An Irish government move to moderate rising home rental prices has been described as a welcome but short-term fix for a wider problem by a leading financier.
David Grin, chairperson of Lotus Investment Group, one of Ireland’s leading property financiers, says government actions to moderate rapidly increasing rental prices are favored by all stakeholders in the property market.
However, he also suggests that the scale of the nation’s affordable housing crisis means the move - designed to cap rent increases at a maximum of 4% a year in Rent Pressure Zones (RPZ) until 2021 - may simply place a sticking plaster on a bigger issue.
He said: “It appears that the private rental sector is facing an affordability crisis.
“With the 7% increase in average rental prices in the fourth quarter of 2018 and the astounding 10,264 people living in emergency accommodation at the beginning of this year, the government extension of Rent Pressure Zones seems like merely a short-term fix for a much larger, systematic problem.”
Mr Grin pointed out that the property sector continues to grapple with a growing disparity between housing supply and demand.
The Lotus Investments chairman explained: “An expanding population and a thriving economy have driven an increase in demand for housing, especially in urban areas.
“The construction industry has yet to return to pre-recession building levels, and with demand outpacing the supply of available housing, housing and rental prices continue to climb.”
Government moves to curb soaring rent costs
Rent Pressure Zones were first enacted in 2016 as rental prices spiraled out of control. They were due to expire this year, but with no sign of rental costs stabilizing the government has moved to extend RPZ until 2021.
The RPZs are enacted in areas where the rental rates are highest and rising, and households have the greatest difficulty in finding affordable accommodations. Once an area is designated as an RPZ, apart from a handful of exceptions, landlords are required to cap rent increases at a maximum of 4% a year.
The regulations are intended to moderate rising rental prices and to promote a stable and sustainable rental market.
However recent figures from the Residential Tenancies Board show national rents increased by 6.9% to €1,134 in Quarter 4 of 2018, compared to the same time the previous year.
Earlier this month, the Irish Government confirmed Rent Pressure Zones (RPZ) will continue until the end of 2021. The qualification criteria for how RPZ are calculated will also be modified.
Announcing the move in the Dáil, Tánaiste Simon Coveney implied that the government would pursue separate qualification criteria for Dublin due to the higher cost of renting in the capital. The specific changes to the qualification guidelines are expected to be revealed in the coming days.
There are currently five local authorities and 18 Local Electoral Areas designated as Rent Pressure Zones across the country. Last month Navan in County Meath and Limerick City East have met the qualifying criteria for the first time.
A representative of Lotus Investment Group, which has lent 191 loans totaling €318m for the funding over 2,800 homes in Ireland, said: “The belief is that the extension of RPZs offers a short-term solution to the problems within the sector and it is welcomed overall. It still doesn’t alleviate the problems in the sector on a long-term basis and it may not offer tenants more security or sense of home.”
Property Sectors is Facing an Affordability Crisis
The extension and proposed changes to Rent Pressure Zones comes on the heels of a February report released this month that showed a combined total of 10,264 people homeless and living in emergency accommodation in Ireland - a rise of 277 people on January figures.
Focus Ireland, the leading non-profit organisation working to prevent homelessness in Ireland, has found that the biggest single cause of family homelessness is landlords evicting families in order to sell property.
In a recent radio interview, Minister for Housing Eoghan Murphy attributed increasing rents and rising levels of homelessness to the housing shortage and the lack of available, affordable housing options across the country.
The government-funded strategic planning initiative Project Ireland 2040 has called for an additional 112,000 homes to be built over the next 10 years.
The growing need for affordable housing is widespread across the country, evidenced by the increasing number of locations meeting the qualifying criteria to be designated as Rent Pressure Zones.
Many have called on the government to reassess its current housing policies to find both short- and long-term solutions to the housing challenges facing the country.
Lotus Investment Group is an Irish-based private equity firm and the market leader in Ireland for property and construction finance. Find out more at www.lotusig.com