IRELAND’S rental property market is facing its biggest-ever squeeze as the intensifying housing crisis shows signs of spilling over to the broader economy.

As tenants compete for a dearth of available homes, rents in the third quarter rose 14 per cent on average from a year earlier, according to property website daft.ie. It was the biggest increase since the report began in 2005.

Higher interest rates have roiled real estate markets across Europe, making buying a home unaffordable for many consumers. That pushes more people to rent, but years of insufficient investment has led to a lack of supply.

“The Irish economy is underperforming because of the housing sector,” said Ronan Lyons, associate professor of economics at Trinity College Dublin and author of the report. The country is only building about half the 50,000 homes a year it needs, he said, adding that the trend risks choking off job growth.

There’s little prospect for relief anytime soon. Surging costs for building materials is making construction less attractive, while the government is considering scrapping build-to-rent programmes, a move that could threaten a pipeline of tens of thousands of new properties, Lyons said in an interview.

The number of rental units throughout Ireland dropped 26 per cent from a year ago to 1,087 homes as of Nov 1, according to the report.

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Rents in Dublin rose in line with the national average, while some parts of the country saw increases of as much as 24 per cent. Only 3 of the 35 areas covered saw a rise of less than 10 per cent, according to the report.

Dublin lacks about 70,000 rental homes with about another 70,000 needed for the rest of the country, Lyons said.

“There’s a running to stand still element,” he said. After 10 to 12 years of not adding to the rental stock despite a growing population with more younger workers, “it’s hard to see how the rental sector will get better in the next five years”. BLOOMBERG