IntroductionThe following is the second part of my microeconomic assignment on question 1(b). My assignment will examine the possible effects in the market for the rented accommodation of the imposition of a rent control regime.Main SectionBackgroundA rent control policy is usually brought in by Governments when the market isn’t performing the way they would like. Rent controls tend to be brought in to help poorer families, who are struggling to pay their rental payments.
Governments who face this problem can introduce a price ceiling. This would limit how much a landlord can charge a tenant or by how much the landlord can increase prices annually. Therefore the rent charged to the tenant is unable to legally go above this price ceiling.
So what effects does this generally have on the rented accommodation sector?Short termIn the short term, it will have limited effect. The supply and demand for housing is relatively inelastic in the short term. Houses can’t be built overnight & likewise with people, they don’t decide to rent without advance planning. If the price ceiling is too high, then it would not have any impact. However, if it is set low enough, it may result in the price of rental accommodation decreasing or the annual percentage price increase reducing to more reasonable levels.Long-termIn the long term a price ceiling tends to decrease the supply of housing, Landlord will stop buying housing units to rent and may sell some of their existing stock if rent controls are having a negative impact on their profits.
They are also less likely to maintain and upgrade existing housing units. So while rent may be going down for tenants, which should increase the demand for rented accommodation, the supply and the standard of rented accommodation would decrease as the landlord’s profit margin decreases.IrelandIn Ireland, the Government has introduced rent controls in the rented accommodation sector. In most of the main urban areas (Rent Control Areas), there is a price ceiling on the maximum price that landlords are allowed to increase rent. For existing tenancies (pre Dec 2016) rent can only be increased by a maximum of 2% (on average) per year in these rent control areas and for new tenancies (post Dec 2017) landlords can increase the rent up to a maximum of 4% per annum (Citizens Information, 2017 1). The price control is currently having limited effect on the rent prices in these rent control areas.
While we still only have short-term data (up to end of Sept 2017), it shows us that the % increase in rent prices in the Dublin region in 2017 (up to the 3rd quarter) was 5.82% compared to the yearly increase of 5.76% for 2016 (CSO, 2017 2). Therefore since the introducing of this rent control measure prices have actually increased in the rent control area of Dublin compared to the year before the introduction of this price ceiling.
ConclusionTherefore rent control policies usually don’t have the desired effect that Government’s hope for. The main issue with the rented accommodation sector in Ireland is more a widespread housing problem and the main fix is to increase the supply of available housing units. However, this can only really be delivered in the long term due to the timeframe involved in building new housing units. The scope in the short term is limited to identifying vacant properties that may potentially be made available in the shorter term.