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Debate Room: Should there be a rent freeze?

There has been talk about penalties for landlords who don’t accept rent supplement, calls for the ban on bedsits to be lifted and continuous calls for more housing supply — so what is the answer? We asked two experts with different viewpoints what is at play here.

Caitriona O'Neill and William Gallagher

THE ISSUE OF housing just isn’t going away for government parties. With homelessness on the rise, an under supply of housing units and a shortage of rental properties, it seems there are no easy answers or quick fix for the housing crisis in Ireland.

There a multiple parties affected by the ongoing situation – families, renters and homeowners.

So we asked two commentators to give their views on a number of issues:

Wayne Stanley, Research and Policy Analyst, Focus Ireland writes:

There has been a growing homeless crisis in Ireland in recent years which has now deepened into an emergency situation this year. In August a record total of 83 families became homeless in Dublin and were refereed to Focus Ireland’s family support services.

There are now over 707 families in homeless in emergency accommodation with 1496 children nationwide. This represented an 88% increase in just one year.

The vast majority of these families became homeless after losing their home in the private rented sector.

This significant increase in the number of families losing their home was due to a number of factors including; rent supplement payment not matching rising rents, landlords selling properties or properties being repossessed. 

shutterstock_297977069 Source: Shutterstock/itsmejust

In part, as a response to this crisis, interventions have been proposed by Minister O’Riordan and Minister Kelly to increase the regulation of the private rental market.

These measures include introducing a financial penalty on landlords who discriminate against those on a rent supplement payment as well as linking rent increases to inflation.

In response, some landlord associations have argued that the market is already over regulated and that many landlords cannot meet their costs due to a high tax burden on their rental income.

Bedsits

They also claim that greater rent regulation would cause an exodus of landlords from the private rental market. Furthermore, they have suggested that a more progressive response would be to row back on current regulation which legislates against bedsit accommodation.

Any move to address discrimination is welcome – we must bring an end to any discrimination which exists against people who require a government support to meet their housing needs. However, it will have little affect on the homeless crisis as the current rent supplement levels are 20-40% below market rents.

Minister Kelly’s proposal for increased rent regulation has a far greater potential to affect the homelessness crisis as it will help to reduce the flow of families who are becoming homeless.

shutterstock_127418948 Source: Shutterstock/Erick Margarita Images

Rent Control

Some have referred to this measure as ‘rent control’ so it’s important to repeat, that what is being proposed and what Focus Ireland has lobbied for, is not a rent freeze but rather indexing or linking rent increases to inflation.

This is not something new; landlords are currently restricted in the amount and number of times that they can increase rent. However, the issue with the current system is that the index is based on market rent.

This means whatever the market will hold and therefore, particularly in the current market, there is no regulation at all with some families reporting up to 50% increases causing them to become homelessness.

Clearly given the lack of social housing, the private rental market has an enormous role to play in addressing the crisis and Focus Ireland recognise that the system has to work for both landlords and tenants. The government has to have regard for the needs of both parties and the effect any measure could have on supply.

Focus Ireland notes the level of taxation that private rental landlords are liable for is much greater than that of commercial landlords and Focus Ireland have previously lobbied for this issue to be addressed in a phased way.

It would make sense in the first instance to provide a social dividend to those landlords who rent a property to households coming out of homelessness or who are at risk. We would stress that any changes to policy for the private rented market have to work for tenants and landlords alike and both sides have to be realistic.

14/9/2015. Labour Party Think Ins Meetings Minister for the Environment, Alan Kelly Source: Eamonn Farrell

It is timely to highlight that when the PRTB was introduced in 2004, landlord associations said that such regulation would lead to an exodus from the private rental market.

However, even with the 2004 regulations a recent EU report noted Ireland as one of 5 EU countries where regulations ‘appear to be more favourable to landlords’.

We would also highlight that between 2004 and 2011 the private rental market doubled in size. Focus Ireland believes that everyone deserves a place to call home and to achieve this we need a housing system that works for all in our society, this includes a fairly regulated private rental market that works for landlords and tenants.

Minister Kelly’s proposal is an important, and much needed step in achieving this but must be the first of many.

Stephen Faughnan Chairman of the Irish Property Owners’ Association (IPOA) states:

shutterstock_270618929 Source: Shutterstock/enterlinedesign

Why a rental freeze might not work? 

Rent Certainty is just another name for Rent Control, which always leads to a reduction of accommodation available and seriously damages the private rental market.

Rent linked to the Consumer Price Index will not reflect the costs of providing rental accommodation, the ECB rate will increase, insurance and contractors costs are often higher than the CPI.

This is backed up by numerous reports, including the European Commission Report, Rental Market Regulations in the European Union.

