Ireland may link residential rents to inflation

DUBLIN – Ireland may bring in legislation to link residential rents to the rate of inflation and temporarily control soaring rental costs, the country's environment minister said on Monday.

A severe shortage of housing in urban centres has become a big political issue ahead of elections due by early 2016, with rents in Dublin almost back at levels seen at the height of Ireland's property boom a decade ago. The spectacular bust that followed in 2008 wrecked the country's banks and economy and pushed Ireland into a now-completed international bailout.

"It's certainly something I'm in favour of as an interim measure while supply is coming up in relation to housing, and reports linking it to CPI would be accurate," Environment Minister Alan Kelly told Irish national broadcaster RTE.

"What we need to do is ensure people have certainty in the future, that there can't be immoral rent rises, and there are immoral rent rises taking place — somebody who pushes the rent up by 10, 15 per cent."

The Sunday Times newspaper said the government planned to link rents to the consumer price index (CPI) for a four-year period. Inflation was flat in Ireland on an annual basis in August after falling for eight successive months.

Ireland was left with an overall surplus of houses after a construction boom that ended with the crash, but the wrong stock was built in the wrong places, leaving property scarce in cities while out of town housing estates lie empty.

Kelly said the plan was part of discussions between his department and finance minister Michael Noonan on a package of measures in the October 13 budget to boost housing supply.

With house building at less than half the level of the 1970s when Ireland was a much poorer country, prospective buyers are stuck in the rental market as the economy recovers, pushing rents up as high as 10 per cent year-on-year in Dublin.

The rising rental costs come as the effects of Ireland's financial crisis are still being felt through high unemployment, higher taxes and lower wages.

Noonan has introduced policies to try to kickstart the housing market in his last three budgets, but they have had little impact on construction. Fewer than 7,000 homes were completed in the first seven months of this year compared to at least 21,000 the government estimates is needed to meet demand.

"The Government is currently grappling unsuccessfully with policy solutions for Ireland's ongoing housing supply shortage," Goodbody Stockbrokers wrote in a note on Monday.

"Speculation that a form of rent control is on the agenda does not bode well in our view, although we believe the limited time frame will go some way to assuage concerns."