Rent stabilisation measures can mitigate excess inflation but come with risks
Research conducted by the Economic and Social Research Institute and the Department of Housing, Local Government and Heritage considered the international evidence on the functioning and deployment of measures similar to the Irish “Rent Pressure Zone” RPZ framework introduced in late 2016.
The research also considers how these measures have worked in Ireland in the period from their inception until prior to the COVID-19 pandemic in early 2020 when the maximum allowable rent increase was 4 per cent. A number of findings emerged; first, there is a clear economic rationale for price stabilisation mechanisms under certain economic conditions. However, internationally, the benefits of these schemes have been shown to accrue to existing tenants and these measures come with supply-side health warnings: they have been shown to lower investment and maintenance in buildings and lower overall rental supply in certain cases. This often affects potential new tenants. Exemptions to the rules in the Irish case for new supply and dwelling upgrades are correctly targeted to help avoid these side effects.
The research using Irish data also found that these regulations have had a material effect on price setting in the RPZ areas but that data gaps need to be bridged to understand better why numerous above cap rent increases still occurred. Analysis in the research suggests that ongoing pressures in the general housing market, and the robust macroeconomic recovery, would mean that absent the rules, rental inflation would be notably higher.
Commenting on the research, Associate Research Professor Conor O’Toole said:
“The adoption of RPZs in an Irish context have helped to limit the scale of rental inflation since their introduction in late 2016. Indeed, it is likely rental inflation would accelerate further without these measures. However, international evidence would suggest that while these type of measures are justified in many contexts, strict price caps risk lowering supply and upkeep in the medium term which must be borne in mind by policymakers.”