Published on February 14th, 2017 | by Martin Clancy
Time for Dublin to grow up
Guest post by Ronan Lyons. The figures from this latest Daft.ie Rental Report make grim reading not only for tenants but for policymakers also. The annual rate of rental inflation – at 13.5% in the final quarter of 2016 – was the highest in the history of the Daft.ie Report, which extends back to 2002. The rate of inflation in rents is high across the country, with only Connacht seeing inflation of less than 10% currently, of all the major regions. (Its rate of inflation is 8.9%.)
Indeed, in 45 of the 54 sub-markets analysed, there is double-digit inflation in rents currently. In Dublin, rents are now rising by almost 15% a year, the highest since the middle of 2014. It means that rents in the capital are now up almost 65% from their lowest point in 2010 and are a full 14% higher than their previous peak at the start of 2008. In the four other cities, inflation has eased back somewhat in recent months but remains between 10% and 13%.
Unsurprisingly, the issue is a severe imbalance between supply and demand. Fewer than 4,000 homes were available to rent across the country on February 1st. While this marks a 10% increase on the same figure a year previously, it is still well below the lowest point for availability during the Celtic Tiger. Then, stock on the market reached its lowest point in April 2007, when slightly fewer than 4,400 homes were available to rent nationwide.
The crucial difference between 2007 and 2017, however, is the size of the renting population. We won’t know for another couple of months how many households in Ireland rented at the time of the 2016 Census, but it is unlikely that the number then is less than the number in 2011. At the time of the 2011 Census, roughly 475,000 households lived in rented accommodation, just under 30% of the total. In 2006, there were just 145,000 households in the private rented sector, together with a further 155,000 in the social rented sector.
It is likely that much of the growth of roughly 150,000 extra renting households between 2006 and 2011 was the private rented sector, given the limited social housing available in recent years. Thus, the private rented sector doubled in just five years – and may have increased further since. And yet, instead of availability doubling, it has fallen, even compared to the worst days of the Celtic Tiger. And in Dublin, the problem is most acute.
Recently, the Government launched a consultation period for its National Planning Framework. This will be the successor to the National Spatial Strategy, which aimed to develop a system of gateway towns and hub towns around the country. Much of the media discussion around the launch focused on the idea of Dublin “eating up” the country and how policymakers should focus instead on ‘balanced regional development’.
While policy can help a city thrive, it is foolish to think that politicians have control over the economic forces at work in determining city size. Indeed, one of the most remarkable laws in economic geography is known as Zipf’s Law. It states that the biggest city in an economy is on average twice as big as the second biggest city, three times as big as the third biggest, and so on. This is true more or less all over the world, with – if anything – the world’s largest cities being too small, rather than too big.
Some respond to this with “Ireland is different”. In some ways, it is. Dublin is more than twice as big as Cork. But the same holds true for Vienna in Austria and Budapest in Hungary. What all these countries have in common is that their current borders do not match their past ones. The island of Ireland is a much more natural economic unit than the Republic and the North are individually. And sure enough, once Belfast and Derry are included, Zipf’s Law starts to look like a much better description of Irish cities.
What does this have to do with policy? It means that population is not a game of redistribution. Trying to redirect people from Dublin to other cities in Ireland merely stunts the growth of the country as a whole. If you want to stimulate growth in the fifth, fifteenth and fiftieth biggest cities in your country, you should encourage growth in your largest, not try to stop it.
This does not mean, of course, that sprawl should be ignored. There is absolutely no reason for Dublin to take up nearly as much space as it does. Greater Tokyo, with a population of over 27 million people, fits into 9,000 square kilometres. Greater Dublin, with a population of less than 2 million people, takes up almost 6,000 square kilometres.
Dublin can drive population growth across the country without “eating up” the countryside. For this, though, three things need to happen. Firstly, Dublin needs to be allowed to grow up. Height limits of between four and six storeys in one of Europe’s fastest growing cities merely translate into lost jobs and higher rents. After all, why be fat when you can be tall?
Secondly, homes need to be built on brownfield, as well as greenfield, sites. Looking around Dublin, it is littered with grossly underemployed land, in the form of army barracks, golf clubs and bus depots, built on the fringes of the city in the past but now in prime central locations. A land tax would help achieve this reuse of our scarce and valuable urban land.
But, even if these regulatory changes were brought in overnight, we still would not see the apartments being built that are needed to stem rental inflation. And the main reason for that is the extremely high cost of construction in Ireland, compared to other high-income countries. An audit has been promised – let’s hope it delivers.