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

These amendments all relate to the commitment in action 1 of the rental strategy to introduce a time-bound system of rent predictability based on the concept of rent pressure zones.

Under the system, I am proposing that areas where rents are high and rising quickly will be identified and designated by the Minister as rent pressure zones. In those areas, annual rent increases will be limited to a maximum amount of 4%. An area will be designated as a rent pressure zone for a period of three years and the provisions limiting rent increases will apply both at the start of a tenancy and at each rent review.

This measure will give significant rent certainty to landlords and tenants by allowing for reasonable growth in rents while preventing the instability and uncertainty caused by the volatility seen in recent years.

Amendment No. 55 amends section 19 of the 2004 Act to provide that when a rent is being set in a rent pressure zone, either at the beginning or during a tenancy, it may not be greater than an amount to be determined by a formula set out in the section. The effect of this formula is that rent increases will be limited to a maximum of 4% per annum.

To ensure that new supply is not discouraged, the proposed subsection (4) relating to the 2004 Act in amendment No. 55 provides that these provisions will not apply to properties that are new to the rental market or those which have been subsequently refurbished.

The prohibition on charging a rent above market rents will remain in order that as market rents stabilise, rents set for new supply will be limited to the market rent. There is also an exemption from the provisions where the dwelling has been substantially refurbished.

Amendments Nos. 1, 2, 6 and 11 to amendment No. 55 and amendment No. 1 to amendment No. 68 propose that rent increases be linked to the consumer price index rather than the figure of 4%. Amendments Nos. 58,60, 63 and 64 also seek to link rent increases to the consumer price index. We have discussed this issue several times in the past month in this House and the Seanad. There have been four Private Members' Bills, including three from Sinn Féin and one from the Labour Party. The discussion has been useful. At this stage, Deputies will be aware of my views on the proposals to tie rents strictly to the consumer price index in a blunt way. There are legitimate concerns regarding the potential for rent controls or caps to discourage investment. That is not to say I have not been persuaded by some of the arguments I have heard in recent weeks or by the well thought out submissions we have received from all parties during the consultation process on the rental strategy. I believe there is merit in providing for rent predictability as part of a stable rental sector underpinning a sustainable investment environment. This is why action 1 of the rental strategy commits to the introduction of a time-bound system of rent predictability based on the concept of rent pressure zones that I am introducing today. This measure will give significant certainty to landlords and tenants by allowing for reasonable growth in rents while preventing the instability and uncertainty caused by the volatility we have seen in recent years. Therefore, while I do not believe that linking rent increases to the consumer price index is an approach that serves the interests of landlords or tenants for a number of reasons and while I do not intend to accept the related amendments, I see considerable merit in the introduction of a system of rent predictability and I have provided for it.

Amendments Nos. 3 and 5 to amendment No. 55 provide that the figure of 4% to the formula in the proposed section 19(4) will be 0 instead of 4. Amendment No. 4 to amendment No. 55 seeks to reduce the maximum rate to which the landlord can increase rent annually from 4% to 2%.

The figure of 4% was chosen for several reasons. First, there is a need to ensure a modest but reasonable rate of return on investment. Second, there is a need to moderate the rate of increases in rent for obvious reasons. The figure of 4% means that the maximum rent inflation allowed in rent pressure zones will be less than half the current rate of annual rent inflation nationally. The figure of 4% has been selected on the basis of careful analysis and research as well as extensive consultation with a wide range of stakeholders. The consequences of not achieving the right balance in this case would be singularly negative for the rental market. Too high a level of inflation will not have any meaningful effect on rent levels for households. However, not allowing for some element of growth in rents will drive existing supply out of the market and discourage prospective additional investment. The statement from the ESRI yesterday to that effect is instructive.

The figure of 4% is a carefully measured response to the current extreme pressures in the rental market. It will provide certainty for tenants in the sense that they will not face a rental hike of the order many have seen recently and it will provide certainty for landlords in the sense that they will continue to see a return on their investment in a rent pressure zone. Therefore, I cannot accept these amendments.

Amendment No. 7 to amendment No. 55 proposes to remove the exemption for dwellings new to the market. The purpose of this provision is to ensure that we do not discourage new supply. Therefore, I cannot accept this amendment.

Amendments Nos. 8 and 9 to amendment No. 55 relate to refurbishment. The proposed new section 19(5) of the 2004 Act proposes that the restriction on rent increases will not apply where a substantial change in the nature of the accommodation occurs and where, as a result of that change, the rent would be different to the market rent at the time of the last rent review or at the commencement of the tenancy.

The ability to rely on the "substantial change" reason in respect of rent reviews has been a provision in the Act since 2004. What amounts to a significant change in the dwelling is not specifically defined within the legislation. However, guidance is provided within the Act in the context of a landlord’s right to terminate a Part 4 tenancy on the basis that the landlord intends to substantially refurbish or renovate the dwelling. To rely on this ground for the purposes of termination, a landlord has to provide specific details on the nature of the intended works, to provide planning permission, to identify the contractor retained, if any, and to set out the expected duration of the intended works. It is expected that a similar level of evidence will be required for rent reviews in rent pressure zones.