Last September’s DKM report, Rent Stability in the Private Rented Sector, states unequivocally that ”the impact of rent regulation on supply is uncertain”, and then goes on to say clearly that “rent regulation would also affect efforts to attract new investment in the Irish rented sector” and that ”this could lead to a further recapitalisation being required by banks by increasing the write-downs they would have to take on their buy-to-let portfolios”.

shutterstock_146949359 Source: Shutterstock/Andrei Shumskiy

What is required is Supply Certainty.

We need an adequate supply of good quality accommodation to house our population.  Fair tax treatment will do a lot to resolve this problem without interference in the market. The current problem in housing is lack of supply, and this affects social housing, private rented accommodation and property available for owner occupiers.

We know from the DKM report that 30% of landlords intend to leave the private rental market, and this is going to reduce the amount of available rental accommodation.  As well as that, 70% of landlords have loans and  71% of them have insufficient income from their rental property to pay their mortgage and taxes. Renting property for these investors is increasingly becoming an unsustainable business.

To increase supply, we need investors who want to invest and who can make a sustainable return from investing in rental property. The current unfair tax treatment has caused investors to pay tax in a loss making situation which is resulting in investors leaving the market, reducing the amount of accommodation available for rent.

Mortgage Interest Relief against rental income was reduced for the private rental sector from 100% to 75%. The effect of this was not only on investors going forward, but on investors already in the market whose investment was predicated on the basis that interest paid to the bank on a rental property was a legitimate business expense.

The response of government appeared to blame landlords for the housing crash and punitive measures were put in place to punish the sector, including refusing to accept legitimate expenses against rental income, the reduction in interest allowable and punitive penalties for the Non-Principal Private Residence Charge.

This action was done against the backdrop of reducing rents.  It is interesting that the commercial rental sector are still allowed 100% Mortgage Interest Relief, indicating that housing its citizens is of less importance to the government than providing offices and shops.

shutterstock_171944897 Source: Shutterstock/Zerbor

The cost for a landlord to provide private rental accommodation has increased by between 20 and 24%, mainly due to unfair costs imposed by the government as outlined above, but also including Local Property Tax (for services provided for the benefit of tenants), and unrealistic standards (particularly in regard to older stock which is not as easy to convert due to planning restrictions, for example, bedsits).

In a dismal economic scenario such as this, rent certainty is not possible because there is no cost certainty in the provision of private rental accommodation.

The market currently sets the rent as it should. If there are an adequate number of properties in the market, rent remains relatively stable. When there was an oversupply of accommodation, rent decreased and the current undersupply of property inevitably means that rents have to increase.

However, the underlying message must be that having a sustainable private rental business sector is the best insurance against a cartel developing of so called vulture funds due to a low number of independent investors. In the present market, 65% of private landlords have just one property, while 82% have two or less and 91% have 3 or less.

With the snapping up of distressed properties by foreign conglomerates, those figures are bound to dramatically change, but it will not be a change for the better as far as both tenants and landlords are concerned.

shutterstock_277642883 Source: Shutterstock/Casper1774 Studio

Should the ban on bedsits should be lifted? 

We have a shortage of accommodation and people homeless. The traditional bedsit is centrally located affordable accommodation. It makes no sense to have units of accommodation empty and people in hostels or rough sleeping. It is not always possible to convert bedsits into studios.

The difficulty arises in having bathrooms within the units, which would make some units too small taking away valuable living space, and the layouts of some buildings may make a conversion difficult, too expensive or the property owners may not get planning permission. It is also difficult to get funding from the banks to refurbish.

The state is removing the most affordable accommodation available at a time when accommodation is scarce. The IPOA would like to see the requirement to have a bathroom within the unit removed or at least deferred for a number of years or even allow designated bathrooms for the sole use of the unit located close to the unit.

Property owners are being forced to serve notice on tenants who have lived in their bedsits for years because of the intervention of the Government in the private rental market. Tenants are being forced to source alternative accommodation at higher cost, which is not always available and are being unnecessarily discommoded.

Common sense should prevail in this situation.  This will lead to homelessness on a large scale.

What about penalties for landlords who don’t accept rent supplement? 

This is government attempting to interfering with private landlords. The state should ensure that there is an adequate amount of housing for its citizens. There should be sufficient social housing for people who need it and a sufficient amount of private rental housing to meet the needs of the people.

They need to ensure that people have sufficient funds to afford their accommodation. The problem here is the rent supplement system, it is not fit for purpose. Rent is not market rate, it is approximately 20% below the market rate.

It is not paid in advance, or directly to the landlord. It can be stopped at any time without notice to the landlord, and there is no communication from the Department for Social Protection and the landlord. There is also more bureaucracy for the landlord ensuring that forms are completed and providing documents to the department when requested.

There is no recourse for landlords when rent is not being paid in this situation and the minority of tenants who abuse the system and pocket the rent can remain in situ with no sanction.

The landlord will never get the rent and the tenant can remain in the property with impunity, for up to 18 months – fear of this situation undermines letting.

What do you think — get involved in the comments section below. Share your experiences and opinions below. 

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About the author:

Caitriona O'Neill and William Gallagher

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