THE state is paying more than €500m a year on rent supplements, with economists increasingly concerned that the outlay is propping up a false economy in the housing market.

While the cost of both purchasing and renting properties has declined in Ireland, experts believe there are signs that state-sponsored rent bills are out of sync with market values.

Landlords who once shunned rent allowance tenants are now welcoming them with open arms.

According to figures obtained by the Sunday Tribune, assistance with rental payments across the entire country cost the taxpayer €517,923,074 in 2009.

This represented a total of 87,802 assistance claims, equating to an average payment of €5,900 a year per claimant.

Describing the situation as helping to create a "false rental market", Friends First economist Jim Power said the government ought to examine existing structures to make sure it was getting value for money.

"It's widespread across the country and it has been increasingly evident over the years that this situation has been evolving," he said.

"It has cost the state a fortune and it's clearly a false rental market. People are being given the money to spend on rent, and they spend it on rent, and so landlords have not reacted to prevailing market conditions.

"There is also a huge cost to the state and in an environment where we are on the brink of bankruptcy the government should be looking at this."

Rent assistance is still distributed through the old health board system. The eastern region accounted for the largest single outlay, of €266.3m, last year. This was followed by the south (€64.2m), the south east (€47.8) and the west (€39.9m).

The total of successful scheme applicants in the eastern health board region was nearly three times that of the south region. In the west Dublin area alone, those seeking rent supplement in the suburbs of Blanchardstown and Finglas accounted for a bill of €31.7m last year.

Fine Gael councillor for Dublin West Kieran Dennison said he has noticed a marked change in rental habits since the collapse of the economy.

"It's still propping up house prices. There are places in Corduff where you could buy a council house for not far off €120,000 to €130,000 and yet I am surprised when people tell me they are getting €1,100 in rent supplement," he said.

"There is no relationship between the price of the house and what you pay in rent. It's distorting the whole housing market and putting a floor under the rental market."