Next Government Must Make Unpopular Decisions Fast If Housing Crisis Is To Be Solved

The next Irish administration will have less than six months to address the structural problems holding back homebuilding in Ireland, or it risks becoming mired in the politicisation of the country’s stringent residential rent caps, according to some of Ireland’s leading developers and investors.

Speaking at Bisnow’s Ireland Residential Investment and Development Conference in Dublin Thursday, the need to reframe policy to encourage international investment and private development has never been more urgent, they warned. And the private sector will have to play a key role in addressing Dublin's housing crisis. 

“We can talk about rising costs and yields all day long, but there are only three things that matter in encouraging private residential investment and development: rent caps, rent caps and rent caps,” Irish Residential Properties REIT CEO Eddie Byrne told delegates at Aviva Stadium.

“I am not against rent caps, but the way the instrument has been applied in Ireland is too blunt,” he said, referring to rises being capped to inflation or 2%, whichever is lower. “For an investor in PRS, the maximum rent rise they can apply at the moment is 2%, and yet their costs are going up by 4% to 5% annually, so the value of the asset is going down with each year.”

Speaking ahead of Ireland's general election on 29 November, he said that until changes are made that will incentivise investors to look at Ireland rather than alternative European cities, there will be a reduction in supply. He estimated that the cost of delivering 50,000 new homes a year would be around €20B, beyond the scale of delivery from either the state or Ireland’s domestic players.

“We simply won’t attract the international investment that is vital to Ireland,” he said. “While we don’t know who will win the election, clearly the sentiment has changed a bit over the past 12 months, but I don’t think anyone will make a decision [to review this] until after the election. But at least then we will have a better idea of the direction of travel.”

However, he said that it was a pressing issue because the reengineering of rent cap legislation and passing it through could easily take up much of the four years. At that point, the next administration will have to go to the polls again, and rent caps will again be a political hot potato among the electorate.

“If we’re not quick, we’ll be moving into the next election cycle,” Byrne said. “I want to stress that we don’t think that the rent caps should be scrapped, and clearly international investors are used to them in other markets, but the way they are applied in Ireland is too blunt an instrument.”

Caps should apply to the tenant, not the unit, he said, adding there should be amortised capital expenditure that, through improvements, would give the owner an incentive to improve the property to raise rents. Right now, there is zero incentive to improve properties.

The government needs to consider what any changes might look like, said Trinity College’s Ronan Lyons, the author of the Daft.ie reports. He said there is a recent precedent in Ireland, when rent caps were set at 4%. That level did not impact supply, he said.

“A country like Ireland is utterly dependent on international investors, and I wonder whether the policymakers really understand that,” he said, voicing concern about why PRS has fallen out of political favour.

“I think the whole industry is conscious about affordability, but the current situation is too harmful to the investment picture,” he said. “My view is that 4% annual rent rises is more of a fair balance for the investors and for the tenants.”

Ballymore Managing Director Patrick Phelan said the implementation of the National Property Framework to help encourage homebuilding was still not ambitious enough. He worried “there is no sense of urgency from government.” 

“The problem for developers and investors is trying to get a handle on the uncontrollables — planning, power, water and so on for new developments — because in our experience, it is those actors who are blocking progress,” he said. “It’s not that anyone in government wants to stop housing being built, but politicians are, in my opinion, being briefed by the wrong people who are not considering the scale of the issues or the urgency involved. Whatever makeup of government we have after the election, they need to listen to the right people.”

Phelan added that although he saw government agencies and national organisations as one of the key areas for improvement, they did have the capability to deliver if they are given a clear brief from the state.

“I think the national utilities will gear up if they are set targets,” he said. “When the housebuilding goals went up to 50,000 per annum, they geared up for that, so if they are set higher expectations, I do believe they will set themselves up to deliver to those.”

Greystar Ireland Managing Director Claire Solon echoed the concerns over the rules and their impact on investors who have the choice of where to deploy capital across European cities.

“The government’s targets are simply not going to happen, and while it is positive that the affordable and social housing sectors are moving forwards, the strategy is missing the third important building block, because the private sector is simply not being supported,” she said.

“When we look at opportunities among our international team, Ireland is considered high risk. We try and sell Ireland as a platform [because of the strong fundamentals and supply-demand mismatch] and stress that the current rent cap is coming to an end in December 2025, plus there will be an imminent change of government,” she added.

However, Solon said she was also concerned that any new administration will need to act quickly if it is to avoid having any changes in legislation bogged down by political sensitivity come the next election cycle.

“Postelection, the government will have a very short opportunity to make some unpopular decisions. But they have to take advantage of a brief window because otherwise, any changes they propose will become political again at the next election,” she said. “So that means moving this forward in the first quarter of 2025 is vital.”