Tenants may enjoy lower rent increases under new rent pressure zone legislation.

Proposals from Housing Minister Darragh O’Brien would mean annual rent rises will be based on inflation rates instead of set caps.

Current laws mean rents within rent pressure zones (RPZs) can only rise by a maximum of 4pc annually.

Under the new rules, which will run until 2024, there will be no cap on rent increases and instead rents will only be allowed to go up in line with general inflation, as recorded in the EU Harmonised Index of Consumer Prices (HICP).

The European Central Bank (ECB) aims to keep inflation at or close to 2pc across member states.

If the 2pc calculation is applied this means tenants would see the annual rise in their rent halved.

However trade disruption and global shortages of all kinds of goods coming out of the pandemic have kicked off a sharp rise in inflation this year, prompting speculation that the era of super-low inflation is ending.

There had been almost no inflation over the past decade, despite the ECB wanting to see it running at close to 2pc. However, that target now looks like it may be surpassed this year.

The RTB’s latest rent index covering the months between October and December shows the average rent in Dublin now stands at €1,745 a month.

With the existing legislation and caps of 4pc, people living in RPZs would have to pay increases of up to €70, meaning they would pay €1,815 monthly next year.

However, as the current inflation rate is 1.9pc across countries in the eurozone, this would mean rents rising by €33, so they would pay €1,778 a month next year.

Senior lecturer in housing at Technological University Dublin Dr Lorcan Sirr, told the Irish Independent that while rent increases based on inflation have been urged for some time there is still a need for a cap.

“The principle of linking rent increases to inflation is a good one, and has long been called for. However, timing is everything and this change comes at a time when inflation is beginning to rise and rents aren’t falling,” he said.

“If inflation continues to rise, and hopefully it won’t, it would be useful to see a cap placed on the ultimate increase no matter what rate the HICP is. It will be interesting to see what impact this new rent indexing will have on institutional investors’ appetite for the Irish market.”

A spokesperson for Mr O’Brien said the new measures will be kept under review.

The changes are expected to kick in by July 9 after the passing of the Residential Tenancies (No. 2) Bill 2021.

Mr O’Brien said the 4pc cap on rent increases has become a “target rather than a limit”.

“We are now taking action to ensure that tenants will only pay rent increases, if required to, which are in line with general inflation, which is currently below 2pc.”

He said linking rent increases with inflation would protect the “property rights of landlords” and also ensure “continued investment in the sector by existing and new landlords”.

The new legislation will also restrict upfront payments for renters when first securing a tenancy.

To secure a home, tenants will now not have to pay more than two months’ rent – this would normally include one month’s rent and a deposit.