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Rents should be freely adjusted between tenancies in a significant change to existing restrictions, a major new report on Ireland by the Organisation for Economic Cooperation and Development (OECD) has recommended.

The finding comes as the Government reviews existing limits on how much tenants pay as there are concerns they are discouraging institutional investors from funding new home building.

At present Rent Pressure Zones limit increases to 2% per annum regardless of whether there are new residents in a property.

But in its report the OECD also warned against incentivising landlords to evict tenants.

“Ireland should allow rents to be re-set between tenancies and adjusted for inflation during a residency, but care should be taken that it does not lead to unfair termination of contracts,” said the report.

It added the existing cap means that rents are below the cost of maintenance of a property, which may have driven landlords to sell.

The study said strict rent controls can affect the supply of housing by discouraging developers and lenders from investing in property.

The OECD report warns against re-introducing tax incentives to stimulate house building amid speculation the Government is weighing up whether to use the measures.

The study said that during the last boom tax incentives resulted in “misallocation of housing” and “significant fiscal loss”.

The report is critical of two Government schemes, Help to Buy and the First Home, both of which fund first time buyers.

It said both can “translate to higher house prices or rents over the medium term”.

It added there should be close monitoring of both programmes so they can be quickly adjusted if they create inflationary pressures on house prices.

It said frequent recourse to judicial reviews was slowing the planning process and was the “main obstacle” to developers building more houses.

The OECD said construction costs in Dublin are 15% to 30% above that of other European cities.

It suggests more taxes on housing and applying a higher rate of local property tax on second homes and capping the tax free exemption on the sale of a primary residence.

The OECD also highlighted the need to invest in the electricity network and water system to ensure the supply of new homes.

It noted there are no household water charges in Ireland and said “the funding model for water services could be assessed to see whether it is sufficient to cover high investment costs.”

It also said the re-introduction of mortgage interest relief and extensions of tax reliefs and credits for landlords for tenants and landlords were “not targeted and can be regressive.”

It recommended increasing the 3% rate of residential zoned land tax which is paid on unused sites.

It said “despite recent reforms, local property taxes remain low.”

On the economy, the OECD said the domestic economy will expand by 3% this year and 2.7% in 2026.

But it called for spending restraint and said half the measures in the Budget for this year were untargeted.

It also warned the national debt remained “elevated” and repeated breaches of the Government’s 5% spending rules was “lowering credibility”.

The report called for uniform pricing of carbon tax which it said was “relatively low in agriculture and buildings where emissions are high.”

It said fossil fuel subsidies of €3.5 billion of which diesel for transport use accounted for the largest share “undermined the environmental impact of the carbon tax.”

Minister for Finance Paschal Donohoe has said the Government is “going to consider all views” in relation to Rent Pressure Zones and “the important role they play” in the delivery of homes.

Mr Donohoe said: “What we have said in recent days is the need here for balance.”

He added: “We have to do all we can to ensure that those who are renting are in a position that the rents are affordable and that they’re confident that they have security of tenure.

“What we also have to do is look how the operation of Rent Pressure Zones plays a role in the delivery of more homes and more apartments being built.”

“Ultimately, it’s more homes being built over time that will deliver the stability that we need in terms of rents and those who want to rent been able to access rental accommodation>

“We know at the moment with more work to do in relation to that,” he added.

“The government has said we need to consider the operation of those Rent Pressure Zones in that way, and that’s the work that we’ll do.”

Article Source – Rents should be freely adjusted between tenancies, OECD recommends – RTE

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