News

New rental measures are a missed opportunity, by Owen Reilly

The Sunday Independent, Sunday, November 15th 2015

After much speculation, the Government has given us a “rent freeze”. Landlords are obviously not happy – but neither are tenants.

Landlords, among them people in negative equity who are struggling to keep their heads above water, feel they are being unfairly tar-

geted and unfairly blamed for the Government’s lack of investment in social housing over the last decade. Tenants, who had hoped for rent cer- tainty, may now face rent increases prior to the new legislation coming into effect while others, who had decided to rent for the long term – by design or because of the new mortgage lending regulations – will be fearful of a signi cant increase in two years.

It is clear rents have been increasing in recent years, but nowhere in this whole debate has it been mentioned that they have been recovering from a very low base in 2010; it is only in the last 12 months that the market has overheated.

However, the real crisis facing the Govern- ment is a lack of affordable properties to let
in Dublin, and their strategy of freezing rents until the supply of new apartments becomes available will do nothing to change this. The development cost of a new two-bed apartment in Dublin city centre is at least €400,000. At a yield of 6pc, the apartment must be rented for at least €2,000 per month before other costs are taken into account. So the arrival of a supply of new apartments in the city centre will have no impact whatsoever on the crisis in social hous- ing or affordable rental accommodation. Also, there will be unintended consequences.

One of these consequences could be that landlords decide to optimise rents now when a review is due, even in cases where they were happy with their tenants and had not intended to increase rents (these landlords do exist!).

Another unintended consequence could be that landlords get out of the business altogether which will further decrease supply. The Govern- ment will be relying on developers, funds and Reits (Real Estate Investment Trusts) to deliver new apartments over the next two years. One wonders what they make of measures to curtail rental growth – and will they now think twice about residential development when they see government intervention like this?
The Government has missed an opportunity to give something back to landlords – like al- lowing 100pc mortgage interest relief which will be allowed in the case of social welfare tenants only. Quite unfairly – commercial landlords can offset this cost.

As always, the property sector is interesting as it adapts to a phase beyond recovery. Time will tell the long-term effect of “rent freeze”.

Owen Reilly is owner of Owen Reilly Property.

The Sunday Independent, Sunday, November 15th 2015

The Sunday Independent 151115 - Agent View - Owen Reilly