Simon Coveney (Cork South Central, Fine Gael) | Oireachtas source

I do not agree. Much of the response from the organisations referred to by Deputy Ó Broin, such as Focus Ireland, the Simon Community and the Peter McVerry Trust, has been welcoming of what was introduced today. I am sure some people would have liked us to have gone further, but we are talking about something that has never happened before. It certainly has not happened in recent political history anyway. The State has decided to put a limit on rental increases and a pretty modest one too.

I took a lot of soundings and advice before settling on a figure. This was not a horse trading session with the Department of Finance. We considered the possibility of the CPI plus 3%, the CPI plus 2% and a figure of medium term economic growth, which is about 3.25%. We considered what is seen as a reasonable and modest rate of return for the Ireland Strategic Investment Fund, which is 4%. We considered the European Central Bank's target for inflation, which is 2%, plus a 2% yield on top of that, which is also 4%. We also examined what is happening in other countries and cities where there is intervention in the rental market. Berlin, for example, has a cumulative limit over three years of no more than 20%, which is significantly higher than 4% or 5%. We are trying to signal to investors that it makes sense to invest in rental property in Ireland and that there is opportunity for growth, but that it is limited and modest. The current extraordinary rates of rental inflation must end within the rent pressure zones. Tenants in Cork city or Dublin who have a rent review coming up in January or February will be relieved as they know they could probably have anticipated an increase of 15%, 16% or 20%, depending on location, but now the maximum increase will be 4%.

The other thing I keep hearing people say today is that this is a 12% increase over three years. That is not necessarily the case. All tenancies are now restricted to two-year rent review periods. There cannot be a review except after 24 months. Many people, including those in rent pressure zones, will not have a rent review until possibly the middle of next year. It might be 18 months away. The rent review that will then be applied will be subject to a maximum increase of 4%. For many, it will be nowhere near 12% over the next three years. It might be less than 8%. It will depend on where they are in the cycle of reviews. The two-year rent review restriction will continue to apply until the rent review comes up and, if they are in a rent pressure zone, after that there is an annual ceiling allowed of 4%. As stated, from what I can see this compares pretty well with what is seen as a reasonable but modest level of rental inflation in other jurisdictions.

I have spoken about this balance repeatedly. There are far more tenants than there are landlords. Therefore, the campaign for many tenants who are under genuine and serious pressure is significant politically, but we will not have a functioning market if more landlords do not come into the market and existing landlords do not want to stay. We want to provide for some growth and rental appreciation, or modest increases, over the designated period for the rent pressure zones. At the same time, we want to provide a total change in terms of the expectation for tenants as regards the level of rental increases.

A fair point has been made about the areas outside the four Dublin areas and Cork. In the next three months or so, the Residential Tenancies Board will be able to give me information and recommendations on the basis of local electoral areas - in other words, local wards within local authority areas. We will be able to have a much more granular and accurate assessment of areas. This may result in some areas in Dublin falling outside of the rent pressure zone, but it will result in some areas outside of Dublin and Cork - perhaps parts of counties Galway, Meath and Kildare - coming within it. Fianna Fáil has raised the issue this evening, but the way the system is designed allows designation to be granted. We want it to start with a big bang, if one likes, in the two big cities - Dublin and Cork. If we did not do that, the market would not take this as seriously as it is intended.

We asked what we needed to do in terms of a trigger threshold to bring in the whole of Dublin and the whole of Cork. The Residential Tenancies Board can apply that threshold to other areas and if they qualify they qualify. In effect, what is required is a sustained period of time where annual rental increases are above 7% and the average rent in the area above the national average. Those are the two criteria. We predict that other areas will meet the criteria. The whole of County Meath probably does not qualify at the moment, but if broken into local electoral areas certain parts probably will qualify. It is likewise for other counties and cities. There is method in what we are proposing today. This is about targeting areas that have genuine and real pressure for a sustained period so that we can give families that are renting some certainty and predictability on their next rent review. At the same time, it will allow for a modest level of rental increase over the next three years after the designation is made. For me, that is a reasonable balance.

We had almost 500 written submissions, including very detailed submissions from Fianna Fáil and Sinn Féin. If one were to look at a matrix of all the things Sinn Féin and Fianna Fáil had sought in key areas, a lot of those boxes have been ticked. However, it is not good for Ireland if we go below 4% in terms of a ceiling. That would have a severe negative impact on supply, which is not a good thing. We are seeing a dramatic growth in the private rental market and we need to continue to facilitate it with a lot of increased supply. I am, therefore, concerned by requests to reduce the figure of 4% and do not want to go there. There are many other things we can do. In terms of designations, we can instruct the Residential Tenancies Board to examine areas outside Dublin and Cork more quickly.

If we start reducing the figure of 4%, however, we fundamentally undermine the core issue that has to be dealt with, which is the lack of supply. Even though new properties coming onto the market are not affected, in terms of the appetite for investment, investors will look at the long-term impact of the rent pressure zones model on their investment. I must advocate for a balanced approach that will deliver supply and ensure that landlords can make reasonable margins so that they stay in the sector and that tenants who are under pressure can sleep at night in the build up to rent reviews, knowing that nothing dramatic will be coming down the tracks, whether it is in 18 months time or eight weeks time.