Supply of homes to rent must be a top priority for the next Government

Ronan Lyons, Economist

9th Feb 2016

Ronan Lyons, Daft's in-house economist, commenting on the latest Daft research on the Irish property market.

Three months ago, the commentary to the previous Rental Report highlighted the importance of looking at quantities – the number of homes available to rent – rather than prices. This was in the context of calls for controls on rent increases. Blunt attempts to limit increases in rents would do nothing to address the lack of homes to rent and – like other price controls – potentially make the problem worse, rather than better, by limiting investment in new homes.

How do things look three months on? With the next election just a couple of weeks away, what are the key messages the next Government should take away about the rented sector? And are the actions it needs to take?

Least Most Expensive

As ever, the initial focus will be on rents and how they've changed. There, a clear message emerges over the last four years – the 'urban premium' has grown and grown sharply. While Dublin rent inflation has been lower than that in the rest of the country for much of the last year, this marks only a small blip in a longer-term trend over the last five years. That trend has seen rents in Dublin 2 – the archetypal urban market – grow far faster than those in Leitrim, one of the cheapest rural markets.

The figure below shows how average rents in Dublin 2 compare to rents in Leitrim since 2006. Ten years ago, in 2006, rents in Dublin 2 were roughly 2.8 times those in Leitrim and by 2010, that ratio had changed very little. Since then, though, Dublin 2 rents have grown so that they are now close to 3.7 times those in Leitrim.

Dublin Rents Leitrim

What does this growing urban premium mean? In most developed countries, it is politically uncontroversial to say that cities are where the bulk of jobs are created – and thus where population growth is centred. Ireland was, temporarily, an exception to this rule, as loose credit meant there were jobs and homes in towns, big and small.

The end of the bubble, though, has refocused Irish people – young people in particular – on what kind of locations offer a good 'labour market amenity', i.e. jobs. The bigger the city, the better the labour market amenity and many young Irish people have decided that even Ireland's biggest city is not big enough and gone abroad in search of safer employment prospects.

For those that have remained, though, as rental trends show, the demand has been driven by cities and their surrounding areas. Whereas rents in Dublin are up 43% since their lowest point in 2010, and rents in Cork city have increased 37%, there has been just a 6% increase in Donegal rents and a 7% increase in Mayo.

Rent Mortgage in Republic of Ireland

Unsurprisingly, if the urban areas are where demand for rental homes has concentrated, it is also where the lack of availability is most acute. In Dublin, between 2008 and 2012, there were an average of almost 5,200 properties available to rent at any one time. Since 2012, this has fallen again and again. As of February 1st, there were fewer than 1,400 properties available to rent – in a city of over half a million households, more than a third of whom rent.

But the lack of supply has not been limited to Dublin or even to the cities. In the same period, the total number of properties available to rent in the four other cities – Cork, Galway, Limerick and Waterford – has fallen from an average of 2,000 to just over 300. And outside the cities, the number has fallen from 10,600 to just 1,900.

Nationwide, there were just 3,600 homes available to rent on February 1st, by far the lowest total since the series started in 2006. This lack of availability stems from a lack of construction activity at a time when Ireland's population has grown year-on-year throughout the last decade.

Some of the reasons given for this lack of construction sound plausible at first glance but don't stack up. For example, it is often said that banks won't lend like they used to, or that Irish developers are either too bust or too greedy to build. But none of that explains why Dublin in particular is witnessing such a boom in commercial construction activity, especially new office space. Or why international developers, who work off relatively tight margins in many other countries, can't make the numbers stack up in Ireland.

Rent Mortgage in Dublin

So the key takeaway for the new government is about understanding the unique blockages holding back supply in the Irish residential housing market, especially in building new apartments. The National Competitiveness Council has committed to benchmarking construction costs in Ireland to our peers. The results of this exercise will hopefully act as an action plan for bringing costs, minimum standards and modes of certification back in line with best practice.

If the next Government sets this as a priority early in its term, by the time it returns to face the voters again, it should be able to point to an end to the rental crisis as one of its main achievements.

Map of Ireland for Rental

Discuss This Article

  • Re: The Daft Rental Report Q4 2015

    Posted By: Harry Date: Tuesday February 9, 2016 @02:50PM

    Landlords are leaving the sector because it is loss making for the majority. The focus of the recent rent review legislation was on blaming landlords for putting up rents. Tánaiste Joan Burton hit out at “excessively greedy” landlords who she says are consistently looking to increase rent prices. If the sector was as profitable for landlords as is maintained by the government then landlords would not be leaving in droves as the above chart shows quite clearly. Should the immediate focus not be on retaining existing landlords? New apartments won't be built overnight and if they were built who would buy them? Finding new landlords to invest in an unprofitable sector could be quite a challenge.

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  • Re: The Daft Rental Report Q4 2015

    Posted By: Claire Date: Tuesday February 9, 2016 @03:37PM

    The rental crisis has been created by this government by not investing in provision of affordable rental accommodation during the recession. They had enough time and also sites available to built on. They also kept adding to the housing crisis in Dublin by not focusing on creating jobs nationwide, which would allow people to live close to work. This in turn would have kept many from having to go abroad and would have assisted local businesses. The perspective was very short minded and not an economic mid term strategy.

