Why a rent freeze won’t work

I have reported on how our transactional data shows landlords are leaving the rental market in large numbers and for quite some time. In Q2 this year one in two of our sellers were landlords. This is happening at the same time Dublin is experiencing an accommodation crisis. There are many reasons why this is happening; high taxation, increased regulation, inefficient RTB processes (it can take a year to get a non-paying tenant out), and rising prices.

For many landlords the margins are very tight, and some are not making any money at all. The market is now so dysfunctional that neither landlords nor tenants are happy with the current market. However, in the media it is mainly the perspective of tenants that is focused on. Yes it is tough for tenants and the only solution is more supply.

Despite all of the above a bill (the Tenants’ Rights Bill) is currently making it’s way through the Seanad that proposes a three year rent freeze that will destroy the supply of rental accommodation. The bill also proposes increased security of tenure for tenants. In principle more security of tenure has merit but not if the tenant is paying well below market rent. This will have a huge negative impact on the capital value for the seller given you can only sell to another investor who is essentially buying the income at a yield. For many, these properties are their pension!

If this rental freeze bill is passed the following is guaranteed to happen:

  • Rental supply will decrease as more landlords exit the rental market.
  • Many new built to rent apartment developments will put on hold or changed to other uses.
  • Many international funds will stop investing because they need and deserve certainty on the regulatory environment they are operating in. These funds are very mobile and can flow into other countries easily. Without these funds many apartment developments are not viable as the so called pillar banks are not funding these developments.
  • The quality of rental accommodation will fall as many landlords will not make improvements to their properties, including making them greener, as there is no incentive to do so.
  • Open market rents on properties being rented for the first time will increase significantly, especially outside rent control areas.
  • Owner occupiers will have less options as landlord owned units can only be sold to other landlords.
  • Many young professional tenants will not be able to find a home, especially a good quality one at a fair rent.

The state continues to punish private landlords for the accommodation crisis they created. This bill is bad news for landlords and tenants, and for Dublin and Ireland.

Gunnar Myrdal, architect of Sweden’s welfare state and Nobel Economics Prize winner who said rent controls constituted “the worst example of poor planning by governments lacking courage and vision”. Fellow Swedish economist and social democrat Assar Lindbeck exclaimed: “Rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.” I agree!

Owen Reilly, September 2021.