(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Carol Ryan
LONDON, Dec 19 (Reuters Breakingviews) - Ireland’s new rent caps just plaster over serious cracks in the walls. Dublin housing costs have increased by over 70 percent since 2011, ranking it among Europe’s most expensive capitals for accommodation. While the brake may stop sky-high rents increasing further in the short term, it does little to solve a major supply issue. That leaves the city’s pitch as an attractive EU base on shaky foundations.
Prime Minister Enda Kenny’s government is introducing caps that limit rent increases in areas of Dublin and Cork, Ireland’s second-largest city, to 4 percent annually for the next three years. Calls from opposition parties to link rent reviews to the consumer price index, which is currently negative in Ireland, were rejected.
The intervention will spook the international investors that have piled into the Irish property market since its 2008 crash, lured by rent yields north of 10 percent for one-bed apartments in some districts of Dublin. Even though the government has tried to manage the risk of choking off crucial new supply by exempting new developments from the cap, it sends damaging signals.
Ireland’s annual rent inflation rate stands at 12 percent, according to property group Daft. Dublin housing is now almost one-third more expensive than Frankfurt, 41 percent more expensive than Brussels, and 7 percent pricier than Amsterdam, according to cost of living index Expatistan. That makes the city a tough sell to multinationals needing to relocate workers.
Loosening the gummed-up supply of housing stock is tricky. New building is at its slowest pace in 45 years, partly because construction is expensive in Ireland and regulations stringent. And many Irish highly-leveraged developers went to the wall during the crash. Just 12,666 new homes were built last year, according to Davy analysts. With the country now recording net inward migration, double that number may be needed annually.
The issue has taken on fresh urgency as the country competes with other European capitals to be considered a viable post-Brexit alternative to London by financial services groups. Some global banks have mooted moving operations out of the UK within six months. That suggests Ireland must get to grips with its dysfunctional housing market, and soon, lest companies decide to head elsewhere.
- The Irish parliament on Dec. 16 passed a bill introducing rent caps in its two main cities, Dublin and Cork.
- The measures propose restrictions on Rent Pressure Zones, areas where annual rent increases have been at 7 percent or more in four of the last six quarters and where rent levels are already above the national average.
- In these zones, rent increases will be capped at 4 percent annually for the next three years.
- The annual rate of rental inflation in Ireland is currently 11.7 percent, according to a Daft.ie rental report, the highest recorded since recording began in 2002.
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Editing by George Hay and Sarah Hurst