We need your help now
Support from readers like you keeps The Journal open.
You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.
If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.
Sign in. It’s quick, free and it’s up to you.
An account is an optional way to support the work we do. Find out more.
By continuing, you are indicating that you accept our Terms of Service and Privacy Policy.
THE MINISTER OF State for Housing, Labour’s Jan O’Sullivan, has called for rent price controls linked to the consumer price index (CPI) during a recent interview with the Irish Examiner. Average rents have come up by almost five per cent year on year, as of Q3 data, and in Dublin they’ve come up by 7.6 per cent.
This is, naturally, worrying for renters. What ought to be worrying to renters and buyers alike is that the Minister with responsibility for looking after this area might come out with such an ill-conceived and stupid policy proposal to fix the problem.
There are three fairly simple reasons why rent controls, and in particular those linked to the CPI, are a terrible idea.
Firstly, had Jan O’Sullivan or any of her highly paid advisors bothered to check the Central Statistics Office data they would have noted that had rents been linked to the CPI in the past, they would presently be 20 per cent higher than they are. As the UCC economist Seamus Coffey points out on his excellent blog, rents are now indexed at about 2003 levels while the CPI is substantially higher.
During the crash rents came down by a quarter, while the CPI came down by less than 8 per cent over the same period. If we followed Jan O’Sullivan’s proscription for rent controls, renters would have been substantially worse off both during the crash and now during our relative return to growth.
Indeed, at no point since the CSO was tracking the relevant data in 2003 would rents have been anything but higher were they linked to the CPI.
A second good reason to dismiss the idea, regardless of what random features of national life rents are tied to (electoral cycles, perhaps?), is neatly summed up by the left wing Swedish economist Assar Lindbeck. “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.” So says a man who, if he were Irish, would be in the Socialist rather than the Labour Party.
His fellow Swede and left wing economist Gunnar Myrdal, winner of the 1974 Nobel Prize in economics and government minister in the Social Democratic Party that today sits in the same Party of European Socialists as our own Labour Party in the EU, was similarly scathing. “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”
One of our key challenges at the moment is a lack of supply in the cities, which is driving up rents at the accelerated rates versus the rest of the country. For all that we’ve had a massive property related crash and there are still ghost estates littering the land, we are overdue a construction spree in certain places.
The trouble with rent control is that it strangles investment into property, leading to Lindbeck’s famous quip to his students about it being second only to bombing in its effectiveness at destroying cities. Industries that suffer government price controls are a bad place to invest your money versus those with no control; so instead of putting cash into new construction, or even the upkeep of existing buildings, investors go somewhere the return involves less red tape and meddling.
A study by Paul Niebanck in the US found that 29 per cent of rent-controlled housing in the country was in a deteriorated state, versus 8 per cent of the uncontrolled market. Joel Brenner and Herbert Franklin cited similar statistics for England and France.
“Ah,” say the rent controllers in the room, “but we’ll just enforce better standards!” You can, of course, do this; and there’s evidence that we should do so anyway given the state of some kips up for rent in the country. But you can’t force people to invest in rental property in the first place, and as private sector supply dries up in an ever more regulated and controlled market it will fall to the State to step in with more investment in building – you know, the State with a debt-to-GDP ratio north of 130 per cent, which borrows a billion a month to keep the lights on as is. Good luck.
The third and particularly Irish reason why rent controls are a bad idea is because the Supreme Court ruled our last set of rent control laws unconstitutional. Now, that’s not to say that any future law would infringe on constitutional property rights; but it does show that we could waste a lot of time and effort dousing ourselves in petrol before the courts tell us we’re not allowed strike the match.
There are many issues around rented housing in Ireland at the moment. Supply and demand are mismatched; accommodation standards aren’t being universally upheld; and all of this is exacerbated by high unemployment, banking and negative equity issues among others.
Proposing a simplistic solution to arbitrarily try solve one facet of the problem is not good policymaking by Jan O’Sullivan or the government at large. Perhaps overwhelmed by the scale of our troubles, the political instinct is to look for a panacea. If there is one, this surely isn’t it: driving investment out of rented property at a time when there’s a supply shortage seems a poor policy choice.
