The latest Daft.ie report on the state of the Irish property rental market has shown that the supply of rental homes is in free fall:
“In Dublin, between 2008 and 2012, there were an average of almost 5,200 properties available to rent at any one time. Since 2012, this has fallen again and again. As of February 1st, there were fewer than 1,400 properties available to rent – in a city of over half a million households, more than a third of whom rent.”
The problem of a collapse in building since the bubble burst in 2008 has been exacerbated by the government introducing rent controls. A large section of voters appealed for something to be done about spiralling rents. I am not sure if they were primarily Labour voters, but with Labour facing a collapse in popularity, and having their Deputy Leader – Alan Kelly, in charge of the relevant Environment portfolio they forced their coalition partner to take action. So they took a “lets do something quick” politician’s approach, and decided to go after the easy option of banning the symptom – “rent increases are prohibited”.
For every complex problem there is an answer that is clear, simple, and wrong.
H. L. Mencken
This is a classic complaint about politicians. That faced with a complex problem they go for the fast, solution, one that they can quickly identify as “we took action”.
Except this is not a complex problem. The property rental market is simple to understand. The issue is supply and demand. Demand is soaring, and supply has failed. This is something the likes of Daft.ie have been saying for years. Curtailing rents does not fix the underlying issue.
And it is not like there is a difference of opinion between economists in the left and right on this. It is one of the few areas of consensus between them – rent controls look nice in the short term (probably a few weeks) but encourage landlords to leave the market, reducing supply, encourage poor use of the remaining space, and benefit sitting tenants over those that are trying to get established – so it is another tax on the young (a topic I will come back to on this blog).
And you just have to look at the places where rent controls are implemented to see how toxic they are for a housing market. Like, em, Stockholm where I live. Rent controls offer you a decent place, at a low price. If you can get a primary lease. Except the waiting list for those is years. In popular neighborhoods it is decades*. Almost everyone is forced to look for a grey secondary lease where rents are significantly higher, demand is massive (the local equivalent of Daft doesn’t even show pictures of properties when they know people will rent them anyway), and supply is totally constrained. The actual result of rent controls is lack of supply, high rents, and young people (and those arriving in the country) getting penalised.
Why am I ranting about this? Because it is election time. And a scary number of candidates are saying that they back even stricter rent controls. If you want to fix the rental market in Ireland (and I totally agree it is broken) then they need to be challenged on the door step. Rent controls look nice in the short term. But ultimately everyone loses out. And the longer they go on the worse they make the situation. The focus needs to be on supply. Reject candidates offering you quick fixes that don’t fix!
I’ll see can I get another post up tonight with what I think needs to be done instead.
* Last summer a person got an apartment in a place they have been waiting on since 1989!
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