Minister for the Environment Alan Kelly’s housing plans, including caps on rents, are “barely economically viable”, a senior Fine Gael source has said.

Relations between the Labour Minister and Fine Gael have worsened following the failure to agree a comprehensive housing package for the budget.

Highlighting the escalating tensions, sources close to Mr Kelly said Fine Gael’s plans to deal with the housing crisis were “tokenistic” and “insufficient to deal with family homelessness”.

A Labour source added: “Nothing was tabled by Mr Noonan to address homelessness. It is the main reason the deal fell. They were only cosmetic proposals.”

However, there are divisions in Labour too, illustrated by Minister for Public Expenditure Brendan Howlin’s failure to support his colleague.

Insisting there is “no fundamental difference” between the parties on rent certainty, Mr Howlin warned against measures that “distort the market”.

The proposed rent certainty package, reduction in development levies and proposed grants for developers were not included in the budget, despite meetings between the two departments last week.

Fine Gael is becoming increasingly frustrated with Mr Kelly’s controversial housing proposals. Senior figures have accused him of trying to interfere with the property market with his plans to link rent increases to the Consumer Price Index (CPI).

The dispute was continuing behind the scenes yesterday and has damaged relations between Mr Kelly and the Minister for Finance Michael Noonan.

Proposals

Mr Kelly’s party colleague Mr Brendan Howlin twice declined to support the specific proposal to link rent to CPI and warned against measures that “distort the market”.

A senior Fine Gael source said: “Michael Noonan was able to deliver the housing measures from his side.

“He spoke to Nama and it was agreed 20,000 houses would be built. He did his bit but that’s what happens when you negotiate.

“Kelly hasn’t even tried to negotiate. He has made his proposals and is refusing to budge.”

Mr Kelly said further discussions will take place next week.