Property Market

Everyone’s a winner (sort of) with latest trends in rents

24 Aug 2010

"The average rent in the second quarter was just 0.9% lower than in the first quarter, making it the second period in a row of essentially stable rents."

Last Thursday, the day after Leaving Cert results came out, the latest Daft Rental Report was released. The full report including a commentary by Gary Redmond, President of USI, is available over on daft, but to me, there were five interesting things that came out of the report:

  1. Accommodation costs for new and returning students vary significantly across the country. Page 5 of the report outlines the current costs faced by students in the markets close to all major universities and ITs. A double room ranges in cost from €500 a month in Dublin city centre to €220 a month in Letterkenny. Similarly a three-bed house in Dublin city centre costs €1,500 a month compared to €600 a month or less outside the major cities.
  2. There is plenty of good news for landlords, as rents barely budged in the second quarter of the year. The average rent in the second quarter was just 0.9% lower than in the first quarter, making it the second period in a row of essentially stable rents. A year previously, the equivalent figure had been 5.4%, so assuming no “double dip”, the rental market is close to stabilisation.
  3. In a healthy market, the quarter on quarter change is less relevant than the annual change, because of seasonal ups and downs (and because people tend to rent in 12 month installments). Since late 2007, it’s been all one-way though, hence the focus on quarter-on-quarter recently. But recent stabilisation means we can start looking at the year-on-year change in rents again – at -7%, rents are definitely still be reviewed when renewed but it’s the slowest rate of falls in rents since late 2008.
  4. This review of rents is most definitely good news for students, because it’s the third year in a row that students start their hunt for accommodation knowing rents are lower than the previous year. Those who will appreciate this best are those who rented in the 2007/08 academic year. Over the course of the coming academic year, students around the country could save between €1,500 and €4,000, compared with 2007/08 costs.
  5. Due to oversupply, however, the rental market remains fragile. Ultimately the rental market – like any – is about supply and demand. Supply remains high – 20,000 units were available to rent across the country on August 1. I don’t believe for a minute that this has to return to pre-2007 levels (5,000) for the market to stabilise. But if rents are to stabilise – and this is the first part of a return to normality for house prices too, remember – supply and demand have to balance. Currently, the market is processing around 14,000 units a month. This suggests there’s still an overhang but where this oversupply is may be mismatched compared to where demand is. In Dublin, for example, the 6,000 units available to rent is very close to monthly demand but in other parts, the gap is much bigger.

Over on Manyeyes, I’ve mapped the change in rents over the last three years at a county level. I’ve also put in a live visualisation below. Give it a try if you can – for example, by clicking two maps (not one) and choosing to align map scales, you can map 2007 and 2010 rents by county. You’ll see, for example, that rents in Dublin’s most expensive commuter county, Wicklow, are now below what they were in Dublin’s cheapest commuter county, Louth, in 2007:

Another thing to check out in the visualisation is the fall in rents. Even using percentages rather than euro amounts, urban areas (specifically Cork and the greater Dublin area) still look to have fallen the most. Given that these were the most expensive areas, it could very well be the case that “the bigger they are, the harder they fall”.

However, there is an alternative explanation. The greater reduction in these areas has coincided with a better matching of supply and demand. It might just be the case that the larger rental markets (in volume terms) have been able to find a new sustainable level of rents faster.

The next 12 months will probably tell us which of these explanations is more correct. If it does, it may have significant implications for what our expectations should be about prices in the sales segment, where a similar pattern is emerging.

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8 Comments

  1. Jagdip Singh said on August 25, 2010 | Permalink

    Hi Ronan,

    Interesting article and well done to you all at DAFT for producing the latest rental report.

    It may be my browser (latest version Firefox) but the interactive map above returns an error. I’ll be using IE shortly so maybe it’s a browser problem but if you have gone to the trouble of producing an interactive map, you might check.

    Best wishes

  2. Emmet Ryan said on August 26, 2010 | Permalink

    Interesting piece Ronan but you can’t do a piece with that title without this…
    http://www.youtube.com/watch?v=J-GkwIRbLw8

  3. Sporthog said on August 30, 2010 | Permalink

    You fail to mention that the Labour party have pledged to remove the cost of interest repayments for landlords in calculating profit or loss for taxation purposes.

    After the next election in 2012 if Labour are successful then the rental market will become a bloodbath.

    Either rents will have to rise dramatically or landlords go out of business.

    Only a fool would continue to invest in property in Ireland. 100% taxation on a loss is a very real possibility after 2012.

    But then again who cares?

  4. Laura said on January 26, 2011 | Permalink

    Hang on a moment now, if a double room is 500 euros a month in Dublin and a median income is 28k (for want of a more accurate statistic), this still means that a single adult living in this room will pay more than 1/4 of his/her take home pay in rent.

    Likewise, if the worker is unfortunate enough to lose his job, rent subsidy for Dublin for a sharer is a maximum of 390 euros per month, which means he would not qualify. Either he would have to move out and find somewhere for 390 a month (which is a good 20%+ less than average), or else pay the 500 out of the 800 euros a month he would get on the dole. That means he/she would have to fork out about 62% of the entire dole payment in rent – and then live on about 75 euros a week for everything else.

    Sorry Ronan but its nonsensical to suggest that in such a scenario such a person is aa “winner”.

  5. Ronan Lyons said on January 26, 2011 | Permalink

    Hi Laura,
    Sounds like you had your point and went looking for stats to back it up, if I’m honest. While the median income in Dublin is probably a good deal higher than €28k, which is closer to the national average, what I would take exception to is the sense of entitlement underpinning your points. Accommodation (together with food) are necessary goods. Their price will reflect this. In what sense is someone earning below the average wage entitled to live in the most expensive part of the country and have three times as much income left over for non-accommodation costs? Generally, people spend about one third of their disposable income on accommodation.

