LANDLORDS SHOULD BE allowed to “reset” rents between tenancies to prevent investors from leaving the market, a new report has recommended. 

In its latest report on Ireland, the Organisation for Economic Co-operation and Development (OECD) states that it is important to weigh the benefits of strict rent regulations on existing tenants in the short term against possible longer term drawbacks.

It goes on to state that stringent rent controls reduce the rates of return on real estate investment and create uncertainty, which can discourage developers and lenders from investing in real estate. 

The report comes as Taoiseach Micheál Martin has floated the idea of reforming the Rent Pressure Zones (RPZs) so as to attract inward investment. Criticism has been levelled at him for also suggesting that tax breaks for developers might be necessary to boost supply. 

Currently the RPZ system caps annual rent increases at 2%, or at the rate of inflation, whichever is lower, even if there is a change of tenant.

While the report finds that rent controls have had some “rent stabilisation effects”, it adds that the lack of data makes it difficult to measure the potential impact on supply.

In a suggestion that will alarm renters, it suggests that one option is to provide tenants with reasonable security over tenure, but allow rents to be freely adjusted for new contracts.

The OECD states that “Ireland should allow rents to be re-set between tenancies and adjusted for inflation during a residency, but care should be taken that it does not lead to unfair termination of contracts”. 

“At the same time, keeping the balance of the rights of tenants and landlords is essential,” states the report. 

In addition, the report warns that temporary tax measures introduced in recent budgets to address near-term affordability challenges should be phased out. 

The OECD report warns against re-introducing tax incentives to stimulate house building amid speculation the Government is weighing up whether to use the measures.

Two government schemes, the Help to Buy and the First Home Schemes, which the government argues are there to help first-time-buyers, can “translate to higher house prices or rents over the medium term”, the OECD states. 

It added there should be close monitoring of both programmes so they can be quickly adjusted if they create inflationary pressures on house prices.

The re-introduction of mortgage interest relief and extension of tax reliefs and credits for landlords and tenants are not targeted and can be regressive, the report also finds. 

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The Renter’s Tax Credit is also cited, with the OECD report stating that the ceiling for the credit for tenants was gradually increased from €500 to €1,000 in Budgets 2024 and 2025.

It criticises the credit for not being targeted, stating that rental support for households should be provided through welfare measures based on income criteria. 

Asked about the the review of RPZs, Finance Minister Paschal Donohoe said the government is going to consider the matter. He said there is a need for balance, stating the government must ensure that those who are renting are in a position that their rents are affordable and have security of tenure, while also finding ways to boost supply. 

“I know what an important role they (RPZs) play in preventing excessive rent increases,” he said, stating that is at the forefront of the government’s considerations. 

Donohoe said taxation can play an important role in the delivery of more homes but any taxation changes will have to wait until Budget Day.