Rent cap locks billions of euros out of Irish housing: CBRE

IRELAND’S rent controls are deterring overseas investors in the local residential real estate market and keeping out billions of euros, according to a study by CBRE Group.

Only one forward structured residential transaction – in which an investor agrees to buy a development early or mid-construction stage – has been reported since the start of 2023, the property broker’s research arm said in a report on Wednesday (Sep 18).

That compares with forward commitments that formed the bulk of the 9.5 billion euros (S$13.7 billion) injected into the market by institutional investors between 2018 and 2022, it said.

A government policy that limits annual rent increases in some parts of Ireland to 2 per cent per annum is the underlying cause, CBRE added.

“Essentially, no new transactions of this type have been originated in the Irish market since 2022,” the report said, noting that the one forward-structured residential investment transaction in 2023 was largely a carry-over from the previous year.

“Locking out up to one billion euros of capital per annum that could support the development of thousands of apartments in a market that is so fundamentally undersupplied is not something we can afford to do”

The rental controls, initially ushered in at 4 per cent per annum in 2016 and amended to 2 per cent in 2021, are a hindrance that only compounds increased capital and construction costs for investors, lobbyists for the industry have pointed out.

The cap, introduced as rents rose, also applies to the next letting of a property even at the end of the previous tenancy, unless the property has been vacant for two years.

Housing is one of the biggest issues facing the Irish government ahead of an election that must be held by March next year, as demand for accommodation outstrips supply.

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Almost 33,000 new dwellings were completed in 2023, according to government data. While that is more than double the 2017 total, as part of efforts to tackle the country’s housing crisis, more stock is needed to meet demand. Ireland needs to complete around 52,000 new homes each year until 2050 to house the country’s growing population, according to the Central Bank of Ireland.

Some market players want to see the controls modified instead of being scrapped outright. That will not happen immediately, as the government recently extended the rent controls to the end of December 2025, although recommended in a July rental review that they be assessed in advance of their expiration.

“What is most damaging to an investor’s decision-making process is a consistent change in policy or regulation, or indeed the talk of further changes to policy,” said Kate English, head of real estate research at Deloitte in Ireland.

“Consistency in regulation to allow for long-term investment and an ability to reset to market rents after a tenancy ends is critical going forward.” BLOOMBERG