Launch of the
Residential Tenancies Board Rent Index

Introduction and Context

I would like to thank you all for attending here this morning for the launch of the Residential Tenancies Board Rent Index for Quarter 4 2016.

The Rent Index Report I am launching today represents a major innovation, the result of close collaboration between the RTB and the ESRI, that will give us a significantly more detailed understanding of market behaviour in the rental sector.

Following on from the introduction of Rent Pressure Zones at the end of last year, the methodology for producing the rent index has been revised and developed so that we can now use the RTB data to calculate and monitor changes in average rents at the level of Local Electoral Areas. Up until now this has only been possible to do in a way that simply differentiates between Dublin and the rest of the country.

The new approach recognizes that the same pressures do not apply equally in all parts of the country and gives us the objective evidence base we need to appropriately target the Rent Predictability Measure we introduced last year and designate the correct areas as Rent Pressure Zones. 

Background

Demand in the rental sector is high and is likely to remain strong into the future.  The sector has doubled in size over the course of the last 20 years.  Population growth, economic recovery and challenges in the home ownership market are all driving increased demand for rented housing at present.

The changing nature of work also contributes to the growth in demand in the rental sector.  Firms increasingly need more mobile workforces – and changing location and employer has become a more common feature of people’s careers.

There is an increasing need and a growing demand for the more flexible housing solutions that only the rental sector can offer.

To date, the rental market in Ireland has not responded well to this increased demand.  The levels of new investment and the numbers of new rental units coming onto the market are low and, in many parts of the country, particularly urban areas of high population density, demand for rental accommodation far outstrips supply.

In these areas, rents have been spiraling upwards and people, including many ordinary working families, are finding it more and more difficult to find accommodation they can afford.  This situation is unsustainable, causing uncertainty and hardship for many, contributing to homelessness and threatening our economic recovery by undermining competitiveness, driving up wage demands and making Ireland a less attractive investment destination.

We can expect to see growing pressure on the rental sector as a result of Brexit as companies seek to relocate here.  The availability of appropriate accommodation at a reasonable cost will be critical if we are to maximize the upsides of Brexit for our economy. 

Strategy for the Rental Sector

The Strategy for the Rental Sector, launched on the 13th of December 2016, recognises the critical importance of developing the rental sector in the context of the Government’s objectives for the housing sector overall, as set out in Rebuilding Ireland.

Our vision for the rental sector is for a sector that delivers long-term, affordable and high quality accommodation solutions to meet the differing needs of a diverse range of tenants and that provides a stable, predictable investment environment for landlords and accommodation providers.

The Strategy for the Rental Sector sets out a realistic targeted plan for working towards that vision and for dealing with the immediate challenges facing us.  It is designed to provide for a balanced package of reforms addressing the needs of both landlords and tenants.   It is structured around 4 key themes – Security; Supply; Standards and Services – and sets out 29 actions for implementation.

Rent Pressure Zones

The Rent Predictability Measure, is one of the most significant actions provided for in the Strategy.  The measure was enacted by the Planning and Development (Housing) and Residential Tenancies Act 2016 – and introduced the concept of rent pressure zones, to moderate the rate of rent increases in those areas of the country where rents are highest and rising quickly.

Rent pressure zones are defined as areas where rent increases have been at 7% or more in four of the last six quarters and where the rent levels are already above the national average.  Once an area is designated a rent pressure zone, rent increases are capped at 4% per annum for up to three years.

The rationale for the rent predictability measure is set out clearly in the Strategy.  It notes that rapidly increasing rental inflation is the most significant challenge facing the rental sector at present and that, ultimately, the solution is to be found in increasing the supply of rental properties.   However, as there is an inevitable time-lag associated with additional supply coming on-stream, there is a need for a targeted, time-bound and transparent policy response to the issue of rising rents.

The rent predictability measure is targeted in that it recognizes that the same pressures do not apply equally in all parts of the country.  The new methodology being presented today recognizes this and allows us to target the measure appropriately.

We have also taken account of legitimate concerns that rent regulation can discourage investment in supply.  The measure allows exemptions for new rental properties and for those which have been substantially refurbished, thus ensuring a predictable and fair return on investment for landlords.  The measure is also time-bound, providing that rents can be capped in an area for a period of 3 years only, to allow for additional supply to come on-stream.

Rent pressure zones were introduced with immediate effect last December across the four Dublin Local Authority areas and in Cork City.  On the 26th of January, I made an order designating a further 12 Local Electoral Areas as rent pressure zones in parts of counties Cork, Galway, Kildare, Meath and Wicklow.  I have today made another two orders designating Maynooth and Cobh as rent pressure zones.  Altogether, some 57% of tenancies nationally are now located in rent pressure zones.

The practical effect of these measures is that over 186,000 households who currently rent their homes in these areas now know exactly what maximum rent they will have to pay over the next three years.  It also means that the rents they will have to pay will be lower than they would have been if market rents had continued to apply.

Estimates from my Department indicate that households are likely to see savings of between €1,000 and €2,000 per annum, depending on the property type and location.  For example a family in a two bedroomed apartment in Dublin 3, would pay €1,056 less over one year – compared to what they would have had to pay without the measure.

For a 2 Bed Apartment in Ballincollig we estimate that the saving in a year would be over €1,600 and for a 3 Bed Semi D in Beaumont (Dublin) it would be almost €2,000.

As I said earlier, the new rent predictability measure is targeted and time-bound.  It is also transparent and evidence based.  The process whereby an area is designated a rent pressure zone is set out clearly in the Act.

Firstly, the Housing Agency, following consultation with the relevant local authority, makes a proposal to my Department that an area should be considered as a rent pressure zone.  Following receipt of such a proposal, I request the Residential Tenancies Board to conduct an assessment of the area to establish whether or not it meets the criteria for designation.  The RTB must report back to me within two weeks.  Where the RTB reports that an area meets the criteria for a rent pressure zone, I make an order to designate the area.  If the evidence is there I must make the order.  If it is not there I cannot make the order.

It is important to bear in mind that the rental market is very dynamic and constantly changing in response to fluctuations in supply and demand.  The Housing Agency continuously monitors the market and may recommend that further areas be considered for designation as rent pressure zones.

This has just happened in relation to Drogheda, Cobh and Maynooth.  The RTB found that Cobh and Maynooth met the criteria and that Drogheda did not.  As of midnight tonight Cobh and Maynooth become rent pressure zones.

Conclusion

When we introduced the rent pressure zones in Dublin and Cork, I made a commitment at that time that my Department would work with the RTB to ensure that more refined data was available to allow for more specific targeting of the measure to other areas of the country where severe pressures were being experienced.

The RTB and ESRI have really stepped up to the mark and put this new model in place in a very short space of time so that we can properly target this intervention towards those areas facing the most severe pressures.

This new methodology and the substantial dataset collected and maintained by the RTB mean that the Rent Index continues to be, by far, the most accurate and authoritative report of its kind on the residential rented sector in Ireland.  Through its work and reports like the one we are launching today, the Residential Tenancies Board (RTB) demonstrates that, as well as being a key provider of services for both tenants and landlords, it plays an invaluable role in monitoring the rental market and in providing accessible and high quality information for the public and for policy-making by Government.

I would like to conclude by thanking the RTB and the ESRI for the work they have carried out in developing this methodology and for the information and analysis contained in the Rent Index Report.

Thank you.

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