An End to Rent Pressure Zones?

The Taoiseach has indicated the Government will re-examine Rent Pressure Zones (RPZs) before the current legislation expires at the end of 2025. We consider the effect that RPZs have had on the private rental sector in Ireland. We also discuss how reform might affect the investment landscape in 2025 and beyond.

What you need to know

• The coalition Government have signalled they will reconsider Rent Pressure Zones (RPZs) prior to the expiry of legislation later this year
• Evidence suggests the rent controls have constrained housing supply, especially in the private rental sector
• The State has largely made up the difference by increasing funding for social housing and cost rental units
• The signalled change to RPZs is part of a broader effort to shift the funding burden more to the private sector and attract private capital investment
• Coupled with lower interest rates and changes to planning legislation, the change to RPZs should make the Irish residential market more attractive to international investment.

Background

The Taoiseach recently indicated the Government would consider a change to the functioning of Rent Pressure Zones (RPZs) and the rent cap before the expiry of the current legislation at the end of 2025. The Housing Agency is currently undertaking a review of the RPZ system that is expected to report in the first quarter of this year. RPZs were introduced in Ireland in late 2016, with the rent cap set at 4% per annum. Annual rent increases in RPZs have been limited to the lower of the general rate of inflation, or 2% per annum, since December 2021.

Housing Commission report

A growing consensus has emerged that reform of the existing system is needed. A Housing Commission report, published in July 2024, was critical of RPZs and rent cap. The report highlighted that rent increases have often surpassed the intended rent cap. Rents for new tenancies in Dublin's RPZs rose by 6.5% in 2023, while existing tenancies saw a 5.1% increase. The report also noted an exodus of landlords from the market, with 42% leaving the market in the 26 months prior to December 2023.

Supply constraints

Evidence is also mounting that the RPZs have acted as a constraint on supply for the private rental sector (PRS). The Residential Tenancies Board between 2016 and 2023 recorded a drop of 95,843 private registered tenancies, roughly a third of registered tenancies. PRS investment has decreased sharply over the past three years. This decrease is consistent with global patterns in the context of higher interest rates. However, the pattern has been more pronounced in Ireland. PRS investment reached €1.8bn in 2021, falling to €166m in 2024. A further indicator is the fall in Dublin apartment completions of 27% from 2023 to 2024 as most PRS investment is in apartment developments. Since there is a lag between investment and completions, the extent of the decline will become even more evident in 2025 and 2026.

RPZs have not been the only constraint on investment in housing developments since 2021. Investment was also depressed due to increased construction costs and interest rates between 2022 and 2024. However, by the second half of 2024, construction costs had stabilised and the EU Central Bank’s interest rate reached 3%. These factors suggest that rent controls are playing a substantial role in deterring investment, particularly in PRS. The Department of Finance was reported to have held “crisis talks” with developers in January to give their view as to why there was a decline in housing completions in 2024. Understandably rent controls were raised as the major impediment deterring international private capital.

State Investment

The decline in PRS developments has been compensated by social housing and cost rental developments funded directly by State bodies. We have observed this shift in the market in our Apartment Forward Sales practice area. The largest apartment forward sale transactions we advised on in 2024 and early 2025 were both for cost rental units to the Land Development Agency, for The Crossings in Lucan (392 units) and Crowne Square in Galway (345 units) respectively. This contrasts with the forward sales of apartment developments to international institutional investors, which dominated the apartment market in 2021 and 2022. A Central Bank estimate for 2023 suggested the State was directly responsible for 25% of all financing for housing developments. This figure is only likely to have increased in 2024 and does not account for indirect supports such as the Help to Buy Scheme or Housing Assistance Payment.

Shift in Policy

The forecast change to RPZs appears to be part of a broader effort to reduce the dependence on State funds for housing investment. The Taoiseach said recently “the state is the biggest investor in housing at the moment, without question, and we have to get stronger private sector investment in, particularly on the apartment side”. The Programme for Government estimates €24bn per year will be needed to reach the Government’s target of 60,000 units annually by 2030. The Department of Finance has projected that €18bn of that total will need to come from private capital.

The question is what system will replace the current RPZs and rent cap. The Government were quick to squash rumours that they planned to remove rent controls completely. Instead, they have indicated they would consider the Housing Commission’s recommendation of so called “reference rents”. A reference rent would tie rent increases to the rates charged for comparable properties in the same area. While any change may be welcomed, industry groups have queried whether the “reference rent” proposal may, in practice, prove to be more cumbersome than the existing rent cap. Another proposal is to apply the rent cap to the tenancy rather than the property, meaning when a tenancy ends, the rent for the next tenant would be based on the open market level at that point in time.

Any change to the current system will prove politically difficult for the coalition Government, but signals imply an increased awareness of the need to attract international private capital investment in housing in Ireland. Hopefully, the Irish Government takes a lead from its British counterpart and makes this tough, and likely initially unpopular, decision early in its term.

Conclusion

The news that the Government will reconsider RPZs has been welcomed by many developers and industry groups. Rent controls and, in particular, the 2% cap has been a cause of reduced investment in PRS and of reduced housing supply in the private rental sector. An amendment to RPZ legislation allowing for market rate increases in rent should help stimulate investment in PRS. However, higher rates of private investment will also depend on interest rates staying in the 2-3% expected range and stable construction costs this year and next. The gradual implementation of the Planning and Development Act in 2025 and 2026 should also encourage increased investment into housing in Ireland. Whatever decisions are made, certainty is needed in the sector to allow Ireland to compete for and attract the required international private capital.

For more information and expert advice on PRS financing contact a member of our Apartment Forward Sales team.

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The content of this article is provided for information purposes only and does not constitute legal or other advice.