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Policymakers need to focus on quantities, not prices

The figures in this latest Report will offer little comfort to those who have to venture into the open market in search of rental accommodation. They are also unlikely to be welcome news for policymakers. For the 23rd quarter in a row rents have risen and – despite a nominal cap of rent increases of 4% – the annual rate of rental inflation has been above 10% nationwide for over two years.

Rents have now risen by 70% on average – 87% in Dublin, 68% in the other cities and 53% elsewhere – from their lowest point. Across the country, rents are significantly higher than a decade ago – even though general prices have hardly moved at all in the same period. In Dublin rents are 30% higher than their previous Celtic Tiger peak.

With the latest increases, the only market in the country where rents have not yet surpassed their Celtic Tiger peak is Donegal. There, rents are still 7% below Celtic Tiger peaks. But this is not a rare sign of success; rather it is the threat of Brexit weighing down on the part of the rental market most exposed to it.

A year ago, rents in Donegal were increasing at double-digit rates, much as elsewhere in the country. However, since then, they have risen by just 0.3%. Digging into the last 216 data points we have for quarterly changes in rents – all 54 markets over the last four quarters – in only two cases have rents recorded a drop. Both of those were Donegal.

So the only market where rents are not increasing is one where that’s a negative, rather than a positive. But looking for negatives and positives in prices is a mug’s game. That is because prices are not ends, they are means.

The rental price of accommodation is similar to the temperature of a patient. If the temperature is too low – if rents are crashing – this tells us something is wrong. In the case of falling rents, it means that there is simply not enough demand for rental accommodation given the supply on the market.

And if rents are rising rapidly – similar to a patient with a temperature that is too high – this too is a signal about an underlying problem. With rapidly rising rents – as Ireland has experienced for over five years now – it is clear what the problem is. There is not enough supply given very strong demand.

The solution to this is not to ban rents from going up, no more than the solution to a high temperature is to get a thermometer that only goes to 38 degrees. The solution to a high temperature is to find out why and give the appropriate medicine. The solution to high rents involves only one medicine: more supply.

The number of properties available to rent in the first four months of 2018 was just 3,200, below both the previous two years (3,800 and 3,900) and well below the 16,000 in 2012. That year was far from the peak. In 2009, an average of almost 21,000 properties were available to rent during the first four months of the year.

The implications of all of this are obvious. By focusing on limiting rent increases, rather than boosting the supply of rental accommodation, policy is merely shuffling the fixed stock of rental homes between a number of tenants and prospective tenants that is far larger than that stock.

Policy has, in other words, turned the rental market into an insider-outsider system. Those in the know, or in a sitting lease, benefit from, on average, below-market rents and also having those rents protected by Rent Pressure Zone rules into the future.

Those without any such in are reduced to fighting for the scraps on the open market. If you don’t like that outcome – and, as someone worried both about social justice and about the country’s international competitiveness, I certainly don’t – then the solution is not to ban rents from going up further but to bring about the new supply that will prevent rents from do so.


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