The latest Daft.ie Rental Report, for 2011 Q4, was published this morning and features a commentary by Minister for Social Protection, Joan Burton. Three key findings of the report are outlined below:
- Rents in the final quarter of 2011 were slightly below those of a year previously (€818 compared to €822 for the national average). The figure for January is actually slightly up on a year previous, up by 0.5%. These changes are relatively small and suggest an overall picture of stability in rents nationwide, with the average monthly rent within about the price of a pint of €820 since mid-2010.
- This stability, however, masks a split between Dublin and Cork on the one hand and the rest of the country’s rental markets on the other. In Dublin, the average rent has risen from €1,042 in mid-2010 to €1,065, while in Cork it has risen from €831 to €882. In Galway, Limerick and Waterford cities, over the same period the average rent has fallen by €20, €30 and €40 respectively, while in the rest of the country the average rent has fallen from €652 to €630.
- The driver of these diverging trends is relatively obvious: the number of properties sitting on the market. In Dublin, the total number of properties available to rent fell from 4,300 on January 1 2011 to 3,500 on January 1 2012, a fall of almost 20%. Outside the major cities, however, there were 11,300 properties available to rent on New Year’s Day this year, down just 100 from the same day last year.
Long-standing property market sceptics should rightly have a follow-on question here: a fall from a very high level initially could still leave an oversupply of stock on the market. That’s a fair point, so really what we want to know is the balance between supply and demand.
There’s no easy way of measuring demand but a handy rule of thumb is that the number of properties on the rental market at any one time should not be greater than what the market can handle over the course of a month. When stock sitting on the market has been significantly greater than one month’s transactions, we’ve seen rents falling but when stock is less than 100% of what the market can handle, we see stable or even rising rents.
The graph above shows that relationship between how many properties are sitting on the market around the country and how many each regional market can usually handle over the course of a month. There is a clear difference between Dublin, Cork and Galway – where stock is well below what the market churns through over the course of a month – and the rest of the country, in particular Munster (ex-cities), Connacht and Ulster, where stock sitting on the market is more than twice what the market handles in any given month.
Indeed, there is such significant oversupply in Munster, Connacht and Ulster that the question there is really: why are rents not falling by more? Surely, with such competition for the attention of tenants, landlords would aggressively cut their rents to compete.
The answer may lie in Minister Joan Burton’s commentary to this report. She focuses on rental supplement thresholds. Analysis by her department that mirrors my own from last November finds that for large swathes of the country, rents have settled at levels that look remarkably similar to maximum rent supplement levels.
It is of course entirely possible that the natural balance of supply and demand just happens to be at these two-year old thresholds. If that’s the case, then reduction in rent supplement will have little impact other than delivering the taxpayer some much needed savings.
If, however, the taxpayer is funding a price floor in the private rental market, then its removal will not only save the taxpayer money, it will also boost Ireland’s competitiveness and economic recovery by lowering accommodation costs for Irish workers and consumers.
The end of a single national property market was flagged over a year ago. We are now seeing that clearly in the rental market and I would not be surprised if it spreads into the sales market in coming quarters, with stabilising prices in the cities and falling prices elsewhere.