Landlords should be able to “reset” rents between tenancies to stop investors leaving the market, and increase the supply of rental property, the Organisation for Economic Co-operation and Development (OECD) has recommended.

Currently the rent pressure zone (RPZ) system in Ireland caps annual rent increases at 2 per cent, or at the rate of inflation, whichever is lower, even if there is a change of tenant. Industry representatives claim the system is among the most stringent in Europe and one of the reasons for the fall-off in new home building.

The OECD’s Economic Survey if Ireland contains a detailed assessment of the country’s economic performance, as well as in-depth analyses of the Irish housing market, of cost competitiveness and of progress addressing climate change.

The report, which is published every two years, has predicted the Irish economy will grow by 3% this year and 2.7% in 2026. Headline consumer price inflation is expected to be around 1.8% in 2025-26 while the unemployment rate is set to stabilise around 4.3% in 2025-26.

The OECD said the current system seems to have had “some rent stabilisation effects” but given the increased inflation in recent years, “the cap is likely below the cost of maintenance and upkeep of property and might have driven landlords to sell”.

“Ireland should allow rents to be re-set between tenancies and adjusted for inflation during a residency, but care should be taken that it does not lead to unfair termination of contracts,” the report said.

It also suggested that stringent rent controls reduce the rate of return on real estate investment and can discourage developers “making the supply of housing less responsive to changes in demand”.

Minister for Finance Paschal Donohoe said he would be bringing the recommendations made in the report to government in the coming weeks. Adding, “It notes that the domestic economy performed robustly last year, supported in particular by the continued strength of the labour market.

“Both GDP and Modified Domestic Demand are expected to record solid growth this year and next. That said, the analysis also highlights that risks to the outlook have increased, and it is difficult to argue with this.”

The OECD also said temporary tax measures introduced in recent budgets to address affordability challenges should be phased out. In particular it highlighted the reintroduction of mortgage interest relief and extension of tax reliefs for landlords and tenants, claiming the measures were “not targeted” and could be “regressive”.

“In a context of strong demand due to population growth, past underinvestment and constrained supply have led to affordability and viability challenges,” the OECD said.

“Recent policies have contributed to an increase in housing completions, but supply- demand mismatches persist.”

NB – This is a guide for information purposes only and does not constitute legal advice. If you have an issue requiring legal advice, please contact any of the team at Nolan Farrell & Goff LLP, whose numbers can be found on our website www.nfg.ie, or email info@nfg.ie.