Where a rent review is the subject of a dispute referral to the Residential Tenancies Board, RTB, a landlord seeking to review the rent on the basis of a substantial change to the dwelling must satisfy an independently appointed decision-maker of the RTB that the changes to the dwelling warrant a rent review occurring. RTB adjudicators and tribunal members exercise a quasi-judicial function, replacing the courts in respect of the resolution of disputes in this sector.

The evidence presented is objectively scrutinised and must relate to a significant change to the dwelling resulting in an increased market value of the tenancy. This would involve significant refurbishments adding to the letting value and may amount to major improvement works or works requiring planning permission. For example, simple repainting or replacement of white goods would not suffice. While I appreciate that the purpose of these amendments may be to prevent abuse of this provision, I believe the processes of the RTB quasi-judicial process are robust and adequate in this regard and, therefore, I do not propose to accept these amendments.

I note that part of Opposition amendment No. 63 also provides for rent increases based on the amount spent on refurbishment. For the same reasons, I cannot accept that amendment.

Opposition amendment No. 10 to amendment No. 55 provides for the deletion of subsection (6) in order that these amendments would apply even where a notice of new rent has already been served. Subsection (6) was inserted on legal advice to ensure the section does not operate in a way that is retrospective. Therefore, I will not accept this amendment.

Amendment No. 68 provides for the designation of areas as rent pressure zones by means of inserting a new section 24A. Under this section, the Housing Agency makes a proposal to the Minister, on foot of which the Minister requests the director of the RTB to make a report whether the area should be designated as a rent pressure zone based on the criteria set out in section 19(4). Where the RTB confirms to the Minister that the area meets the criteria set out in subsection (4), the Minister must designate the area as a rent pressure zone. Section 24A(7) provides that the Minister may revoke an order designating an area on a recommendation made by the Housing Agency, following consultation with the relevant housing authority and the RTB.

A new section 24B provides that, immediately on enactment, the following areas will be designated as rent pressure zones: the four Dublin local authority administrative areas and the Cork City Council administrative area. Additional areas will be proposed for designation over time, subject to the criteria for designation being satisfied. Section 24C provides that the rent certainty measures introduced in December last year cease to apply in an area designated as a rent pressure zone. It is important to note this will not bring forward the next rent review, which will still happen on the basis of the 24-month timeframe. However, after the initial review, there will be a reversion to annual rent reviews thereafter until the expiration of the designation.

I have also given a commitment that we will prioritise the areas that are likely to see new rent pressure zones outside of Cork city and the four Dublin local authority areas. We will be looking at counties like Meath, Louth, Kildare and Wicklow and cities like Waterford, Limerick and Galway, and areas contiguous to Cork city as they are the obvious areas that are likely to see new rent pressure zones, as the RTB provides data on the basis of local electoral areas.

Deputy Ó Laoghaire, when tweeting yesterday, mentioned the fact that rent increases in my own town of Carrigaline were significantly high. Once I get data from the RTB, there is no reason that the Carrigaline-Ballincollig electoral area, for example, as long as it passes the thresholds, cannot be designated a rent pressure zone also. It is very important to reinforce the point that the restrictions we are legislating for here are not solely confined to Dublin and Cork cities. They will be extended to other areas as they qualify, but we will make decisions on the basis of independent analysis and data through the RTB. I think that is the only credible and legally sound way to do it.

Opposition amendment No. 2 to Government amendment No. 68 makes a number of changes to the provision. First, it links rent increases to changes in the consumer price index, CPI, or the average industrial wage. I have already explained my position on the reason for the figure of 4%. This amendment also seeks to involve the Dáil and local authorities in the designation process. The purpose of the Housing Agency’s role in this process is to provide an independent and objective assessment not subject to any political interference. The Housing Agency, which includes the Centre for Housing Research, has a significant research capacity and I believe it is the appropriate body to carry out this role. In regard to the matters that the Housing Agency must have regard to when providing a report to the Minister on the revocation of an order designating an area as a rent pressure zone, this amendment includes three additional matters. I believe that paragraph (d) on the level of homelessness would be encompassed by the operation of the housing market at paragraph (b). I do not believe changes in the CPI or the average industrial wage are appropriate. For those reasons, I cannot accept the amendment.

Opposition amendments Nos. 3 and 4 to Government amendment No. 68 propose to replace “2 weeks" with "1 week" in section 24A(2) and to replace “as soon as practicable" with “2 weeks” in section 24A(3). I have considered these amendments and the arguments in favour of them and I have been persuaded by them. On that basis, I will accept these amendments.

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