I thank the Seanad for sitting today to, I hope, finalise this important legislation in order that we can get on with implementing it.
When this Bill was introduced in the Seanad, there was a good debate on excluding the rent certainty and rent predictability measures which we are looking to incorporate in the legislation. At the time, I said that when the Government finalised and launched a new rental strategy, there might be elements of that strategy which would need to take effect in law quickly. Accordingly, we would look to using either Committee or Report Stage in the Dáil to introduce amendments to allow us to make a decision on intervening in the private rental market and ensure that decision would take effect quickly. This would ensure there would not be several months in between the policy change and its legal implementation, which could have a skewed effect on the rental market across cities such as Dublin, Cork and elsewhere. Introducing legislation in the Seanad but not debating a significant element of it until Report Stage in the Dáil and then returning to the Seanad looking for its approval is not the ideal way to do business.
A judgment by me was required which I flagged when we debated this issue the last time in this Chamber. Given all of the circumstances with which I was faced, introducing a quick transition from policy change to legislation change was the right thing to do. We had a very extensive debate last week on that element of the legislation. There was a lot of discussion on fast-tracked planning measures, Part 8, planning permission extensions, the Tyrrelstown amendment and a series of other things, with which we are dealing today.
The first group of amendments primarily concerns the rent predictability proposal. When we debated it in the Seanad a number of weeks ago, I flagged that it would probably result in us bringing this legislation back to this House again to finalise the elements of the rental strategy that needed changes in law. Government amendments Nos. 1, 65 to 68, inclusive, 74 and 75 all relate to the commitment in action one of the strategy for the rental sector which I published last week to the introduction of a time-bound system of rent predictability based on the concept of rent pressure zones. Under the system proposed, areas where rents are high and rising quickly will be identified and then designated by order of the Minister as rent pressure zones. In these areas annual rent increases on foot of a rent review will be limited to a maximum of 4%. An area will be designated as a rent pressure zone for a period of three years and the provisions limiting rent increases will apply both at the start of the tenancy and to each rent review after that. These measures will give significant certainty to both landlords and, more importantly, tenants by allowing for reasonable growth in rents, while preventing the instability and uncertainty caused by the volatility we have seen in the past few years.
Government amendment No. 66 amends section 19 of the 2004 Act to provide that when a rent is being set in a rent pressure zone either at the beginning of or during a tenancy, the rent may not be greater than an amount to be determined by the formula set out in the section. For tenancies that were in place before an area was designated as a rent pressure zone, the first rent review may take place only after a minimum of 24 months after the time the tenancy was established or the time the rent was last set. The reference in the amendment to section 24(c)(1A) which is inserted by section 36 of the Bill provides that in the first rent review after that 24-month period, a maximum rent increase of 4% will apply. To be clear to everybody because there was some confusion about this in the Dáil, the initial idea was that we would have an annual rent review of no more than 4% in terms of increases. If somebody has not had a rent review for two years and an area becomes a rent pressure zone, the maximum increase for which a landlord can ask is up to 4%, which is, effectively, no more than 2% per year for the past two years. Subsequently, it is a 4% limit annually; therefore, it does not matter if there is a change in tenancy and a review after six months. If it is after six months, it is an annual increase of 4% on a pro rata basis; therefore, if it is after six months, it will only be 2%. There is no incentive for a landlord to evict somebody and bring somebody else in to be able to bump up the rent by 4%. There is also no incentive for a landlord to have a rent review every year because if they have it after 18 months, it will be 4% plus 2% because it will be a year and a half. If it is two years, it will be 8% and if it is a year, it will be 4%. In respect of the maximum on a pro rata basis for which a landlord can ask after the first review, which will only be 2% per year for people who have been on a 24-month gap because it will be a ceiling of 4% taking account of the past two years, the key issue is that there is certainty for tenants and landlords in order that they can plan accordingly and in order that, most importantly, tenants do not have to fear an upcoming rent review not knowing whether it will be 10%, 20% or 25%, which could force them out of that property. That is what this measure does.
It is the first time a Government has ever introduced - in living memory - a direct intervention in the private rental market to limit the rent increases that can happen. It is an appropriate and a necessary measure at this time. It will apply to Dublin and Cork initially. I will explain the reason for this, rather than reading a detailed note on rent pressure zones in order that everybody is clear. There was a lot of debate on this issue in the Dáil last week. The reason we are starting with Dublin and Cork is that the data we have from the Residential Tenancies Board, RTB, which is the most credible independent source of data, are currently based on local authority areas only. They are not more localised than that. Under the threshold we are setting, which is more than a 7% annual increase and more than the average rent in the country, there are only five local authority areas that qualify as rent pressure zones in their entirety. They are the four local authority areas in Dublin and Cork city. There are undoubtedly many other areas that justify the introduction and designation of rent pressure zones, but because the information is based on local authority areas and averages in rural areas bring down the averages in counties such as Meath, Kildare and Galway, these areas do not qualify today because we collect data on a local authority area basis. With the ESRI and other sources of data, the RTB has already begun to look at areas on a much more localised basis, a local electoral area basis. If one looks at Cork, the largest county in the country, on its own from the Beara Peninsula to a town like Carrigaline where I live, and averages it out, one notes that it will not qualify. However, when one looks at a local electoral area like Carrigaline and Ballincollig in which there is a lot of pressure on rent, we will probably see a designation just like we will probably see designations when one localises areas within counties such as Meath and Kildare. When one breaks it down into local electoral areas, one is likely to see the introduction and designation of rent pressure zones in towns such as Naas, Dunshaughlin and Navan. That is why I have said through the debates last week and again this week that I must make decisions on designations on the basis of independently assessed data, not on the basis of politics and someone going back to his or her constituency or city and saying he or she has created a rent pressure zone. We are intervening in the private rental market and people's incomes and property rights and introducing measures to protect tenants. We have to make these decisions on the basis of independently sourced data that are not influenced by political considerations but on the basis of what is the current rental pressure in these areas according to the data. When we do this, we have an agreement with Fianna Fáil and other parties to fast-track the assessment of new areas that we suspect to be areas that are likely to result in more designations.
