Wednesday, January 1, 2014

Minister Calls for Rent Controls

The front page of the first Irish Examiner of 2014 led with calls from Housing Minister Jan O’Sullivan for the introduction of rent controls. Click to enlarge.

irish_examiner.750 (1)

The article is here.  It is not clear what type of rent controls might be examined but some mechanism linked to the CPI is alluded to with Jan O’Sullivan quoted as saying:

“There is a general problem on the cost of private renting. We should look at examples in other countries where rents are related to increases in consumer price indexes, where rents can’t be increased more than the cost of living increases.”

We can get data from the CSO on actual rents paid by tenants to private landlords back to the start of 2003.  This item has a weight of 4.35 percent in the overall index which naturally enough is also available from that time.  Here is what both series look like indexed to 100 in January 2003.

Rents versus the CPI

Compared to the start of 2003 the overall CPI is now around 20 percent higher.  Actual rents paid by tenants to private landlords have been rising recently (the annual increase is currently 8.2 percent) but the index is at the same level it was at in January 2003.

Private rents have shown periods of rises and falls over the past 11 years.  Most notable was the 25 percent drop from the first quarter of 2008 to the first quarter of 2010.  The Q3 2013 Daft Report on the Rental Market records similar patterns to those shown above on a regional basis (though only has data from the beginning of 2006).

In the chart above the two series are set equal to each other in January 2003.  They got there by different means but the two series were again almost equal to each other at the end of 2007.  Since then they have diverged significantly but are showing signs of converging again though it would take a further 20 percent increase in private rents from where they are now for the rent index to again equal the CPI (assuming it was unchanged).

There may be calls for rent controls now when rents are rising faster than the CPI but would a counter-factual with rent controls in place have seen rents fall by 25 percent in two years when the overall CPI fell by less than 8 percent over the same period?  Will rent controls be effective only on the way up and not on the way down?

Finally, here is a chart comparing private and local authority rents (again with both set equal to 100 in January 2003).

Private versus LA Rents

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