We live in an interconnected economy. The lack of lending by our zombie banks is holding back the ability of the private sector to invest and provide more supply, which would alleviate price increases. Our ever-efficient planning process will have to kick into gear to approve projects quickly when they are on the drawing boards; though of course we should learn our lessons from the past and make sure that new developments come with proper infrastructure from the day the first families move in.
Investment requires confidence that the market will remain stable. Just as the Government and the IDA so successfully tell foreign investors that the regulatory and tax environment they’re coming to is solid as a rock, Jan O’Sullivan and the government might reassure potential investors that half-baked policy ideas aren’t going anywhere or likely to broadside them in future.
Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.
We’re interested in your ideas and opinions – do you have a story you would like to see featured in Opinion & Insight? Email opinions@thejournal.ie
To embed this post, copy the code below on your site
Fine points made there Aaron. Good read.
It is easy to write this from a business view..They want to take all they can from the poor. Perhaps the writer can have a look from a working class viewpoint. Or look at it from a justice viewpoint rather than greed!
So u expect landlord’s to be interested in investing their money into properties to lose money?
There is a difference in fairness and greed. Investors want to get as much money as they can, and Irish people have been complaining a long time about the bankers and charity leaders for their money grabbing at the expense of the people. So surely fairness is what everyone wants, and isn’t fairness in housing Ireland’s people a good way to demonstrate this.
I agree Talkingsense , Aaron’s article is well researched .
Isn’t it such a pity that the Minister concerned , Jan O’Sullivan, didn’t care to do any research before spouting out this nonsense suggestion.
History , in Ireland tells us the residential rent control does not work.
In the first decade of my working life as a Chartered Surveyor , the chaos attributable to what was then too, bad law , was tantamount to producing run down property – by virtue of the fact that owners were not generating even a sufficient return to carry out ordinary repairs.
As a result , we spent nonsense hours in and out of court and tribunal , where the outcome was zero progress in getting repairs and upkeep done anyway. In those days rent controlled tenancies only applied to unfurnished residential lettings and yet even though they were a minority – they created chaos in the system.
If I might make a suggestion to this Minister – consult with those of us that are still around working , who experienced this debacle in the past.
If she does this – surely she will drop this silly idea thereafter ?
We have enough disastrous Ministers in this awful Government already – is she trying to outdo the others for silliness and incompetence ?
Spoken like an FF Landlord / local election candidate.
What about these “upwards only rent reviews” we hear about? Isn’t that a form of rent control that doesn’t follow the market?
Upward only , only applies to Commercial lettings Patrick and unknown over the past six years in any new lettings , I can assure you .
If you have money and power, Aaron McKenna is your butler.
What tosh Aaron, every decent first world country including Germany and that bastion of capitalism the USA, have rent control. It works beautifully in both. The only true argument against rent control is to retain landlords ability to increase rent by 20% per year as happened in Dublin this year. Unfortunately most landlords in Ireland are private citizens but large pension companies are the landlords in Germany and the like.
Landlords are only able to increase rents because demand far exceeds supply. This isn’t an issue in the beloved Germany because they have much less restricted planning controls. You have a presumptive right to build on your own land in urban areas. So there isn’t undersupply, and rent control has a chance of working.
Rent control here would treat the symptom but make the underlying problem of undersupply worse.
Unlikely,
What is more likely is that certain landlords would be forced out of the industry and more properties would be sold to owner occupiers, probably at a lower price.
Are you for real…….. Text book socialism….. Sounds great but it never happens
Oh no, people who can’t afford to pay mortgages sell them all the time. It’s called Capitalism. Socialism is the system where private landlords benefit from tenants in receipt of allowances to pay rent on substandard housing units.
