Misinterpreting rental inflation

The current method for calculating rental inflation can “overstate the inflation experienced by households in the sector and lead to misinterpretation of the effectiveness of rent regulation in limiting rent increases” and can be improved, a new report from the Economic and Social Research Institute (ESRI) finds.

Measuring rental inflation: Evidence from Ireland, published in May 2026, analyses rental inflation over the period Q2 2022 to Q1 2025 using two different methodologies.

The first of these, being used for the first time in Ireland, is a Repeat Rent Index (RRI), which tracks the rental prices of the same properties over a period, capturing changes within individual properties.

This makes it particularly suited to measuring affordability trends for properties in the sector and assessing the effectiveness of rent caps in limiting within-property rent rises.

A hedonic index, which is the method currently used by the Residential Tenancies Board to calculate rental inflation, is used alongside the RRI.

This measures all rents in a period and adjusts for differences in property characteristics, capturing changes in the average rent paid and the composition of the rental market through the entry and exit of properties.

The hedonic index is crucial for understanding broader market pressures, driven by factors such as population growth, supply constraints, and increasing construction costs, all of which influence the mix of properties and overall rent levels.

However, hedonic indexes can exaggerate the real inflation experienced and therefore struggle to accurately evaluate the ability of regulations to limit rental inflation.

The report states that an RRI provides a timely and clearer picture of affordability developments for households but does not capture the impact of market churn, the entry and exit of properties with different rent levels.

Therefore, using both indices together provides a more comprehensive and timely understanding of developments in the rental market.

Results

The report finds that annual rental inflation, measured by the RRI, was consistently between 2.1 and 2.8 per cent lower than the hedonic estimates across the country with the total RRI found to be 2.48 per cent compared to the hedonic estimate of 4.68 per cent.

The significant difference in the inflation measured by the RRI and the hedonic index highlights the danger of using only one of these approaches.

Using both methodologies also allows for the underlying factors driving inflation to be calculated in specific areas, such as market churn or within-property rent increases.

The analysis of rental markets in local authorities (LA) reinforces the findings of significant differences between the two methodologies.

South Dublin County Council and Tipperary County Council both have very similar hedonic estimates of rent inflation, 5.94 per cent in South Dublin and 5.83 per cent in Tipperary.

However, each LAs’ RRI-calculated inflation is significantly different, as South Dublin’s is 1.8 per cent, while in Tipperary it is 4.7 per cent.

The use of the RRI allows for a better understanding of the underlying factors behind the inflation.

For example, the lower RRI inflation in South Dublin means its rental increases were primarily driven by market churn, whereas in Tipperary, inflation was heavily driven by within-property rental growth.

While the report does not make any policy prescriptions, it provides the most detailed analysis ever of rental inflation in Ireland by using two complementary methodologies to produce a more comprehensive and timelier understanding of rental market developments.

This can facilitate more effective and targeted interventions to address inflation in rents across the State.

The report indicates future analysis of Ireland’s rental inflation must include a RRI in addition to the hedonic index to ensure that the calculations are as accurate as possible.

New rental rules

While incredibly accurate, the timing of this analysis means that it was unable to capture the effects of the new rental rules.

From 1 March 2026, under the Residential Tenancies Bill, rent increases for new and existing tenancies are capped in line with the rate of general inflation or 2 per cent a year, whichever is lower.

However, for private tenancies created from this date, the bill allows landlords to reset the rent at market rate if the last tenancy ended because the tenant left by choice, breached their obligations, or if the property no longer suits their needs.

This part of the bill was controversial and received significant criticism from opposition parties, who warned it would cause rent increases, which contributed to the bill only narrowly passing in the Dáil by 79 to 70 votes.

The new legislation may have already contributed to the significant increases in rents across the country in the first quarter of 2026.

A report from Daft.ie found that rents rose by as much between December 2025 and March 2026, 4.4 per cent, as they did over the whole of 2025, which is the largest quarterly gain on record back to 2002.

Due to its effectiveness at measuring the effect of rent caps on rental inflation, an RRI must be used in future analysis of the Irish rental market to understand the consequences of these new rules.

Sinn Féin housing spokesperson Eoin Ó Broin TD says: “This dramatic surge in market rents is a direct consequence of the Government’s decision to allow landlords to reset rents between tenancies.

“We urged the Government not to do this. Not only did they refuse to listen, they knowingly and willingly pushed rental inflation to its highest level in a quarter of a century. And they did this on the entirely false premise that it would increase supply and over time bring rents down. It will do neither of these things.”