Part of the Government’s pitch to voters during the election campaign last year was that the State had turned a corner on housing.
Ministers were clever not to overstate it, acknowledging the horror show that housing is for young people, but nonetheless insisting the right policies were in place to fix the problem.
Evidence that these policies were bearing fruit could, they said, be seen through the pickup in new home completions (which hit a post-crash high of 33,000 in 2023) and the surge in housing starts (the best indicator of future supply). These were big numbers when you consider the State was building fewer than 15,000 a year as recently as 2017.
How successful this pitch was with voters, who have repeatedly pinpointed housing as their number one issue, is hard to say exactly, but last November the Government was one of the few incumbent administrations globally to be re-elected 2024, the year of elections.
Two months later, ironically on the same day as Micheál Martin was sworn in as taoiseach for a second term on January 23rd, the 40,000 figure and the Government’s positive story on housing went up in a puff of smoke.
The Central Statistics Office published new home completion figures for last year, showing that housing output actually fell, back to 30,330 units, a decrease of 7 per cent on the previous year, and nowhere near the 40,000 promised.
Ministers were said to have been “shocked”.
More cold water was poured on the Government’s narrative by property consultants Mitchell McDermott.
In a report on the sector, published a week later, the company suggested that housing delivery had stagnated well below government targets and would fail to reach the 33,000 level achieved in 2023 for at least another three years. And that the Government had “little chance” of achieving its plan to build 300,000 new homes by 2030. The report also dismissed the surge in commencements as a blip.
Developers rushing to meet deadlines for Government waivers on levies had artificially pumped up the level of commencements last year, generating what it described as “a misleading narrative” that supply had been turbocharged.
With the spotlight back on Government housing policy, Martin has signalled a review of its housing policy with a view to incentivising the private sector to build.
“We need to pivot more strongly to getting more private sector investment into the market” which will “entail politically very difficult decisions”, he told RTÉ radio’s This Week last Sunday.
This will entail a review of the rent pressure zones (RPZs) – the system of controls that caps annual rent increases at 2 per cent or the level of inflation (whichever is lower) which expires this year – which the industry cites as a big stumbling block for investors but which Opposition parties claim keeps already high rents in check.
Under consideration is a move to a system of “reference rents”, as the Housing Commission has advocated, where rent limits are related to factors such as location and property size.
There is also talk of specific tax breaks for private residential sector investors.
Martin spoke of the need “to create a stable environment for investment to flow into the sector ... particularly in the apartment side”.
The acceleration in housing supply in 2021, 2022 and 2023 was in the main driven by apartment developments in Dublin. The current stagnation is primarily because of a fall-off in this type of development.
Apartment completions fell from 12,000 units to 9,000 last year and are expected to fall again this year.
Until recently, foreign funds had been financing an apartment building boom, particularly in Dublin, but higher interest rates (after 2022) combined with other factors have in effect choked that off.
Between 2013 and 2024 total private residential investment here totalled €10.8 billion, an average of €902 million a year. The most recent figures (€1.6 billion in 2022; €597 million in 2023; and €231 million last year) chart the collapse of that investment in the face of higher interest rates.
A Business Post report said industry officials have told the Government that no apartment block funded by private investors has begun construction in the past 12 months, despite numerous projects in the pipeline.
The Land Development Agency and approved housing bodies have filled the gap to some extent (buying many of the schemes coming to fruition for social and affordable housing projects).
But industry has been lobbying hard to have the RPZ system, which they decry as among the most stringent in Europe, overhauled.
Shares in Ires Reit, the largest landlord in the State, rose to their highest level in eight months this week after the Taoiseach signalled the system may be changed or even removed.
The Government will have to move cautiously. A big gear-change will almost certainly entail a political backlash, with renters in many parts already paying what many feel are exorbitant rents. Average monthly rent in Dublin (on the open market) is now €2,500.
The Housing Agency is reviewing RPZs and will report to the Department of Housing by the end of next month. Minister for Public Expenditure Jack Chambers insists there is no predetermined outcome.
“RPZs address the symptoms of the lack of housing and rental stock, but they’re not the cure,” Bank of Ireland chief economist Conall Mac Coille says.
“They’ve created a two-tier market,” he also says, highlighting the gap between average rents paid by new and existing tenants.
Property website Daft.ie estimates that average rents for movers have doubled since 2016 while those for stayers have gone up by 20 per cent.
“This creates an illiquid market (in other words tenants are unwilling to move for fear of encountering bigger rents),” Mac Coille says.
As a corrective, the Organisation for Economic Co-operation and Development this week suggested landlords here should be able to “reset” rents between tenancies – whenever they get in a new tenant to a property – to stop the exodus of investors from the market and boost the supply of rental property.
The Paris-based agency noted that with higher-than-normal inflation in recent years, the allowed rent increase (under the RPZ system) was likely to have been below the cost of maintenance and upkeep and might have driven landlords to sell.
There are just 2,300 properties available to rent nationally on Daft, which is about 50 per cent down on the pre-pandemic average.
Trinity College Dublin economist Ronan Lyons, author of Daft’s quarterly reports, says: “It’s not like if we scrapped rent controls completely, which I don’t think anyone is suggesting, that all of sudden all our problems would be solved ... it’s not that binary.”
Nonetheless, he believes the most important factor suppressing the supply of new homes in the rental sector is “the very tight numerical limits on increases that apply across tenancies”.
He pinpoints the shift from the 4 per cent annual rent cap to the 2 per cent (or lower) limit, brought in 2021, as a key change.
“It seems like a small difference, but if you compound it over 20 or 30 years ... the fundamentals of the maths (for investors) change completely,” he says.
A compromise, as Lyons sees it, is to go back to the 4 per cent limit.
Government should focus on policies that will increase public investment in social and affordable homes
Sinn Féin housing spokesman Eoin Ó Broin, however, says the primary reason for the fall-off in institutional investment in the forward-purchasing of apartments is European Central Bank interest-rate rises and the high development costs of inner urban apartment schemes.
“Indeed, until these two issues came into play, lobbyists for institutional investors in the private rental sector never even mentioned RPZs,” he says.
“Rather than make hard-pressed renters or the taxpayer pay to prop up this broken model, government should focus on policies that will increase public investment in social and affordable homes and private investment in homes for working people to buy.
“This will in turn free up existing rental stock without crippling renters with unacceptably high levels of rent.”
Scrapping RPZs or allowing landlords to reset rents to market levels between tenancies will do little or nothing to increase supply but will be “devastating for hard-pressed renters”, he says.
“The reason why the Government failed to meet their target of new homes last year is because they missed both their social and affordable housing targets,” Ó Broin also says.
While the final figures have yet to be released, the total public housing figure – between social and affordable units – is expected to be in the region of 10,000 against targets of 9,300 for social and 4,400 for affordable.
“Any discussion about increasing overall housing supply to the levels that are needed must start with increasing the State’s investment in social and affordable homes,” he says, suggesting this needs to double to at least €8 billion a year.
[ Simon Harris says Government should not ‘make policy on the hoof’ as he defends rent controls ]
Apart from their rankle with rent controls, investors also cite policy volatility here as a big issue. The Government seems to changing the policy mix every two to three years, a source of instability in itself.
And there’s an unerring sense that the primary aim of any likely reform of the RPZ system will be to correct distortions caused by the original measures.
Either way the Government has through over-promising on supply and perhaps over-tinkering on policy landed itself in difficulty again on housing.
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