For example, one thing that does go unmentioned here is the incentives that rent controls introduce that might result in vacancy e.g. a route back to "market" level rent through a long period of vacancy. In the Irish case, one of the exemptions that allows landlords to reset the rent to market value if the property has not been rented out at any time in the previous 2 years.
Also again, I appreciate the kind words and the shout out of my article. Enjoy the break and looking forward to reading your thoughts again in September.
Thanks Shane. I think you're right in that rent controls will always generate some kind of unwanted market distortion. But in my view they are still worthwhille if they deliver affordability, reduce poverty and strengthen security of tenure. The main thing IMO is to limit the impact on new supply, i.e. construction. In the Irish case I was in favour of exemptions on new development, for example. This is the most common mechanism to limit the impact on supply, e.g. in Denmark and in the new Spanish rules (due to come into force next year I believe)
I definitely agree that they should form (or at least be considered) part of a regulatory framework - apologies didn't mean to imply otherwise. I only meant that it's important to consider, as you have said, market distortions and repurcussive behavioural effects
Yes, and anecdotally, saw this happening a lot even in the very small apartment development I lived in for 10+ years. I did a calculation on this recently, and figured out that if setting to market rent at double the current rent after 2 years vacancy, it meant that the landlord only was subjected to a 1 year cumulative rent loss at the end of year 3. By end of year 5 they were close to breaking even and by end of year 10 the landlord gaming the system in this way would be a staggering 25% up on rental income over the compliant landlord not gaming the system. Question would be the individual landlords ability to sustain 2 year of no income - and suggestion would be, given that the overwhelming majority of landlords probably acquired their properties before 2008, there would be only a minority still highly dependent on rental income.
There's two other ways landlords could game the old RPZ system - via not registering at all in which case large non compliant increases could be meted out after a below market tenancy, and then the rental quietly registered as a new tenancy now at market rates. The second (and this is technically still available) would be to strategically evict the tenant on the grounds of "family needs" and move in the large adult son or daughter on that basis in order to force a market rent reset. Large adult son gets a free or cheap gaff for a couple of years, saves for his or her own FTB purchase, and the landlord can then drop back onto the rental market or sell free of 2 year rule at end of 2 years.
Honestly answer to this would be:
- proper regulation of registration with punative financial penalties based on rent and not just fixed figure
- cross checking of revenue returns and property registration bodies with in person inspections to validate claimed use (could include checks for short lets also)
- increase the 2 year rule to 5 years thus inflicting a more severe financial penalty on this tactical gaming of the system
- bounties for successful reports - incentivise citizen reporting with financial rewards for successfully identifying and reporting derelict, short lets and unregistered tenancies
I think a good compliment to this piece is the follow on article by HomeTruths to the one you have called out already (https://hometruths.housingsupply.ie/p/cso-the-central-signal-office).
For example, one thing that does go unmentioned here is the incentives that rent controls introduce that might result in vacancy e.g. a route back to "market" level rent through a long period of vacancy. In the Irish case, one of the exemptions that allows landlords to reset the rent to market value if the property has not been rented out at any time in the previous 2 years.
Also again, I appreciate the kind words and the shout out of my article. Enjoy the break and looking forward to reading your thoughts again in September.
Thanks Shane. I think you're right in that rent controls will always generate some kind of unwanted market distortion. But in my view they are still worthwhille if they deliver affordability, reduce poverty and strengthen security of tenure. The main thing IMO is to limit the impact on new supply, i.e. construction. In the Irish case I was in favour of exemptions on new development, for example. This is the most common mechanism to limit the impact on supply, e.g. in Denmark and in the new Spanish rules (due to come into force next year I believe)
I definitely agree that they should form (or at least be considered) part of a regulatory framework - apologies didn't mean to imply otherwise. I only meant that it's important to consider, as you have said, market distortions and repurcussive behavioural effects
Yes, and anecdotally, saw this happening a lot even in the very small apartment development I lived in for 10+ years. I did a calculation on this recently, and figured out that if setting to market rent at double the current rent after 2 years vacancy, it meant that the landlord only was subjected to a 1 year cumulative rent loss at the end of year 3. By end of year 5 they were close to breaking even and by end of year 10 the landlord gaming the system in this way would be a staggering 25% up on rental income over the compliant landlord not gaming the system. Question would be the individual landlords ability to sustain 2 year of no income - and suggestion would be, given that the overwhelming majority of landlords probably acquired their properties before 2008, there would be only a minority still highly dependent on rental income.
There's two other ways landlords could game the old RPZ system - via not registering at all in which case large non compliant increases could be meted out after a below market tenancy, and then the rental quietly registered as a new tenancy now at market rates. The second (and this is technically still available) would be to strategically evict the tenant on the grounds of "family needs" and move in the large adult son or daughter on that basis in order to force a market rent reset. Large adult son gets a free or cheap gaff for a couple of years, saves for his or her own FTB purchase, and the landlord can then drop back onto the rental market or sell free of 2 year rule at end of 2 years.
Honestly answer to this would be:
- proper regulation of registration with punative financial penalties based on rent and not just fixed figure
- cross checking of revenue returns and property registration bodies with in person inspections to validate claimed use (could include checks for short lets also)
- increase the 2 year rule to 5 years thus inflicting a more severe financial penalty on this tactical gaming of the system
- bounties for successful reports - incentivise citizen reporting with financial rewards for successfully identifying and reporting derelict, short lets and unregistered tenancies