Don’t you love it when you hear on the news that’s “property prices increased in the last quarter”. They announce it like it was a good thing, but for the person buying the house (the people of Ireland) its terrible. Is there anyone left in Ireland who thinks a 4 bed house in nass (for example) is worth 450k??? When was any house worth that? I know supply and demand dictate but who controls supply huh?? We’ll head down the same road again and in 10 years we’ll have another mess on our hands. I heard recently in some ghost estates that they are going to knock perfectly good houses to drum up demand. How ridiculous is that? The government need to control house prices better this time or it will happen again but do they have the foresight……
Too true Joshua, the Irish media always celebrates property price rises as a good thing whereas it’s actually a terrible thing as if property goes up then the price of a loaf of bread must rise too as property is a factor of the production and selling of bread and all other necessary human staples.
The mainstream media celebrate property rises because most of the journos in the IT & Indo have at least three mortgages from Anglo and need prices to rise if they’re to avoid bankruptcy.
What the idiots never seem to realise is that property rises make everything else in life more expensive for all of us, themselves included.
Absolutely Joshua!! You’ve shared my sentiments exactly! :)
Joshua there is a generation who are all very happy to see price rises. This is the generation who have been screwed in the last couple of years and are stuck in the negative equity trap. There only hope is a price increase.
I understand your argument on negative equity and I’m sorry that’s the case for so many people but the cycle has to stop sometime I’m afraid or else it’ll just happen again
The island of Manhattan is one of the most expensive places in the world in which to live yet they have rent control – if they didn’t then the hundreds of thousands who work in minimum wage jobs couldn’t afford to live there. Suddenly Manhattan would have no street cleaners, sewerage workers, fast food, bar and restaurant workers, etc and the whole island would just turn into one large bank with nothing else open.
There are occasions where rent control is necessary and it is far from (as the author claims) the second best way of destroying a city after bombing.
Have you been in a rent controlled apartment in New York? Working beautifully is grossly incorrect. They are incredibly run down. The landlord often don’t take any rent so they don’t have to do the place up.
I was in my friends place in NY and the had water flowing down the wall. In the winter the water on the wall would freeze. I am not talking about damp but a flow of water. He said his wasn’t the worst as the people above lived with the hole in the roof and lived in a tent in the apartment.
Minimum wage workers living in manhattan? I don’t think so!
Yeah make everyone pay a high price for a rental property,,,,,, then let the labour red commies determine the rent
Take your socialist rubbish home
The paucity of Aaron McKenna’s argument is illustrated by the fact that he was forced to rely on statements made more than 40 years ago to support his argument. Assar Lindbeck’s comment was made 42 years ago, while the statement by the Noble prize winner, Myrdal, was made 49 years ago at a conference in Copenhagen.
Ironically, Copenhagen is the capital of a country that, like all the other Scandinavian countries, does in fact have statutory, index-linked rent control. At the same time, it is a shining example of urban development on the world stage. It has built tens of thousands of apartments over the past 10 years and its buildings consistently win architectural competitions, year after year.
Rent control needs to be carefully designed, implemented and enforced. But I would defy Arron McKenna to find a single source recommending the removal of rent controls in Copenhagen.
This is Ireland not Sweden,political interference in the rental market here is guarenteed to turn into a disaster,and thats the last thing the country needs right now.
Aron McKenna you really are a poor quality journalist if you think that 85 people should have the same wealth as 3,500,000,000 people what a stupid article the journal should sack you for producing something as stupid as this
when these 85 people are screwing everyone on the planet including you.
is there any real journalist out there that will make a complete list of the 85 and not taken from forbes either
Rents being too high cripples a renters ability to save at the moment Im paying about 400Euro more in rent than I would be paying on a morage of a similar property. While I can pay I find it difficult to save; which makes it harder to buy. Landlords in Ireland expect a huge return in investment – in other countries landlords are happy with a lower return with longer leases so its possible to permently rent, here they want a much higher return with shorter leases so your never sure if you’ll be in the same house from one year to the next.
Aaron’s own proposed solution is fairly simplistic – supply and demand ? How did that work during the boom ? Remember how the developers used to buy out or simply ignore the the social housing requirement for new developments during the boom years?
Quoting Swedish economists is interesting. Even in Sweden (where I lived for a number of years), there is rent control, and the standard of rented accommodation (and treatment of tenants) is far better than in Ireland. The people in Sweden that hate rent controls the most are the developers, since it restricts their profitability.
