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Urgent Reassessment Needed to Bolster Dublin’s Rental Sector

After last week’s run of industry news reports, two of Dublin’s biggest agencies released further rental market data this week that points to the need for urgent action.

Reports from property firms Hooke & MacDonald and Savills have highlighted the dire state of Dublin’s private rented sector (PRS), urging the government to reconsider rental cap policies to prevent further decline in construction and investment. It is abundantly clear that the stakes are high, with significant repercussions for Ireland’s housing market and broader economic health if swift action is not taken.

The current 2 percent rent cap, implemented in November 2021, has been identified as a critical impediment to new rental property developments. According to Hooke & MacDonald, the cap has proven to be a “self-inflicted disaster,” dramatically altering the investment landscape overnight. The firm warns that maintaining this cap will severely jeopardise future investments, potentially causing the supply of new rental properties from institutional investors to “fall away” within the next 18 months.

Ken MacDonald, managing director of Hooke & MacDonald, has been vocal about the detrimental impact of the rent cap, noting a significant slowdown in new builds within the PRS. The report points to an alarming “dearth” of transactions in the sector over the past 15 months, suggesting that without policy changes, the supply will continue to dwindle, leading to escalating rents.

Echoing these concerns, Savills’ pre-budget submission calls for easing the rental caps to arrest the sharp decline in new property completions. The firm predicts a 68 percent drop in PRS completions in Dublin by 2025 if the current trajectory continues. They attribute this downturn primarily to government interventions like the rent caps, coupled with rising interest rates and construction costs. The data from Savills emphasises the need for a more favourable investment climate, suggesting that the current rental cap discourages international investors, leading to a significant reduction in the development of new rental units. Their data reveals a 57 percent year-on-year decrease in the number of apartments approved in Dublin for the first quarter of 2024.

Call for Strategic Government Action

Both reports highlight the urgent need for strategic government intervention. Hooke & MacDonald advocate for the removal of the rental cap, projecting that such a move could prompt a surge in funding for the rental sector. This sentiment is shared by Savills, who recommend not only easing rental caps but also extending the Help to Buy scheme and reducing stamp duty on commercial properties to stimulate market activity.

In addition to policy adjustments, the reports highlight the importance of addressing labour shortages in the construction sector, noting that 67,250 workers will be needed by 2025 to meet housing targets, with this figure rising to over 82,300 by 2030. This labour demand could be met through a combination of inward migration and increased education and training outputs.

The broader economic implications are significant. The decrease in new builds impacts not only the housing market but also Ireland’s ability to meet its climate targets. As highlighted in interviews with industry experts, the shortage of construction workers is as much of a brake on home building as it is on renewable energy projects. Addressing this labour shortage is crucial for both housing and energy sectors. Furthermore, strategic infrastructure investments, such as interconnections and green hydrogen projects, could provide long-term economic benefits. Encouraging the development of large energy users, like data centres, in coastal areas with renewable energy resources, can also help balance the grid and support local economies.

The government’s forthcoming budget presents a critical opportunity to recalibrate policies that have inadvertently stifled Dublin’s PRS. By reconsidering rental caps, extending support schemes, and addressing labour shortages, Ireland can revitalise its housing market, attract investment, and secure long-term economic stability. 

Ian Lawlor
086 3625482

Managing Director 
Lotus Investment Group