Vision Capital Corporation Comments on Speculated Amendments to Ireland's Housing Regulation

National Post

2 days ago

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A two-tier system would be folly, and would exacerbate Ireland's housing crisis, not solve it
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TORONTO — We are very concerned about the prospect that recent press reports regarding amendments to rental housing regulations in Ireland would, if implemented, further exacerbate the nation's current policy-induced housing crisis.
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Rent control regulations on housing have been a dismal failure for decades globally, and can be observed more recently in Ireland, primarily as they significantly harm those that they are intended and purported to help.
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If affordable housing is a social and strategic goal for a community and society, then policies that effectively achieve this aim should be promoted, not politically popular yet severely detrimental rent control regulations. To this point, policy should target broader social and economic and considerations: for example, if a society determines it is an appropriate social goal to support lower-income individuals and families with housing subsidies, policies that fund these subsidies would achieve a vastly superior outcome compared to governments interfering in the housing market that, without restrictive rent controls can and will respond to supply and demand forces to increase housing supply.
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Programs that have successfully increased affordable housing globally include affordable housing development programs, market incentives, integral affordable housing components in new developments, and a variety of innovative and low-cost financing options.
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In contrast, restrictive rent controls regulations stifle new supply. One cannot solve a demand problem by restricting supply. Doing so does not solve the problem – it exacerbates it.
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Moreover, rent control regulations create a disincentive to invest capital in maintaining the physical property, resulting in deteriorating housing stock and poor living conditions for residents. To alleviate this significant problem, any new regulations should also include provisions that allow landlords who make bona fide capital improvements to properties, in addition to regular operating maintenance expenses, to apply for what is known in other rent-regulated markets as 'above-guideline increases' or 'AGIs'. AGIs recognize that to facilitate these investments, landlords need to receive a return on their capital invested, in addition to the allowed annual rent increases. Such policies have worked effectively to slow the deterioration of the housing stock. These regulations need to provide more flexibility than the Substantial Change Exemption provision in existing regulations, which generally restrict funding qualification to only the most transformative property changes.
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The recent report that the government is considering a two-tier system, which differentiates the existing housing stock by maintaining a 2% rent increase cap on existing apartments, while allowing a 4% cap on new developments, is not sustainable and would be folly for at least four reasons:
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The 2% rent cap is an uneconomic proposition for apartment owners and results in the previously noted underfunding of capital expenditures and a deteriorating quality of housing stock and living conditions.
It is essential to appreciate that the vast majority of the affordable rental apartments in Ireland are owned by individual landlords and small businesses. With annual inflationary pressures on their costs and operating expenses, as well as regular capital expenditures increasingly straining their budgets, these owners have been increasingly selling their flats. This market reality further reduces the supply of affordable rental units, and a failure to address these trends will further exacerbate the current housing crisis.
As a two-tier system is unsustainable, stakeholders will not trust the stability of the regulatory framework, which, in turn, will create market uncertainty. Market uncertainty impinges on and restricts investment decisions.
Therefore, these policies and the accompanying market uncertainty will not effectively increase the urgently needed new supply, once again, highlighting the stark contrast to the stated major policy objective.
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Politicians and all stakeholders should be confident, if not inspired, that alleviating restrictive and punitive rent regulations can, and does, work. Dallas/Fort Worth, Texas, in the United States and Calgary, Alberta, in Canada, are two of the highest population growth regions in North America. Neither of these markets has rent controls. Not only have there been record amounts of new apartments constructed in these cities, but the average monthly rents in these markets are among some of the most affordable relative to other urban centres in the United States and Canada, respectively.
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We urge all major political parties in Ireland to align together in a non-partisan effort to acknowledge that the facts starkly contrast with the politics and take action to do what is right to enable affordable housing solutions. There is too much at stake at this critical juncture to pretend otherwise. At a minimum, any new regulations must not create a 'two-tier' difference between the existing stock and new developments and should allow for above guideline increases where landlords make bona fide capital improvements.
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Vision Capital Corporation ('Vision') is the manager of the Vision Opportunity Funds, investment funds that invest exclusively in publicly traded real estate securities. Vision's senior portfolio management team brings over 100 years of collective experience in all facets of property markets and have researched and served as advisors and industry experts on policy considerations impacting the industry for over 40 years.
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