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Dr. Brendan K O'Rourke

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Regulated Rent Reduction needed

Posted by Brendan O'Rourke on March 26, 2020 at 3:35 PM

How about a price ceiling on rents at 20% less than 9th March 2020

It is good to see the government put a freeze on rent and evictions, but I think more needs to be done. Given the shock to the economy and incomes, current rents are no longer related to market conditions. The market would probably show this itself if it ‘was let rip’ with people relocating to cheaper locations now that the reasons for living in expensive locations (i.e. their wages) have disappeared. Thankfully, the state’s massive intervention such market ‘adjustment’, and the pain for all that would involve, impossible. Yet property income should share some of the cost of this, for rents levels are being kept up by the public purse and state restrictions. The state needs to complement its action by imposing a reduction in rent for residential accommodation in the order of say, 20%. Market forces should lower rents for those properties coming on the market. State funds, either paid directly in rent or through subsidizing replacement income should not be wasted on keeping rents inflated.

This is not meant as an attack on landlords and may indeed help them in several ways. One way is that such a rent reduction would be useful in renegotiating terms with any lenders. Another is that it makes tenants less likely to simply walk away from tenancies leaving the landlord with no rent and no tenant. Even if such tentants formally vacate the premises, the revenue from new lettings may well be much lower than 80% of the March 9th rent, and the hassle of renegotiating greater than normal.  Indeed, given some ancedotes of some private arrangements may be the mandated reduction should be greater and it should certainly not be seen as a maximum rent reduction.

Large companies and anchor tenants have probably already negotiated rent reductions or rent holidays for themselves, and other progressive landlords have likely acted already with a sense of enlightened self-interest and/or social responsibility. The state needs to mandate a rent reduction if tenants without bargainning power or progressive landlords are not to suffer in comparison to others. In terms of economic recovery this is vital particular for smaller Irish enterprises. 

If needed there could be  sunset clause, of say June 2021 or end of December 2021, in any such legislation so that this form of rent control does not get confused with the more long-term changes that are needed made in Ireland's property market. 


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