The IMF’s Call to Abandon Rent Caps

A Path to a Healthier Irish Rental Market

Recently, a senior planning official described the ongoing situation in Ireland as “not a housing crisis”, but rather “affordability crisis”. He was right, sort of… 

Yes, Ireland has an affordability crisis, but that persistent lack of affordability is dampening the delivery of new supply, resulting in a mismatch of supply and qualified demand that is nothing short of a housing crisis. The Government response has been to put an artificial lid on the cost of accommodation, but without addressing the underlying issues. Rent Pressure Zones, or RPZs, cap rent increases at an annual maximum of 2 percent and, as a policy, aim to alleviate the housing issue, however, the impact of RPZs has now come under scrutiny from unexpected quarters – the International Monetary Fund (IMF). 

Following a two-week visit to Ireland, the IMF suggested that the government should reconsider rent caps as they might be exacerbating the very problem they intend to solve. In observing that rent caps hinder rather than help the housing situation, the IMF points out that when rent controls are introduced, they may lead to increased demand for rental properties, however, they discourage landlords from entering the market or maintaining their properties. Consequently, the supply of available homes decreases, and the quality of existing housing deteriorates.

The IMF contends that a more effective approach to address the housing crisis is to focus on increasing the supply of affordable rental units. Rather than relying on price controls, the Irish Government should explore alternative measures, such as housing vouchers or subsidies targeted at the most vulnerable renters. By doing so, the IMF believes that Ireland can create a stable, sustainable and fair balanced rental market that serves both landlords and tenants.

Rent Pressure Zones (RPZs) and their limitations

RPZs were introduced in areas where rents were soaring, making it difficult for households to secure affordable accommodation. While the intention behind RPZs is laudable – affordable housing benefits everyone, including providers – their limitations have become increasingly apparent and problematic. Most notably, the exemption criteria for RPZs are complex and may lead to unfair outcomes. For example, properties that have not been rented for two years before a new tenancy can be exempt from rent caps, while a neighbouring property where a tenant has been left in occupation, might be renting at a monthly level that falls well below market value – it unfairly penalises well-intended landlords.

RPZs also negatively impact supply and quality issues, potentially deterring landlords from investing in their properties or entering the market, further restricting the supply of rental housing. This decreased supply may lead to a reduction in the quality of available rentals as landlords cut costs to maintain profitability.

While above are landlord and tenant challenges, the IMF perspective is that rent caps can have unintended consequences on the broader economy, potentially hindering economic growth and discouraging investment in the housing sector. Irrespective of whether you agree or disagree with the IMF, there can be no doubt that they are trying to address the root causes of Ireland’s housing crisis in order to promote a healthier rental market. We need for domestic policymakers to adopt a similar position and to prioritise tackling the root causes rather than the symptoms of our housing shortages. 

Ian Lawlor
086 3625482

Managing Director 
Lotus Investment Group