Another issue that Aaron ignored is that the State is already setting a de facto rate for rental accommodation – through rent supplements as part of social Welfare.
Free market principles are the only way, pay the going rate or go without
So by your logic 650-700 for a half decent apartment in a commuter town outside Cork is reasonable?
No, it’s not. Not when there’s so much NAMA and unfinished property that could bring artificially inflated prices down.
And quite often, for “half decent” read “sub-standard” and unregulated.
DigitalA – come to Tralee, in Kerry , where top quality Apartments and two bedroomed Houses are available from €100 per week / €450 per calendar month !
And the jobs, don’t forget to mention the abundance of employment available in Tralee…
Paul, in case you haven’t noticed , jobs haven’t been available , other then in the greater Dublin area, for six years now !
Aaron while I understand your points there is alternative,
Housing stock should not be in the hands of private investors,housing should not be treated as a business or and investment
This is what lead to the bubble in Ireland with corruption when it came to planning permission and zoning of land.
A small few controlling huge parcels of land and mand making fortunes off the misery of others.
We have a chance now with nama in control of
So much property and land to make a proper policy on housing in Ireland.
Will it happen?
No of course it won’t it FG & LAB turn to let their buddies make money now.
If you take housing away from private investors the only thing that will increase is the amount of homeless people
Some fair points there, especially in connection with the need to build more houses. However the reality is most landlords are greedy and will try to make as much money as they can. Avarice knows no bounds. There needs to be a limit set on how much they can bleed from their tenants while at the same time increasing the amount of available housing.
It is also a fact that high rents are drawing more spending money from our already crippled economy. Take that and the fact that the standard of a lot, if not most, accommodation is below par there is some work left to be done.
My landlord has put rent up an extra €100 a month making it more expensive than the luxury apartments in my area. Not a thing has been done to the place since it was built. Surely his mortgage has not increased that much.
If the rent is above market rates you have a case to bring to the PRTB.
The LL doesn’t need to have upgraded the property to increase the rent. You may not have noticed but the costs of renting out property have gone up constantly over the last few years. Who did you think should pay for all the increases? It was always going to lead to more expensive rents.
For the extra €100 how much goes to the government? There is a difference between greed and meeting increasing costs
Tracey, your landlord’s taxes have increased substantially, for example 2 property taxes psid in 2013 (nppr and property tax). I suggest you direct your anger at our government.
Promptly passed on to the tenants, Ciaran.
Paul, I can absolutely assure you that the Government Taxes concerned are only payable by the landlords.
You can be assured also , that we do not pass these charges , as landlords agents along to the tenants. This is illegal, in any case.
A further stat. and an assurance – that only in the city areas , where there is increased employment , has there been any increase at all in rentals , over the past five or six years . In factually most rents have actually fallen in that time .
Many apartments and houses in fact were not rented for long periods , due to the huge numbers of persons who left the country in the period concerned. In the early years of the recession , it was mainly mainland Europeans that left the country , while in the last two years the huge numbers of Irish Nationals left our shores.
There are many misnomer about and you seem to have been misled about a number.
As for the person identifying himself as Pat Daly , but with Jackie Healy-Rea’s photos all over his Facebook page , I can assure him also, that Tralee is in fact a fine County Town , but like most towns in this recession , it has had its ups and downs , with loss of jobs and poor decision making by Government , but is fighting back , in true Kerry spirit !
Yes Tracey ,the landlords tax has increased an awful lot over the last few years The govt would like you to believe that its teh landlord but its not. Also the amount safety regulations and burecratic red tape has also accumulated. All landlords have to fit fire safety doors. All landlords have to pay 1000 euro a year per unit in a house ,register all tenants at 80 euro a go and all landlords have to pay the refuse disposal which is a lot. I cant remember all the stuff but its always increasing and the govt charges are too. Thats only half of the things they have to do.
I’m amazed how these guys call for “market forces” when they know for a fact that Nama is the biggest anti- market institution in government. If Nama didn’t intervene in the housing market, you can be guaranteed that rents would of come down as a result of oversupply.