In January we will focus initially on the counties bordering Dublin such as Louth, Meath, Kildare and Wicklow and the three large cities that currently do not have a designation, namely, Waterford, Limerick and Galway. I am told that there will undoubtedly be designations in these areas, particularly Galway, once the assessment is broken down into a local electoral area basis. I wanted to explain why we were starting with Dublin and Cork. I was anxious on day one to designate what we knew to be rent pressure zones. One intuitively suspects that Dublin and Cork are the obvious places in which to start and that the data prove that they are the places to start. I want to reassure people that this is not the end of it. As the rental market changes and develops in the coming months and years, we will respond to areas that are suffering significant pressure by creating rent pressure zones but only on the basis of independent data.
Otherwise, we are going down a road that is very dangerous if we are making decisions on the basis of being politically popular in different parts of the country. Amendment No. 68 is about rent pressure zones, how they work, what the threshold criteria are and so on.
There are some Opposition amendments about replacing the 4% with the CPI and seeking to put a blanket CPI limit on rents across the country. I do not think it is the right thing to do. If I did, I would do it. Designating rural parts of Ireland, whether it be Connemara, the Beara Peninsula or the north west of Donegal, as rent pressure zones would result in ensuring we would have no investment in these areas by potential landlords who may want to have properties there for rent. Limiting landlords to a CPI or 4% increase on top of what is a very low rent in these areas would result in nobody providing rental accommodation in these areas. We need to ensure supply in the market too.
In areas in which there have been dramatic falls in rental increases, due to the property crash, and which are starting to recover, we must allow this recovery to take place. However, if it gets out of hand, a rent pressure zone will be triggered which will prevent rents from going beyond a certain point. That is why the rent pressure zone approach is a much more nuanced, targeted and accurate way of dealing with the pressures that are different in different parts of the country. The pressures in Dublin are very different from those in many parts of the midlands, the west or the south west In my country the pressures in Cork city and suburbs are very different from those in north Cork and west Cork generally in terms of vacant properties and rental markets. We need flexibility to target areas that need a sharp, clear intervention. We need other areas to provide solutions based on increasing supply over time.
Senator Frances Black proposes to introduce amendment No. 4. There is a serious intent behind the amendment which provides for the substitution of subsection (6) with a new subsection which would provide that the amendments would apply even where a notice of new rent had already been served before enactment. During the drafting of the new rent provisions, legal advice was specifically requested from the Office of the Attorney General on a proposal for the measure to apply to rents in respect of which a notice of review under section 22 had already been served. The advice received raised a particular concern that such a proposal would constitute a retrospective interference with the property rights of the landlord and that it would be particularly vulnerable to legal challenge. In effect, it would provide that a notice that was legal and valid at the date it was served and served in good faith would be illegal. Therefore, as a result of that legal advice, subsection (6) was inserted to ensure section 19(4) did not operate in a way that was retrospective. It should be noted in that context, however, that a landlord may not serve a notice of new rent until a rent review is due. A landlord cannot, for example, give nine months’ notice of a rent increase six months before a rent review is due and thereby evade the operation of the new provisions. The notice of new rent cannot be served until two years has elapsed since the date of the last review.
We also wanted to do what the Senator asked. However, I must take the Attorney General's advice. If I do not, somebody will legally challenge the legislation and, potentially, delay it for a long time, given that it will be shown to be inconsistent with the law and, potentially, the property rights in the Constitution. I take the Senator's point and do not disagree in terms of wanting to achieve it. However, if I introduce legislation that makes something that is legal today illegal tomorrow retrospectively, it will be challenged and the advice is that we will lose. Instead, we are relying on the provisions that were introduced by the former Minister, Deputy Alan Kelly, to ensure rents cannot be reviewed within 24 months, which was a good measure at the time and is still a good measure, although it has had some unintended consequences. No landlord can anticipate that an area may become a rent pressure zone and suddenly start the process of a rent review until the two years are up. This is the safeguard that is in place for towns which people may think are going to become rent pressure zones. If it has been 18 months since a landlord's last rent review, he or she cannot trigger another review, but he or she must wait for the full two years. There is a protection to prevent landlords from trying to anticipate what is coming down the line and trying to compensation for it to get the rent review to happen sooner. We cannot retrospectively change the law without the legislation being successfully challenged.
There are some measures I would have liked to have introduced which I could not such as receivers taking on the responsibility of landlords. There are legal complexities and property rights, particularly in Tyrrelstown, on which I would be very foolish to ignore the Attorney General's advice. I hope this is helpful regarding the Senator's amendment.
I have probably addressed most of the issues. I appeal to people to try to work with me to have the measure introduced as quickly as possible in order that we can do what the legislation is allowing us to do, namely, to intervene in the market to protect tenants and provide certainty in a way that does not fundamentally undermine the appetite for increased supply which we also need and to ensure the balanced approach I am trying to strike will take effect before the end of the year.