    Secondly, if this persons loses their job, who says they are entitled to live in the most expensive area in the country and find it easy? It’s thinking like this – and subsidies based on this thinking – that props up the costs of accommodation in Ireland. If I lived in the city centre and lost my job, I would immediately look to save €1,500 or so a year by moving out from the centre and find a double room or indeed single room for €300-€350 a month. Shelter is a right, the pick of the market is not.

  6. Laura said on January 29, 2011 | Permalink

    Ronan – upon what evideence are you basing the assertion that the median income in Dublin is 28k? It may be higher (or lower) but the evidence doesn’t exist. (Unlike in UK where Office of National Statistics records this routinely).

    While you are correct in the general assumption regarding the fact that about 1/3 of income is spent on housing, again, there is little hard evidence of what exactly happens. It does appear, anecdotally, that at lower income levels, a higher proportion is spent on essentials. Secondly, a workers ability to work may depend on their location.

    But the one piece of evidence which does exist is on your own employers site. There are currently about 2000 rooms for share on Daft. Of these about 880 are priced at 350 a month or less. But if you do an advanced search and look only for those both at 350 or less AND accepting rent allowance, you are left with 99 out of over 2000 properties – or just under 5%.

    This more or less suggests that the current rent levels mean than 95% of the rental market is wiped out for those on the lowest income levels. This doesn’t take into account that many are in areas with poor transport, low amenities and may may job hunt (especially for those without cars) more difficult. It ignores that many landlords, despite PRTB, still tie tenants into binding leases and at best withold deposits if leases are broken early, or at worst, demand the rent until the end of the lease. Can you really call those people “winners”?

  7. Ronan Lyons said on January 30, 2011 | Permalink

    Laura,
    Apologies if I came across a little angry in my reply to your initial comment. However, that doesn’t absolve you of the requirement to read what I am and what I am not saying both in this post and throughout my blog/general commentary. In particular, you wrote on your blog:
    “Unlike many of Ireland’s economists, Lyons is basically the propoganda mouthpiece for Daft.ie… Anyway, the reality is that Lyons is paid to sing up the whole ideology of Daft and its industry… Lyons has been particularly peddling two notions: firstly, that current prices represent “good value” for buyers and secondly, that rents at the moment being “cheaper” (which actually isn’t really the case) many would be “better off” renting.”
    I trust I can safely assume that you haven’t been following my blog for very long and of course I don’t presume anyone to have read every last piece I write. I am very grateful for people who do read my posts and for those come on and comment, even (or particularly) if they disagree with what I say and make constructive comments. However, I can’t allow someone to misrepresent me so badly. I think it’s fair to say if you look around the blog, the primary areas of focus are things like the government finances, NAMA, drivers of global growth, Ireland’s national competitiveness and so on. If I am truly nothing more than a mouthpiece for Daft.ie, then I don’t seem to be doing a very good job.
    You say that I’ve been peddling two seemingly contradictory notions: (1) now is a good time to buy because it’s good value, and (2) don’t buy because it’s cheaper to rent. On the first, the entire point of this article was not that things are cheap, but that they are cheaper: up to a third cheaper now than four years ago. Surely you would agree that this is a very welcome development for all tenants. I was not prepared to say now that accommodation in Ireland is cheap, hence I didn’t say it. Do note also the deliberate “sort of” placed in the blog title.
    On the second point, that I’m somehow tricking people into renting not buying, my concern is that people may not consider the full financial implications of the decisions they’re making. I see this time and again with property, above all other purchases. Through for example my buy-or-rent calculator, I’ve tried to show people the types of flows of money that happen over the course of a mortgage and get people thinking about whether or not it is indeed in their interest to buy the house they’re looking at or instead rent and have an alternative investment strategy.

  8. Laura said on February 7, 2011 | Permalink

    Roran – I would agree this the stabilisation of rents is a good thing if it brought rents to within a level where affordability was not considerably constraining the ability of tenants to live “normal” lives, by which I mean one that is not constrained by the cost of keeping a roof over their heads. However you seem to have missed that the level of rents was previously so far above median incomes that it had consequential impacts on both rentals/buyers. This is very clearly argued in Tony Fahey’s 2002 ESRI publication which is still at http://www.esri.ie/news_events/press_releases_archive/2004/housing_affordability_is_/index.xml. What is far more interesting, however, is that Fahey’s position is as a lone voice, and nobody ever picked up on the case he makes for unaffordable rents forcing the normal tenancy demographic into home ownership as a way to protect themselves against future rent hikes. He also was one of very few to recognise the considerable hardship that was (and still is) being caused by high rents to those on low to medium wage levels (who are largely shut out of home ownership anyway).

    Rent of buy calculator – yes I agree you are helping people in the short term but as I have commented previously on this that calculator does not take into account what occurs after the mortgage is paid or that people are living longer and thus may have to provide housing for themselves for 10-20 years (or more!) after clearing a mortgage.

    Ronan, I have been reading your blog for some years and my main criticism of it is that it merely comments on the state of things, doesn’t really add new evidence or research, and while some of your points are insightful, they often miss out factors that are key to the state of things. A good example is the missing element of housing for over 65s in the rent-or-buy calculator. A clear picture cannot be gleaned from it by simply assuming that you no longer need housing at the age of 65.

    I apologise if I have been unfair in my criticism but I think there is a huge amount of missing evidence in current commentaries in the property market which have not been addressed – such as proper evidence of pricing for sales, rentals, asking prices vs final prices, the true proportion of subsidy in the rented sector, the actual impact of property based tax reliefs both on local markets and on pricing. I don’t think its possible but to be very speculative without those.

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