Rent pressure zones: What are they and why are there calls for reform?

Tomas Doherty

The Government is examining whether to abolish Ireland's current system of rent caps.

Rent pressure zones (RPZ) were introduced in 2016 to help control spiralling costs for tenants.

The regulations, which apply to certain areas of high demand for housing, are due to expire on December 31st.

Here is everything you need to know about RPZs, and what the Government might do next.

What are rent pressure zones?

The RPZ system was introduced in 2016 to cap rent increases in areas where there is high demand for housing and rental homes.

An area designated as an RPZ has annual rent increases capped at 2 per cent or at the rate of inflation, whichever is lower, even if there is a change of tenant.

However, not all rented properties in RPZs are subject to rent caps. Landlords can be exempt from the rent caps if the property has not been rented for a period of two years or if it has undergone a "substantial change in the nature of the accommodation".

Where are rent pressure zones?

RPZs now cover most of the country – 111 of the State's 166 local electoral areas are under the rent cap system.

Many of the major towns and cities in the Republic are RPZs, along with touristic areas such as Killarney, Westport and Connemara.

Castlebar in Co Mayo and Tullow in Co Carlow are the latest areas to become RPZs.

Why would the Government want to scrap rent pressure zones?

There is concern within the Government that RPZs have negatively impacted the level of private investment in housing developments, amid increasing pressure to meet new-build targets.

Fianna Fáil and Fine Gael are under increasing pressure to tackle the State’s housing crisis after it emerged that 30,330 homes were built last year, far short of the projected 40,000 new builds put forward by the parties.

The debate over RPZs also stems from a report by the Housing Commission that recommended a new form of rent control.

The report published in May last year said landlords had been constrained by the RPZ regime and reported a lack of policy certainty and diminished net rental returns.

It also highlighted that tenants were still experiencing affordability challenges due to historically high rents, while those seeking to find rental accommodation were met with low availability.

The commission said the evidence for the effectiveness of the RPZ system was "mixed", and suggested that rent regulation needs to be made fit for purpose for the longer term.

The report said the Government should regulate market rents fairly and effectively by reforming current regulations and establishing “reference rents”.

This would replace RPZs with a system that pegs rent to local dwellings of a similar quality.

In the proposed new system, the reference rent rate would be reviewed at regular intervals and rent would not rise more than a certain percentage above this reference rent over a specific period.

This rent regulation would continue to transfer between tenancies, so that if a tenancy ends the same regulations apply to the subsequent tenancy, discouraging the termination of tenancies purely to increase rental income.

This new form of rent control would apply across the country, not just in specific zones.

What proposals are the Government considering?

The Government is now considering tying certain rents to the rate of inflation.

Under the proposals, the current RPZ annual caps would not apply to new buildings constructed after a certain date and rents in the newbuilds would instead be linked to inflation.

The proposal to get rid of the RPZ cap for newbuilds and tie the rent level to inflation is aimed at increasing private sector investment to deliver more housing.

The current 2 per cent rent increase cap would remain in place for existing tenancies, though landlords would be able to change the rents between tenancies, which is currently not permitted.

The changes to the RPZ system would be accompanied by enhanced protection for renters in relation to security of tenure amounting to a minimum of six years.

There would be a restriction on no-fault evictions during this six-year period – a measure that will require legislation.

The landlord would be allowed to reset the rent every six years to the market rate.

When will the Government make its decision?

Asked on Wednesday when a decision on the future of RPZs would be made, Taoiseach Micheál Martin told reporters: “I would expect sometime in the next week.”

The Taoiseach said the decision will be part of a number of steps towards increasing housing supply, including attracting institutional investors to the sector.

“There’ll be further measures taken next week in relation to housing,” he said.

“It’s not any one measure that is a silver bullet. It’s the cumulative impact of all of them that will lead to an increase and an acceleration of timelines around getting housing units complete.”

Coalition leaders are expected to consider the proposals for reforming the RPZ system when they meet on Monday in advance of a final decision on the plans due to be brought to Cabinet by Minister for Housing James Browne on Tuesday.

What is the reaction from politicians, experts and industry?

Opposition parties have widely criticised any proposals to phase out RPZs.

Sinn Féin's housing spokesman Eoin Ó Broin said said any move by the Government "to allow landlords to increase the rent burden on tenants – a rent burden that is already far too high – will be strongly resisted."

He said the proposed changes Sinn Féin would create a “four-tier rental market”, with different rent-setting and eviction rules for four types of tenants depending on whether or not they live in RPZs, when their tenancies begin, and when their homes were built.

Social Democrats TD Rory Hearne said the housing crisis had deepened into a “social catastrophe” and disaster”.

He said his party would be “actively and vociferously” opposing any attempt to remove rent caps.

Lorcan Sirr, a housing lecturer at Technological University Dublin, criticised the suggested change to rental controls, telling The Irish Times that if stability was what the market needed, this in itself was “policy flip-flopping”.

Meanwhile, Eddie Byrne, chief executive of Irish Residential Properties REIT (IRES), which owns about 4,000 homes in Dublin and Cork, welcomed the Government's efforts for reforms that could boost the supply of rental properties while also protecting renters.

Michelle Norris, director of the Geary Institute for Public Policy at UCD and member of the Housing Commission, said the majority of in the commission agreed Government should regulate rents but that the RPZ system needed to be reformed so that there was stability in regulation and a move away from constant change.

The enforcement of any regulation was a key concern of the commission, Prof Norris told The Irish Times, as well as a move away from a “flat” rate regulation of rent.

“Other European countries have rent regulations that are linked to a reference rent being charged for similar properties in that location that are of a similar quality and size.”

John Mark McCafferty of housing charity Threshold said that without RPZs tenants would likely face substantial rent increases, pushing them into financial distress and “even possible homelessness”.

Irish Property Owners’ Association chairwoman Mary Conway expressed concern at the potential for a “two-tier market” with “old rents versus new rents coming in”.