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ISME expresses concern at rent inflation report and the impact for small employers

12th May 2022: The Irish SME Association (ISME) has expressed grave concern at the rent price inflation noted in the publication of the latest Daft.ie today and the impact this will have for small employers. For more than two years, the cost of accommodation has been the single biggest driver of wage inflation. Now, rising accommodation costs are accompanied by significant increases in food and fuel prices and a refugee crisis. This is proving to be a perfect storm for workers, especially the lower paid.

However, ISME has cautioned that pushing up wage prices is not the solution, since the vast majority of employers cannot afford to pay the wages being sought by employees to cover these costs.

Average rents in Dublin, at €2,102 per month, exceed the annualised National Minimum Wage by almost €4,000. This week Daft.ie also released house price data showing the average house price in Ireland in Q1 2022 was €299,093.  This is a multiple of 6.7 times the average industrial wage of €44,824 (the multiple in 2021 was 6.3), and 14 times (the multiple in 2021 was 13.5) the annual National Minimum Wage of €21,294. These multiples are unsustainable.

Perhaps because of the current political environment, most of the interventions in the rental sector have served to reduce rather than increase the supply of accommodation. The supply of accommodation has been adversely affected in the last decade by significant policy changes in:

  • The effective outlawing of bedsit accommodation.
  • The ending of Section 23 incentives.
  • The reduction of deductibles for private landlords, and the application of social charges to rental income (but not for commercial landlords). Local property tax is not a permissible deduction, meaning landlords must pay this tax from their “after tax” or personal income.
  • A planning system which is very accommodative of lengthy legal review, including from persons unaffected by a particular planning application.
  • Rent pressure zones have frozen many landlords with long-sitting tenancies with rents that are far below market. They are selling up.
  • Landlords must frequently endure long periods without rent from sitting tenants who refuse to pay, and cannot secure vacant possession.

The effects of these policy changes are being felt in increasing costs of housing and rents. It is time that the private sector (beyond commercial landlords) was motivated to provide more rental accommodation.

The flight of landlords from the rental market is no longer in question, it is a fact. Daft.ie data show that availability of new rental homes has collapsed. There were just 851 homes available to rent in Ireland on May 1st this year, down 77% year-on-year. The average number of homes available to rent nationwide at any point in time over the fifteen-year period 2006-2021 was nearly 9,200 ‐ over ten times the supply available currently.

Neil McDonnell, CEO of ISME said: “The only entities willing to provide accommodation in the current market are commercial landlords, which are building large build-to-rent developments. Their financial firepower means they can sit on vacant properties for a long time. While we acknowledge that commercial landlords have a place in the provision of rental accommodation, they should not have a monopoly in doing so.

We are watching the natural outworking of policies which have driven private landlords out of the market for more than a decade. It is time to time to acknowledge that this process has failed. It is time that the tax system acknowledged the importance of providing adequate levels of rental accommodation in the economy. The political system and especially those politicians who identify themselves as of the left must have the courage to recognise policy failure when it becomes so painfully self-evident.”

ISME will bring this issue to the attention of the Department of Finance and the Department of Public Expenditure and Reform in its pre-budget submission. However, this year’s Daft.ie report suggests there is a case to immediately introduce fiscal incentives to provide rental accommodation.