Either a decent social housing system is put in place or rent controls are implemented . Greedy landlords should not be protected . A home should be a right not a privilege
Why should a home be a right? Why should those who decided not to go to school, not to work and to have children that they can’t afford be handed a home?
Sure just let them rot in the street, Ciaran.
I am actually disgusted by Ciaran’s comment. Complete arrogance. Asha is completely correct, housing should be a right. And the government should be ensuring the welfare of all citizens not continuously supporting the greedy mindset in this country.
I agree with the comment made by Harry Webb, greed makes the world go round and motivates our fellow man to build pertinent property for the pertinence of the time. Utopic scenarios aside, rent control with extended investment protocols would in my opinion discourage the short term-ism that seems to be eating at moral life. (I made up the Utopic, as it sounds apt to me, soz for the poor grammar) :-)
How Germany achieved stable and affordable housing.
The German housing system, regarded as among the most affordable and liberal in Europe because of:-
1 highly responsive housing supply,
2. significant rental controls,
3. and tighter credit regulations
Germany has some distinct features that enables it to provide a plentiful supply of housing in response to increasing demand. First and foremost, the German constitution contains an explicit ‘right-to-build’ clause. Not so in Ireland for obvious reasons … land zoning controlled by politically corrupt system.
Voters get you pens to the ready or forever suffer as debt slaves and serfs of this deplorable system.
http://www.nakedcapitalism.com/2011/06/how-germany-achieved-stable-and-affordable-housing.html
This really is an apologia pro status quo in the rents section.
Yup,
It’s ok to be told we’re better off being poor as long as a certain group are better off…
Aaron’s incredible assertion that virulently right-wing economist, Assar Lindebeck, who has also developed noxious neoliberal theories about the welfare state fostering ‘dependency’, would be in the Socialist Party if he were Irish either shows he is completely dishonest, or hasn’t the faintest clue about left-wing politics. I suspect a combination of the two.
This man is a small minded small business man, whose political horizons extend about as far as the Irish Times business section. We get enough of this mindless neoliberal crap from RTE and every major Irish newspaper without having it inflicted on us in slightly stupider form in this guy’s columns. Why does the Journal insist on giving this guy a regular platform? He is boring, ill-informed and has absolutely nothing original to say.
Do rent controls not restrict investment? More like a left-leaning proposal to be honest… You sound hysterical tone it down
High rents tend to be through private landlords, who want a return ASAP. Where businesses are involved as is the case in Germany or block investors ie those buying a number ofcapartments rents tend to be more reasonable as they are prepared to wait for a return, look upon the accommodation as a long term investment and want tenants to stay as long as possible. Possibly even moving within the same complex as families grow.
I’m fortunate my landlord is first class, although from my own experience and that of others he is an exception.
We need to be moving in the direction of our continental neighbours (as the UK is doing) and except that long term rental possibly life long is the only way, rather than renting being looked as temporary until one is able to buy their own house.
It is pointless comparing the rental price say in Donegal with those in Dublin there are very few jobs in Donegal to enable rents to be paid rent control in Germany works and has done for decades, maybe a look at their system and possibly other continental countries.
I see a new trend coming in for landlords and that’s to exclude rent allowance and rent privately even I come from a big town and our main autioneer for rental doesn’t deal with rent allowance no more. The government can’t afford to build and expect landlords to reduce rents for rent allowance well it’s time landlords made a stance after all you are providing a service for the government and when the government provides you a service you are expected to get it at a high price .
All this tripe is pointless as housing market is manipulated big time in Ireland. The government is doing fck all to get hundred of thousands of square meters of derelict buildings / sites to be redevelopped particularly in Dublin area. NAMA was set up for 2 reasons, avoid banks to collapse and make few politicians cronies richer. Sweet deals going on and no public data available. And on the top you pay top euro for crap accommodation. But this is of no concern to the guys in charge, Rent control, well big landlords would be in pain, couldn’t afford new 151 BMW
Taxpayers please just shut up, don’t bother the big boys, and remember to… pay your taxes.
have your say