Letting agents are reporting a severe shortage of apartments available for renting in Dublin, particularly one-bedroom units, as the Bacon measures continue to discourage investors from buying these homes.

According to Hooke & MacDonald's letting department, the number of people who looked for accommodation last month was double the figure for January, 1998. However, rents have increased sharply over the last 12 months while the number of available properties - especially in the middle market - has decreased considerably.

Carina Warner of Hooke & MacDonald says one-bedroom apartments have shown the most dramatic increases, with rents up by nearly 60 per cent on two years ago - from an average of £350 per month to £550 per month.

"This type of accommodation has always been popular with couples but there was a large proportion of single people who also opted for one-beds. They have been priced out of the market and now have very little choice apart from shared accommodation."

Tenants who would previously have left when their lease ended are choosing to stay on, resulting in fewer properties available for renting. In some cases, tenants are refusing to leave at the owner's request, saying they have no place to go.

"People are putting deposits on apartments that haven't even been vacated, so we're basically letting accommodation before it's empty," says Ms Warner.

Prohibitive house prices have increasingly placed the rental market under strain but Mr Warner traces the severity of the current shortage back to the Bacon Report.

"New rental property just isn't coming on stream because everything we're letting was bought before Bacon. Since it abolished tax concessions, there's been no real incentive for investors."

Peter Wyse of Wyse Estate Agents agrees, pointing out that while the Bacon Report may have achieved its immediate objective of bringing down house prices, it has spawned a new set of problems.

"Sales of second-hand apartments are down nearly 40 per cent since last summer. A place that would typically have cost £200,000 is currently going for £180,000. So, Bacon has managed to slow prices down but as a result it has stemmed investment, which in turn has reduced the supply of rental properties."

With competition keen between flat hunters, Mr Wyse says the poorest are worst affected, often finding themselves squeezed out of the rental market and on to local authority housing lists.

According to Kieran McKeon of Property Lettings, specialists in the mid to lower end of the market, those on social welfare are finding it particularly difficult to rent accommodation.

"Demand is so high that landlords can pick and choose, and, if given the choice, they normally prefer to take workers as tenants. That way they can avoid contact with Government agencies, which many would prefer."

Immigrants and students arriving from the Continent have also been badly affected. Mr McKeon says most have no idea how difficult it is to find accommodation and often end up living in hostels - an outcome few would have expected. The fall out from the Bacon Report in the rental sector demonstrates its weakness as a policy, according to Mr Wyse, who believes its implementation has been a misguided.

"It was supposed to free up housing and prevent speculators with a lot of apartments from cashing in on tax concessions but it has succeeded in taking out the small investor in the process. The backbone of the market was made up of people with just one or two apartments but these no longer have an incentive to invest.

"The logical outcome is that construction will slow down and that will effect tax revenue and ultimately jobs. There's definitely a case for bringing back some form of limited mortgage investment relief.

Now that the EU is winding down its structural funding, there will be far fewer opportunities for tax driven incentives - so the Government has got to be cautious about doing anything that could stifle job creation."

Ms Warner agrees, saying there should be tax concessions for developments in priority areas especially Dublin's city-centre. "I know there are ideal apartments out there which just haven't been bought because tax relief isn't available. Section 23 doesn't necessarily have to be re-introduced but some form of concession is needed."