The Government came to power with an urgent mandate to resolve the housing crisis. It’s had an inauspicious start.
There were fewer than 6,000 new home completions in the first three months of the year, according to Department of Housing figures published last month. While that’s up 2 per cent on the year, it leaves a mountain to climb for the Government to hit its target of growing output by more than a third to 41,000 this year – and ratcheting up incrementally to 60,000 in 2030.
Recent developments suggest this administration is as short-sighted and flighty as every other in recent times when it comes to housing.
Take the plan to set up a housing activation office – one of the better ideas to come from the Department of Housing of late – aimed at getting a crack team of officials to move quickly on addressing barriers to the delivery of critical infrastructure to boost housing development.
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Minister for Housing James Browne’s planned appointment of National Asset Management Agency (Nama) chief executive Brendan McDonagh as housing tsar descended into political farce when the Government baulked at Opposition criticism that he would retain his Nama salary of some €430,000.
McDonagh, a very credible figure whose bond to public service isn’t questioned even by his sharpest critics, had little option but to pull his name on May 1st when Tánaiste Simon Harris let it be known that he was peeved about not being kept in the loop. Appearing on The Late Late Show the following evening, Harris told middle Ireland that he did not think such a salary was a fair one.
An effective housing tsar would be worth multiples of the controversial figure. Either way, McDonagh remains an employee of the State on that package. He’s due to return to the National Treasury Management Agency (NTMA) once Nama – to which he is seconded – is wound down at the end of this year.
Further evidence of political expedience remaining the order of the day is to be found, too, in the fresh stab this week at rent reforms.
Currently, rent increases in rent pressure zones (RPZ), which covers about half the land area of the State, cannot be greater than the rate of inflation or 2 per cent – whichever is lower.
A planned new nationwide control system – set to fully kick in from March 2026 – would also see rent increases for tenancies capped in most cases by inflation or a maximum cap of 2 per cent. However, landlords would be able to reset rents at the going market rate when a tenant leaves. Smaller landlords with three or fewer units will have to offer rolling six-year tenancies, while large ones will not be able to evict a tenant who has complied with their obligations except in very limited circumstances.
Rent control for new apartments constructed following enactment of the legislation would be linked to inflation. This, the Government said, should “provide certainty, clarity, and encourage investment”.
If only. There’s a body of academic studies that point to rent controls in general affecting construction. Konstantin Kholodilin, a senior researcher with the German Institute for Economic Research in Berlin, last year reviewed 122 empirical published studies on rent controls internationally, spanning 1967-2023. Two-thirds of those studies that assessed the impact of rent caps on new residential development found they depressed construction, he said.
Irish private-rental-sector construction was booming during the phase of RPZ rent controls between 2016 and mid-2021. But that was at a time when increases were limited to 4 per cent and interest rates globally were at ultra-low levels.
Since then we have seen the maximum rent cap cut by half, construction costs spiral, and global interest rates spike (though they have since come off their highs). Construction in the private rental sector has all but evaporated. Although Approved Housing Bodies and the Land Development Agency have stepped in to address part of the gap in apartment building, they are focused on social and affordable accommodation.
Construction and finance industry figures say uncertainty caused by ever-shifting housing policy is more off-putting for investors than individual tweaks in themselves. With the latest rules delayed until next March, can investors willing to consider new schemes even commit before then? Add in at least another three years before any new supply comes on stream, and you’re talking about the end of the decade at the earliest for those brave enough to deliver.
There is nothing in the plan that would curtail an ongoing trend of small landlords exiting the market, further tightening supply. Sherry FitzGerald, the largest estate agent in the country, estimates that landlords fleeing the rental market accounted for 30 per cent of all home sales in the first quarter of the year.
Allowing owners new builds to link rents to inflation – a volatile index – compounds uncertainty for investors. Consumer price inflation is running at 1.7 per cent.
The incoming measures may serve existing tenants well, but effectively pull up the drawbridge on future renters.
People are likely to stay put for longer. This, along with a dearth of new builds, will further depress available stock and – all else being equal – push up what are already some the highest open market rental costs in Europe.
