Ireland's Minister for the Environment and Local Government, Noel Dempsey T.D. and his Minister of State, Robert Molloy T.D., have appointed a special Housing Commission charged with examining the private rented sector in Ireland.

In 1998, the study on spiralling Irish house prices conducted by Peter Bacon led to radical changes in the tax treatment for newly purchased residential investment properties, amongst a plethora of other changes designed to take the steam out of the housing market. All of these moves were aimed at easing the plight of the first-time buyer, who was gradually being priced out of the market and who found many properties being purchased by investors for letting.

However, you can't make an omelette without breaking eggs.

The moves came at a time of very high demand in the rented sector. Many multi-unit houses in urban areas had, over the previous 5/7 years, been gradually bought and reconverted to single family occupancy. Thus much of the traditional cheaper rented accommodation became a thing of the past.

Bacon had not been asked to examine the implications of his proposals on the rented sector. To this degree, his examination took place in a vacuum. It was suggested that the tax move, combined with changes in Stamp Duty (making investors who bought new homes liable for this tax for the first time) would cap availability in the rented sector at a time of increasing demand.

The IAVI (Irish Auctioneers & Valuers Institute), Ireland's main property body, immediately claimed that a special Bacon-style report on spiralling rents would be required within a short time and this has now been proven correct.

In effect, that report will now emerge from the new Commission which comprises representatives from a variety of Government Departments as well as related bodies. In the property sphere, the IAVI was the only professional body asked by Government to nominate a member to sit on the Commission which will be chaired by another IAVI member, Tom Dunne of the Department of the Built Environment, Dublin Institute of Technology. Mr Dunne is also a Chartered Surveyor and has a keen interest in the housing sector.

IAVI's official Commission nominee is Peter Wyse of Wyse Property Management in Dublin, a specialist in residential lettings and management.

The Commission's Terms of Reference are to recommend changes aimed at increasing the availability of affordable private rented sector housing. However, it is also intended that security of tenure for tenants should be improved. Whether the Commission can see a way to do this, and still encourage landlords to invest in new properties in the absence of interest tax relief, will be watched with interest by the property industry generally.

At the end of August, the DoE announced details of a comprehensive Town Planning Bill that effectively replaces all existing planning legislation in Ireland.

Many of the provisions of the Planning and Development Bill, 1999, will help speed up a planning process, the delays in which have certainly contributed to the house price crises.

However, Part V of the Bill is causing most controversy. This part calls on planning authorities to create Housing Strategies for their area, identifying the exact demand for both social and affordable housing.

The Bill recognises that many first-time buyers are excluded from the market, because their incomes no longer match up to the required level for borrowing purposes, in light of the traditional lending criteria of 2.5 times principal salary plus 1 times secondary salary. These criteria applied when interest rates were a great deal higher than at present, and higher than the level that can be presently foreseen for short to medium term in the euro zone. Whether they remain appropriate in the current climate is debatable and even Peter Bacon has questioned their relevance in current circumstances.

In future, local authorities must identify those individuals requiring "affordable" housing as a category, and provide for their needs.

To help this aim, the Bill provides that in future planning applications, planning authorities will be empowered to demand that up to 20% of the developable land (in most urban areas it is likely to be the maximum 20%) be sold to the housing authority.

The sting in this particular tale is that the price to be paid will equate to the pro-rata value per hectare/acre, if the land was bought before the Bill was published, or existing (generally agricultural) use value, if purchased after its publication.

In effect, the Government is saying to builders "If you buy now, bear in mind that this partial sale will be a planning condition."

The IAVI believes that this will effectively remove up to 20% of sites from private builders at a time of extremely high demand - further worsening the price crises. It will also create an artificial bottleneck as landowners sit on land waiting for the uncertainty to disappear. Builders who have land will be encouraged to wait until values increase more before selling.

The move effectively reverses the benefit to landowners of the earlier Government decision to reduce Capital Gains Tax on Residential Land from 40% to 20% in order to encourage the supply of zoned and serviced building land. Landowners will now lose up to 20% of the land's value and will not be properly compensated for this loss.

This would not be too bad if the housing authorities were obligated to allocate all of the land for affordable housing. Instead, they are given free rein and most will use the windfall of this land to tackle their most pressing housing problem - the social housing waiting list.

Sites acquired by housing/local authorities will provide social rented accommodation - the very type of housing that most private buyers have heretofore shunned as potential neighbours. Another irony is that it will probably cost local authorities more per unit to build these homes than it would cost the private sector - this has traditionally been the case.

The IAVI foresees great difficulties for developers if, as suggested, housing authorities may give single sites to individuals to enable them to build their own house. Ramshackle estates, the very antithesis of sound town planning, are a very real possibility.

With current variable Irish mortgage rates in the 5.25 - 5.50% range, the imminent arrival of a major U.K. mortgage provider, Bank of Scotland, into the Irish mortgage market will cause many ripples, the full effect of which may take some time to see.

Bank of Scotland is offering a headline variable rate of 3.99%, cutting up to 1.5% off rates charged by Irish lenders.

Many commentators have felt that it was only a matter of time before the cushy margins enjoyed by Irish lenders attracted overseas competition.

With both the Irish Central Bank and the Irish Government unhappy with the reductions in interest rates imposed by Ireland's participation in the euro, there was never going to be heavy official pressure on the lending institutions in Ireland to slash their wide margins. Just how the Government was protecting the interests of the consumer, or borrower, in this matter has never been explained.

Borrowing at 2.5% and lending at 5.5% makes sound business sense and it is easy to see why two of the four leading companies on the Irish Stock Exchange are banks.

The Scottish offer is restricted to a maximum of 80% of the property's value, putting it out of the reach of first-time buyers. However, it may prove attractive for would-be borrowers who meet Bank of Scotland's criteria. Bank of Scotland do not intend to establish a branch network in Ireland directly although reports suggest it may achieve this by acquiring one of the Irish state-owned banks which will shortly be sold by the Government.

At least two other U.K. lenders are examining the Irish market. We watch with literal interest.

Alan Cooke, chief executive of the IAVI, provided the information and views set out above. The Institute's web site is at www.iavi.ie