The price of 'policy certainty'

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I’ve already written at length about the RPZ debate, but one issue I haven’t addressed is the idea of ‘policy certainty’. A key part of the debate on RPZ reform is the argument that landlords require policy certainty to continue to invest; a stable policy environment in order to be able to plan for the future, and to ‘derisk’ investment. The Irish PRS framework has indeed been volatile in recent years, with four different forms of rent regulation introduced since 2015, changes to registration, notice of termination requirements and the definition of ‘renovation’, as well as notice periods and the nature of enforcement.

Landlords are right to point out that this can’t go on forever, and it’s easy to see how this may have undermined investment in the PRS.

But the idea of policy certainty requires further scrutiny.

At a very basic level, democracy and policy certainty are not a neat fit. One of the core functions of a democratic Government is to transform the preferences of the public into policies. If Governments don’t do this, trust in institutions will fall and democracy will be eroded, as indeed is happening across much of the world. The erosion of trust in democracy/institutions itself creates a much deeper uncertainty, which is not in the interest of investors or anyone else.

Nevertheless, Governments also have a responsibility to facilitate economic prosperity and, in the case of housing, supply. So some level of certainty is indeed desired. However, if landlords, and those commentators concerned about sustaining investment in the PRS, are serious about policy certainty, they need to recognize that this cannot be a one-way street. If we are to achieve policy certainty, it requires a model which has the support of various stakeholders, including tenants and the wider public. Proposing that rent regulation is abolished, or returns to a market rent based model, is unlikely to get such buy in (such as the OECD’s proposal to allow rent increases to market rates between tenancies).

The notion that tenants will sacrifice more of their income at the altar of supply and at the same time guarantee investors policy certainty is, in my view, not realistic.

Consider some of Europe’s most stable housing systems. Countries like Denmark and Austria are often given as examples here. Both countries have a much more ‘corporatist’ approach to democracy, in which policy is shaped by stakeholders with a view to creating a stable environment over the long-term. Both countries, for example, have cost rental sectors and tightly regulated PRS markets dating back to the early 20^th century, and in both case the cost rental sector enjoys strong cross-party support, as well as support from employer and worker organisations. In countries like Sweden, the national tenants’ union (the country’s largest civil society organization) participates directly in negotiations with Government and landlords to determine rent setting each year. In Denmark, the Government negotiates with their housing association sector (which provides cost rental housing) and banks to determine the interest rate at which the latter will lend for affordable housing.

The rationale underpinning this approach is precisely that of policy certainty. But it is premised on the recognition that certainty, in a democracy, requires a significant degree of consensus among stakeholders, and therefor must be underpinned by housing regimes which meet the needs/interests of various parties.

My perception is that in Ireland the landlord lobby rarely proposes solutions that are politically realistic. The Irish Property Owners Association appears to be opposed to regulation of any sort, despite the obvious fact that housing, as a fundamental human need, is unlikely to remain a purely private affair. The institutional sector has typically adopted a more nuanced stance, but has recently been more assertive in critiquing rent regulation in particular. Neither have ever made any proposals in relation to security of tenure, which as I have argued on multiple occasions, is crucial to the politics of the PRS and the lives of tenants.

In my view, a stable private rental sector will require some degree of security of tenure for tenants, rent regulation which gives tenants stable rents and which ensures overall rental inflation is not excessive, and a robust enforcement regime.

If investors are serious about certainty, they need to recognize that consensus is built on compromise. And politicians and commentators need to stop parroting industry talking points and encourage investors to get real about what ‘policy certainty’ can mean in a democracy with a long history of state intervention in housing, in which the market has demonstrably failed to meet the needs of renters, in which over €1 billion is spent each year subsidizing rents, and in which 25% of households in Dublin are renters.