solve all of our housing problems, but it would be a major step in the right direction.