Interesting commentary, particularly on the contrast in yields between small and large properties. NAMA has chosen a Valuation Date of 30 November 2009 (a decision that some have said should be changed for future tranches as it may end up costing taxpayers €5bn according to the London Times) and also the LEV Regulation bars any analysis produced after 10 January 2010, so I’m not sure there’s any change in how NAMA values property as result of yields firming up.
I am surprised that the headline isn’t – “Rents dropping by 1% per month and 10% per annum” (April 2010 cf March 2010 and April 2010 cf April 2009).
We probably shouldn’t be surprised that rents are showing some resilience. As any prospect of short(medium?) term capital appreciation vaporises (Annette Hughes of DKM talks today of prices dropping 40% from today’s values, Moody’s last week were taking about another 18%, Morgan Kelly was talking about upto 80% total fall from peak whilst only the MfF, it seems, is talking about stability and realistic prices)landlords will look to rent to make the investment pay.
I think rents will continue to fall because a large stock of housing is not backed by a mortgage (800k mortgages, 2m properties including empties) and we don’t have a small number of big landlords that can act as a cartel (the NPPT report said there were over 1000 landlords with over 10 properties)and takehome pay will continue to come under pressure. However I think the fall will not be as great as the fall in capital values as the market imperfectly struggles to gain some sort of equilibrium between buying/renting.
And finally from me.. I wonder to what extent the social security rental payment puts a floor under rents, particularly at the cheaper end of the market.
I thought Mary Hanafin had announced a review of the scheme, but from recollection that was supposed to happen last month?
Hi Jagdip,
Thanks for those comments – it seems that your resilience point and your competition among landlords point are at odds? As in, if landlords can’t collude it would sure be difficult for them to “make the investment pay”, given the supply on the market. Your point about properties without mortgages is well-made though – it could be a case of new landlords getting squeezed by old ones.
On the social rents, I’m not so sure – only one in five landlords will even consider taking somebody on rent allowance, so while they have a floor, surely the others don’t? Or at the very least, there’s a negative premium attached to not accepting rent allowance… (I might see if I can put that into the model, now that I think of it.)
In terms of resilience, if rents drop by 10pc this year and property drops by 20pc then would you call the rental market (more) resilient? That’s what I meant, perhaps a poor choice of words on my part.
What you say about rental allowance is very interesting but even if 80pc of landlords won’t rent socially, to what extent would their outlook on prices change if the rent allowance was reduced?
[…] economist Ronan Lyons has some further analysis over on ronanlyons.com, including a look at exactly how much extra certain white goods can add to a property’s […]
CorkBoy
,
Hi Ronan,
I think the slight increase in Dublin is a bit misleading. The increase is quite small at 1.3%. I say this because landlords are only recently (last 6/12 months) discovering that asking price, even a lower than previous asking price, is not necessarily what they will get as a rental price.
Much as it has been for a few years in the selling market, negotiating (and hard negotiating at that) is now becoming an aspect of the rental market. A drop of 10% on the asking price is not unobtainable.
So while i agree with you, that the 1.3% increase certainly shows that the price decline is slowing; i’d be slow to say that there is a real increase.
Ronan, your figure of 1-5 landlords not considering social welfare recipients for rent cannot be accurate on an overall basis. While an individual landlord with just one property is going to target a “premium” market, most of the larger landlords (the 1000+ with the 10+ properties) will depend heavily on this market, particularly those with small terraced houses and houses converted into multiple units. That said, there is considerable anecdotal evidence that such landlords will demand cash topups from tenants and declare a lower rent so the tenant qualifies for support.
This must be extensive, since the area where I live is about 75% welfare, despite the average rent when I moved in being around 500 for a studio and 600-700 for a one bedroom. I doubt landlords are going to bargain down if they have high overheads.
That said, towns and rural areas outside the cities are characterised by a much higher acceptance of rent allowance recipients. However by accepting them they do lose control over their ability to raise rents as they feel appropriate without losing the tenant or creating a serious problem in rent arrears for the tenant.
Hi Laura,
Thanks for your thoughts on this – I might be tighter with my language in future when I talk about this. The figure is definitely correct for those advertising on daft.ie. There may of course be landlords out there working under the radar/offline and perhaps exclusively with welfare recipients.
Jagdip Singh ,
Hi Ronan,
Interesting commentary, particularly on the contrast in yields between small and large properties. NAMA has chosen a Valuation Date of 30 November 2009 (a decision that some have said should be changed for future tranches as it may end up costing taxpayers €5bn according to the London Times) and also the LEV Regulation bars any analysis produced after 10 January 2010, so I’m not sure there’s any change in how NAMA values property as result of yields firming up.
