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New tenancy legislation will do little to resolve crisis

{ Posted on Nov 13 2015 by admin }
Categories : Property

The new legislation proposed by Fine Gael and Labour will do little to resolve the current rental crisis but may actually make it harder for tenants to find suitable accommodation. It is at best a sticking plaster solution rolled out in time for an election. The truth is this rental crisis has been caused by Government policy in relation to the banks and NAMA.

Banks seem to infect almost every area of government planning at the moment. So large was their collapse and so gullible were the government of the day to do their and the EU’s bidding, that nearly everything else that has followed since has been framed by the need to recover the billions lost in the process.

NAMA is an obvious example. Set up with no oversight, no accountability and no public scrutiny, it operates as the largest developer and property company in Ireland. It’s actions can and do move markets and it has sold plots of land that are questionable in terms of return for the taxpayer. Irish Water is another example. A monopoly designed to create more revenue for government to pay down banking created debt and in future, to be sold off to private companies. Irish Water has about as much to do with water as the government do with efficiency.

The problem Fine Gael and Labour face is a political one and one born of the need to save face and remain in power. NAMA must be seen to return a profit on its operations. The banks must be seen to repay the state. It is crucial for this government to be able to say both were managed successfully. Thankfully, there is an easy solution to both issues. House price rises means NAMA and the banks can return to profitability, repay the state and allow the political leaders bask in the glow of self congratulations.

So NAMA and the banks withhold property that should long ago have been sold off. In a functioning economy, distressed properties would have been sold off quickly and money recovered. But not here. Here, the properties have been drip fed onto the market, creating an artificial shortage of houses. That’s why prices are increasing. With a lack of finance available to builders, the problem is exacerbated even further. How many housing estates do you know just sitting there waiting for NAMA or the banks to get around to?

Once prices rise, NAMA and the banks can sell off further property. If you are in mortgage arrears and attempting to sell your property, it will come as no great surprise that getting a settlement figure from the bank is nigh on impossible. This is not accidental, nor the result of an inefficient resolution department. This is a policy to limit the number of properties on the market and keep prices rising.

The problem this creates in the rental market is a lack of properties available to rent. It is entirely predictable that the market will react by increasing the rental prices of the properties. That is basic economics. A shortage of a product will allow suppliers to increase prices. Fine Gael and Labour are attempting to control this natural reaction via limiting the ability of the market to increase its price in response to a shortage of properties that they themselves have created.

A suspicious mind might even scan the forthcoming legislation to see if utility companies (i.e. Irish Water) have to be paid out of the tenants deposit if the tenant do not pay them. This is win-win for the government. Unfortunately for tenants, if Landlords face being left with no deposit in reality because Irish Water takes precedence over them, deposits will double and triple for properties. A further crisis is in the making.

In a way the policy might work. Fine Gael and Labour may have NAMA turn a ‘profit’. The banks may ‘repay’ the state. But the cost of that is being borne by the people in the rental market who are getting squeezed by an artificially created shortage of property. Wouldn’t it be better if the government acted for the people first and the banks second rather than current policy of banks first?

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