ESRI: Unclear if a rent reference system 'could feasibly be implemented successfully'
Kieran McQuinn, research professor at ERSI. The ESRI said a rent reference system would be complex for tenants and landlords around permitted rents and a regulator would need to assess compliance.
It is “not clear” a rent reference system would be a good option to replace the current Rent Pressure Zones (RPZs) or that it “could feasibly be implemented successfully” at present due to a number of complicating factors, the Economic and Social Research Institute (ESRI) has said.
This comes as the Government is set to review the current RPZ system which could include their abolition.
A number of different measures have been suggested to replace the RPZ system including a rent reference system whereby rent increases would be pegged to reference for rent for local dwellings of a similar quality.
However, in its latest economic commentary published today, the ESRI raised a number of concerns about implementing such a system.
It said that such a system would be complex for tenants and landlords around permitted rents and a regulator would need to assess compliance. Calculating the appropriate reference rents in a market which has been subject to rent controls for a sustained period would also be difficult.
“The nature of Ireland’s small, local rental markets is quite different from the larger, urban markets where these have typically been implemented. Identifying local dwellings of similar quality is therefore likely to be much harder in practice,” the ESRI said.
The last issue the ESRI have is data requirements needed to implement such a system which would include collecting BER ratings, property age, and price per square metre.
“It is not clear that a system of reference rents would be optimal for Ireland, or that it could feasibly be implemented successfully at present,” the ESRI said.
“Alongside the expansion of affordable housing and cost rental, there is a clear need to attract greater investment into the PRS. The complexity around that type of approach may not create the policy and regulatory clarity and stability required to do so.”
In assessing the reference rent system, the ESRI also looked into two other options the Government could consider — a change to the current RPZ system and a system that would reset rent levels after a tenancy ends.
The ESRI said there is a “clear need” to reform the RPZ system and this could be done by recalibrating the levels at which rent can be increased. It said caps on rent increases could be set at an “appropriately calibrated level that aims to balance the trade-off between stability for tenants and encouraging landlords to remain and new investment”.
“The choice of how to calibrate the inflation cap is crucial. While a fixed nominal cap is appealing in its simplicity, there is a trade-off between the certainty provided and allowing for increasing maintenance costs over longer periods of time by linking to inflation,” the ESRI said.
However, the ESRI warned that rent control measures such as RPZs are “not costless” as studies show “they also lead to reductions in mobility, new construction, supply and maintenance”.
On the system which would allow rents to be reset after a tenancy ends, the ESRI said this would prevent rents falling a long way below market rates and to continue to cover the cost of maintenance.
“However, the major concern is that it would favour landlords with frequent turnover of tenants, which may create an incentive for some landlords to try to evict longer term tenants.”
