How can the Irish government stop paying unsustainable rent subsidies to private landlords?

Paul O'Donoghue

IRELAND’S POPULATION GETTING older raises many extremely worrying questions.

Most of these centre around the state pension, and how the system will fare once there is a sharp fall in the number of younger workers funding it.

Closely linked, but which doesn’t tend to get quite as much attention, is the impact of ageing on the country’s chaotic private rental system.

The Irish State currently pays out about €1 billion per year in various rent supports and subsidies. This has been necessitated by surging rent prices over the last decade or so – without the supports, many private renters would face a very real danger of poverty and homelessness.

At last count, rents for existing tenancies are up more than 4% annually, above the rate of inflation. Meanwhile, prices for new tenancies surged by 9% in the year to March – a frightening acceleration.

This was likely why the government raised the rent tax credit by €150 in Budget 2027. Previously, it was €1,000 per person – from January, it will be €1,150.

The credit was introduced in Budget 2023, aimed at private renters not receiving state supports such as the Housing Assistance Payment (HAP).

Initially set at €500 per person annually, it has rapidly inflated to keep pace with surging rents.

In tandem, the cost to the state is also rising quickly. In 2023, the measure cost €184 million. As of last year, it had doubled to about €360 million.

The Budget 2027 increase will push the annual cost past €400 million.

This is just one of several rent supports we are paying out to subsidise rents. There is also HAP, which cost the state more than €520 million in 2024. And then the Rental Accommodation Scheme (RAS), which has an annual cost of well over €100 million. And the Rent Supplement, which cost approximately €52 million per year at the last count.

All in, the Irish state is now spending about €1 billion on various private rent supports. It is likely that some kind of subsidy is now going to essentially every single renter in the country.

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Clearly, this is a situation which is very far from ideal.

The approach has just been called out by the Parliamentary Budget Office (PBO), the Oireachtas spending watchdog.

In a new review, it warned that “a high percentage of those in the private rental market are receiving at least one form of assistance from the State to cover these costs”.

“Such extensive State intervention in this area signals significant market failure and ongoing subsidisation may be unsustainable,” it warned.

It also pointed out that the rent tax credit “is an expensive mechanism for the State to use to meet increasing housing costs and will have no impact on helping to improve supply for renters”.

The criticism raises existential questions over how Ireland’s struggle with surging private rents.

Ageing and renting

To bring this back to Ireland’s ageing. The population is getting older, while home ownership rates are falling.

Both trends are expected to accelerate in the coming years. This will create a large group of people who will be stuck paying private rents into older age. It is something which is already happening – the number of pensioners renting from private landlords doubled between 2016 and 2022.

The rate of renters at risk of falling into poverty has increased steadily in the last few years, and is about three times higher than for homeowners.

What is the long-term plan here? Rent prices are only going one way, and the number of people relying on private rented accommodation is steadily going up.

The state is already struggling to balance the books and has become incredibly reliant on windfall corporation taxes.

As we are reminded over and over again, a big chunk of these payments could suddenly vanish, leaving Ireland in the red. It is estimated that the state’s underlying deficit [ie, stripping out these windfall tax payments] is running at about €13 billion per year.

On top of that, Ireland’s state pension system is expected to start recording annual deficits of billions of euros in just over a decade.

In this context, it appears to make little sense to raise the subsidies we pay out to private landlords. As pointed out by the PBO, the move does not create any new rental supply. It also helps lock in the current market prices, essentially putting a large band-aid on the problem.

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The State pays these subsidies now, with the intent of increasing housing supply in the meantime. The hope is that, eventually, the new supply will dampen price rises and allow the State to pull back its spending on supports.

The plan works in theory, but is not as effective in practice.

We can see how a similar story has played out in the owner-occupier market. The government introduced Help to Buy in 2017 in an effort to stimulate new house building, improving supply. In its first full year, it cost just over €73 million.

Annual spending on the scheme has since soared to over €250 million, and is rapidly closing in on €300 million. Most analysts have said it is essentially impossible to assess its impact, but it is now just a large bill which taxpayers must foot every year. The same thing looks to be happening with rent subsidies – lots of money spent, without addressing the underlying problem.

Progress

To be fair to the government, it has made some effort to tackle this, increasing funding to build affordable rental properties.

It has a few schemes which do this. The most prominent is its programme to build cost-rental homes, which tend to have rents about 30% below market rates.

Officials allocated €575 million to this in 2026, an absolutely enormous increase compared to the €35 million the scheme got in Budget 2021. It shows that serious money is being poured into delivering affordable rental, with the programme on track to deliver over 1,000 homes per year. That is real progress.

But it’s important to note – these properties are massively oversubscribed. Each cost rental home is essentially assigned by a lottery system to people who meet the minimum requirements. These schemes commonly attract dozens of applications per available home, sometimes surging far higher.

It shows that, while the cost rental scheme is a genuine step in the right direction, what is coming on stream is still well short of meeting demand.

There are no easy solutions here. But it is worth noting that state spending on rent subsidies is higher than the funds going towards delivering new rental homes.

Pumping more money into rent supports is not sustainable – the state needs to continue ramping up affordable rental delivery to have any hope of cutting the massive payments of taxpayer funds to private landlords.