The latest Daft Report, for the rental market during Q1 2010, is out today, with a commentary by Jill Kerby. The main headline is that, as suggested by the January figure, rents are stabilising, particularly in the cities.
Of the 35 different regional markets around the country, 15 of them showed a positive quarter-on-quarter on change in rents in the January-March period. Almost all of the remaining 20 markets had quarter-on-quarter falls of less than 1%, a far cry from the 3%-5% falls that became standard during 2009.
Perhaps significantly, the average rent in Dublin and Cork cities rose slightly, indicating that the significant reduction of supply in properties for rent in the major rental markets (from very high levels) is having an impact on rents. In particular, the Dublin city centre rent during the first quarter of 2010 was 1.3% higher than in late 2009.
This is not to suggest that the bottom of the market has definitely been reached nationally. The market has stabilised somewhat, with a quarterly fall of 0.4% compared to 10 times that fall each quarter during 2009. However, the big kick in rents came in January, and the national average rent has fallen back slightly in the three months since.
Stock on the market
Coupled with this, the total stock available to rent across the country has risen since the start of the year. The total number of properties available to rent in the country last July was almost 24,000. By February 1st, it had fallen to 18,800, but on May 1st it was back up to 19,800. The graph below shows the percentage difference between the number of properties available to rent at any one time to the typical number of transactions per month, across different regions. Generally, a market in equilibrium would have these close to level (i.e. 0%). The further above zero, the more likely it is there is downward pressure on rents, as landlords find it difficult to rent out their property quickly.
It is of course possible to argue that different regions would have different “equilibrium” levels (although I’m not convinced that would explain all the difference), but the more important thing is the trend. Month after month of easing pressures during late 2009 have translated into stabilising rents. Since February, though, the competition among landlords has resumed somewhat. Hence the caveat about calling the bottom of the market…
As I’ve pointed out many times before, the rental market is important not just tenants and landlords but for those with mortgages and for taxpayers, because of the importance of yields in property. Page 10 of the report outlines average yields in all parts of the country, by bedroom number. The green/red numbers after the yield are how the yield has changed in the past twelve months (which essentially measures whether rents or house prices have been falling faster). The predominance of green means that yields for most segments of the market have improved since early last year.
It’s useful to look at the table with NAMA’s 6% benchmark yield in mind. While it seemed a world away a year ago, average yields are getting close to 6% in a number of market segments, mostly one-bedroom segments in the cities. Limerick (6.0%) leads the way, followed by Dublin city centre, West Dublin and Waterford all of which are between 5.5% and 5.6%.
In Waterford, the two-bedroom segment also has an average yield of over 5%. However, in the same city, the average rent for five-bedroom properties is just 1.8%. This highlights an overall trend throughout the country: yields for a property with particular number of bedrooms in one area tend to be similar not to yields for other properties in the same area, but to similar-sized properties elsewhere.
This suggests either or both of the following. Firstly, yields for smaller properties (i.e. those more likely to be investments) may have a higher equilibrium level than those for family homes, where owner-occupiers pay a premium above rent to have the security of tenure and freedom to tamper with their home. Secondly, owner-investors may have been faster to come to terms with the new market conditions than owner-occupiers, an adjustment that owner-occupiers may yet have to make.
In other news…
Among the variables that enter the regressions that underpin the Daft Report are a number of “white goods” and utilities, as anyone who’s ever posted an ad on Daft will know. One thing we spotted a few years ago was that no matter what way you ran the numbers, a significant dishwasher premium – about €50 a month! – existed. That’s right, controlling for everything else, with two identical properties, if one had a dishwasher, it could command a rent of €50 more than the other. Even more surprising, a premium of this size didn’t really exist for any other white good, certainly not the washing machine that most would list as their most important “white good”.
Well, it looks like the recession is sending people back to the sinks! Below is the trend in various premiums (or premia if your Latin takes you that way), including dishwashers, washing machines, dryers and alarms. As you can see, dishwashers are so Celtic Tiger – dryers apparently less so (presumably related to the bad summers we’ve been having!).