New RPZ Rules Won’t Solve Our Housing Crisis
The new RPZ regime is akin to someone drinking 10 pints of Guinness and then insisting on a diet Coke with their whiskey as they’re watching their figure. While the Government was working on this new policy, 800 apartments in Cork within walking distance of the city, were rejected planning permission. The irony of this is remarkable. The new regime is designed to attract “institutional capital” to build large scale residential buildings, while domestic developers are frustrated and hindered at every turn, when they try to do just that.
The new rules will allow for rents to be reset to market levels, between tenancies, if the outgoing tenant has surrendered the property voluntarily. For newly constructed apartments, at first letting, they can be set to market levels and then are capped by inflation thereafter, as measured by CPI. This is currently running at about 2%. The current system allows for rents to be set at market at first letting and then the lesser of inflation or 2% thereafter i.e. the new regime and the old regime are essentially identical at current inflation levels. To think that this will stimulate an influx of new apartment buildings is absurd.
The Government’s rationale for the new measures is utterly illogical. It goes like this: institutional investors won’t come to Ireland at present as they can get better returns elsewhere. We need to make the regulatory environment more attractive in order to convince them to deploy their capital here. In short, they need higher rents and more flexibility to increase them before they will commit to investing in Ireland. So far, that might be unpaletable but it is somewhat cogent. Where the logic comes off the rails is the notion that over time, as more institutional capital is deployed, as a result of the more landlord friendly regime, more supply will come onstream and so rents will fall in the long run. If this is indeed the plan, it is a clear bait and switch exercise insofar as the investors are concerned; they are lured here by high rents only for the rents to fall in the long run? It’s nonsense and doesn’t stand up to the most basic of scrutiny.
Warren Buffett says that with any market intervention, you need to ask “and then what” and keep asking it in order to really think through any unintended consequences. Let’s give it a try here. From March onwards, landlords won’t be able to serve tenants with notices to quit in order to sell the property with vacant possession. And then what? Well any landlord who has a tenant leaving their property between now and March next year would be crazy to relet it until March as if they wait until then, they can come back in at full market level, and increase 2% per annum thereafter, whereas if they let it out straight away, they are capped at the rate being paid by the outgoing tenant. And then what? Well hundreds if not thousands of properties will be left vacant or maybe used for short term letting to kill time until March i.e. all of the usual rental stock churn will grind to a halt over the next few months. And then what? There will be no new rentals coming to market between now and March. All these properties will hit the market in March ramped up to the very highest possible rent, which will be unaffordable to most. And then what? Rents will have increased considerably on the existing stock of rental properties but no new supply will come to the market as the rules for new builds are pretty much the same as they already are. So rents will go up but we’ll get no new supply so the tweaking will be essentially a waste of time.
When a society on the one hand prevents a developer from building 800 apartments in its second city while simultaneously claiming to want to solve the housing crisis, one has to wonder. The reality is that despite falling over the last number of decades, home ownership rates in Ireland are still at approximately 70%. For these people, soaring house prices are not a crisis but rather a personal balance sheet building bonanza. When Sinn Féin committed to getting the cost of the average house price in Dublin to €300,000 their support fell in the next opinion poll. This is like Saint Augustine who wanted God to grant him chastity, just not yet. We want to solve the housing crisis, just so long as it doesn’t make the price of the houses we own go down. Meanwhile the silent majority continually vote FFG back into power, over and over, despite, or perhaps because, under their watch house prices have remained high, grown steadily and with it the personal wealth of those lucky to be on the ladder already. The unavoidable conclusion here is that like poor old Augustine, we want to solve the housing crisis, but not yet. If that wasn’t the case how else could you explain such an utterly limp wristed attempt to solve it, in the form of tweaks to RPZ so minor that they’re irrelevant, while large scale housing developments are repeatedly rejected, and when finally approved, at smaller scale than originally requested. When Johnny Ronan wanted to build a 45 storey residential tower in central Dublin with his own money, you would think the only logical response would be “fair play, go for it, how can we help, how quickly can they be built!” What did we do? Grant permission but for half the height. I rest my case.