I am surprised that the headline isn’t – “Rents dropping by 1% per month and 10% per annum” (April 2010 cf March 2010 and April 2010 cf April 2009).
We probably shouldn’t be surprised that rents are showing some resilience. As any prospect of short(medium?) term capital appreciation vaporises (Annette Hughes of DKM talks today of prices dropping 40% from today’s values, Moody’s last week were taking about another 18%, Morgan Kelly was talking about upto 80% total fall from peak whilst only the MfF, it seems, is talking about stability and realistic prices)landlords will look to rent to make the investment pay.
I think rents will continue to fall because a large stock of housing is not backed by a mortgage (800k mortgages, 2m properties including empties) and we don’t have a small number of big landlords that can act as a cartel (the NPPT report said there were over 1000 landlords with over 10 properties)and takehome pay will continue to come under pressure. However I think the fall will not be as great as the fall in capital values as the market imperfectly struggles to gain some sort of equilibrium between buying/renting.
Jagdip Singh ,
Oops, Annette Hughes is predicting falls of average property to €140k from €200k today so 30%, not 40% – early morning pre-caffeine calculations!
Jagdip Singh ,
And finally from me.. I wonder to what extent the social security rental payment puts a floor under rents, particularly at the cheaper end of the market.
I thought Mary Hanafin had announced a review of the scheme, but from recollection that was supposed to happen last month?
Ronan Lyons ,
Hi Jagdip,
Thanks for those comments – it seems that your resilience point and your competition among landlords point are at odds? As in, if landlords can’t collude it would sure be difficult for them to “make the investment pay”, given the supply on the market. Your point about properties without mortgages is well-made though – it could be a case of new landlords getting squeezed by old ones.
On the social rents, I’m not so sure – only one in five landlords will even consider taking somebody on rent allowance, so while they have a floor, surely the others don’t? Or at the very least, there’s a negative premium attached to not accepting rent allowance… (I might see if I can put that into the model, now that I think of it.)
Thanks for the comments as always,
Ronan.
Jagdip Singh ,
Hi Ronan,
In terms of resilience, if rents drop by 10pc this year and property drops by 20pc then would you call the rental market (more) resilient? That’s what I meant, perhaps a poor choice of words on my part.
What you say about rental allowance is very interesting but even if 80pc of landlords won’t rent socially, to what extent would their outlook on prices change if the rent allowance was reduced?
Best wishes
Daft.ie Blog » Blog Archive » Daft Rental Report out – rents show signs of stabilisation in early 2010 ,
[…] economist Ronan Lyons has some further analysis over on ronanlyons.com, including a look at exactly how much extra certain white goods can add to a property’s […]
CorkBoy ,
Hi Ronan,
I think the slight increase in Dublin is a bit misleading. The increase is quite small at 1.3%. I say this because landlords are only recently (last 6/12 months) discovering that asking price, even a lower than previous asking price, is not necessarily what they will get as a rental price.
Much as it has been for a few years in the selling market, negotiating (and hard negotiating at that) is now becoming an aspect of the rental market. A drop of 10% on the asking price is not unobtainable.
So while i agree with you, that the 1.3% increase certainly shows that the price decline is slowing; i’d be slow to say that there is a real increase.
What do you think?
Laura ,
Ronan, your figure of 1-5 landlords not considering social welfare recipients for rent cannot be accurate on an overall basis. While an individual landlord with just one property is going to target a “premium” market, most of the larger landlords (the 1000+ with the 10+ properties) will depend heavily on this market, particularly those with small terraced houses and houses converted into multiple units. That said, there is considerable anecdotal evidence that such landlords will demand cash topups from tenants and declare a lower rent so the tenant qualifies for support.
This must be extensive, since the area where I live is about 75% welfare, despite the average rent when I moved in being around 500 for a studio and 600-700 for a one bedroom. I doubt landlords are going to bargain down if they have high overheads.
That said, towns and rural areas outside the cities are characterised by a much higher acceptance of rent allowance recipients. However by accepting them they do lose control over their ability to raise rents as they feel appropriate without losing the tenant or creating a serious problem in rent arrears for the tenant.
Ronan Lyons ,
Hi Laura,
Thanks for your thoughts on this – I might be tighter with my language in future when I talk about this. The figure is definitely correct for those advertising on daft.ie. There may of course be landlords out there working under the radar/offline and perhaps exclusively with welfare recipients.
R