One of the Government’s cures for the city’s housing crisis has proved worse than the disease.
Galway City Council has warned that the Rent Pressure Zone introduced by the Government earlier this year to curb excessive rent hikes, is actually pushing more families into homelessness.
Since the RPZs were introduced, landlords are abandoning Rental Accommodation Scheme (RAS) and Leasing Schemes for local authority tenants.
Landlords have also threatened legal action against the Council, claiming breach of contract due to the new legislation which curbs the amount of rents they can charge.
The RPZ, which caps annual rent increases at 4%, is “penalising” landlords, the City Council said.
In turn, this is enticing them to leave the schemes, and the increase in notices to quit is creating further homelessness, the Council said.
The argument is set-out in a detailed review of the RPZs, which were introduced in Galway City in January 2017. The review has been submitted to the Department of Environment.
The Council said the rent caps “appear to be negatively impacting on the supply of much-needed homes under our leasing schemes in the social rented market”.
The submission adds: “Since the introduction of these new measures, numerous landlords have decided to withdraw from these schemes and other have indicated that they will do so, based on the fact that the City Council are not adhering to the terms and conditions of the contracts governing the arrangements supplying these houses, specifically the rent review clauses in the contracts, which are based on prevailing market rates.”
Under the schemes’ contracts, landlords have been paid the prevailing market rate, minus 8%. Landlords had a “legitimate expectation” that the terms of the contracts would be honoured, and therefore the “new rental legislation is actually penalising those landlords who are supply Galway City Council with much needed social rented houses”.
“At present we have up to 20 notices of termination issued by landlords and have received numerous solicitors’ letters on behalf of landlords who have stated that they will now commence the institution of legal proceedings on the basis that the City Council are not abiding by the terms of the RAS contracts with regard to rent review provisions,” the Council said.
The measures have also “devalued rental investment property” and there is now a “very strong incentive” for landlords to sell to an owner occupier “in order to achieve full market value”.
The Council also warned of the impacts on homelessness. “It is inevitable that most of those households who receive notices of termination under these schemes will have to avail of homeless emergency accommodation in due course and these households will, in the main, be families. In the current climate with such a lack of supply of public and private housing, it is inevitable that most of these homeless families will find themselves in homeless services upon the expiration of their notices of termination,” it said.
A suggested remedy, and “fairer” measure put forward by the Council is for legislation to “allow rent to increase to current market rental value at the next rent review and apply the 4% annual rental increase thereafter for three years”.
The Council has also called for an exemption for social housing supports in the rented sector, and in particular RAS and Leasing schemes where the Council has direct contractual arrangements with landlords.