    Still totally ignored, on top of current homelessness figures, there are many people who are still on the verge of facing homelessness, literally a step away and they have no place to turn to. In fact these who need help most are turned away by government departments when seeking help as those departments in turn have such a limited scope it does not even cover a full months rent.

    And when someone is in difficulty due to loss of job, they are asked by government agencies to approach letting agency or landlord to demand to reduce the rent and to seek prove of ownership of property. There is no shred of dignity left having to do this and it is discriminatory and a joke. Already, with so little accommodation on offer people are often turned away and discriminated against, if they don't fit the professional couple image. The government cares to ignore this fact.

    Families and in particularly single parent families are highly affected by the crisis and have carried the burden too long. In some cases council houses are lived in by one or two people as they own children moved out years ago, but they are not distributed to families who need them most.

    What has been ignored is that a place to live is more than a place to live, it is a home. Sadly many people and sadly so many children in Ireland will never had the chance to enjoy the basics of a true home, the feeling of belonging and have to move around year after year, due to no fault of their own.

    It is really time it is changed now and not in 3, 6 or 12 months time.

    Many European countries offer accommodation at reduced rent to keep rent affordable. If the focus is on the rental market than the government need to actively build and establish rental properties without relying on the market just to get on with it. We know how this will end..

    Just offering a lower deposit rate, house purchasing incentives or removing universal service charges does not cut it anymore, we need urgent changes and we need them now. Also, we need to bear in mind that in the very near future we will have refugees from countries in need to look after and this in turn could add to less homes being available for rent.

    This all urgently needs to be taken into consideration as a top priority.

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  • Re: The Daft Rental Report Q4 2015

    Posted By: A E C Date: Tuesday February 9, 2016 @06:23PM

    I'm a full time professional landlord. I find it incredible that Ronan doesn't refer anywhere in this report to the 75% interest restriction which is causing many landlords to sell their properties as it forces them to pay tax on 25% of the interest paid to the bank.

    All other businesses (including commercial landlords) can claim 100% bank interest as a deductible expense for tax purposes whereas the rules were changed in Emergency Budget , 2009 for residential landlords.

    Developers can build as many new homes as they want, but investors won't buy them in sufficient numbers whilst this tax discrimination remains in place.

    I, like many other landlords, intend to sell my properties off over the next couple of years because of the 75% restriction , contributing to further reduced supply in the rental sector.

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  • Re: The Daft Rental Report Q4 2015

    Posted By: Gerard Date: Wednesday February 10, 2016 @09:27AM

    Are people that naive and the media failing to report the cause of this rent increase??? It isn't greedy landlords isn't greedy government.

    The government two years ago decided in the Budget to make rental income subject to PRSI and USC payments. Previously, rental income was subject to 41% income tax rate. Then all of a sudden, PRSI @ 4% and USC at upto 7% was applied to rental income. So two years ago, rental income went from being taxed at 41% to being taxed at 52% instead.

    Now, landlords merely passed this increase onto tenants. Now, this didn't just result in an 11% increase in rents (52% minus 41%), as the income is subjected to tax, landlords needed to increase the rent they charged by approximately 22.3% just to stand still and continue to have the same income after tax as previously.

    Over the last 2 years, rents have increase by just under 28% according to and 22.3% of this increase is a result of the government changing the taxation treatment of rental income. Add in the property tax, which landlords are not entitled to write off as an expense despite all international commentators saying it's total unjust and unfair that they aren't allowed to write it off and you can see that over a two rent period, landlords have increased rents by around 2.5% per annum.

    So lets get away from blaming landlords etc on rent increases and look at the real culprits etc, Minister Noonan et al.

    I have been questioned on my figures above so here's an example:

    If I rented a house out for 1000 euro a month before the rental income was subjected to PRSI @ 4% and USC @ 7% then I was left with after tax income of €590. Now the government is charging me income tax on rental income @ 52% so my house rented out for 1000 euro a month now give me after tax income of €480.

    So I'm down €110 as a result of this change every month. So what rate do I charge for the rent now to get back to a position where I'm receiving €590 per month after tax???

    I need to charge €1,230 per month. I pay tax @ 52% on rental income and (€1230 @ 52% tax = €639.60) leaving me with €590.40 (€1230 minus €639.60).

    So my rent has gone from €1000 a month to €1230 euro a month just to leave the landlord in the same position of having €590 a month after tax. So the increase in the rent my friend is 22.3%.

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  • Re: The Daft Rental Report Q4 2015

    Posted By: Leigh Date: Thursday February 11, 2016 @01:58PM

    Thanks for putting in some meat behind the argument.

    I'm just wondering what costs you incur within a profit of €480. Is this swallowed up by maintenance etc? Would seem to be a pretty excessive maintenance cost if that were the case..

    I ask because it seems that to leave the market (as some are claiming landlords are doing because they are making a "loss") it would be ludicrous to throw away €480 per month which results in an investment worth several hundred thousand Euro in a couple of decades..

    Given that the market SHOULD fluctuate and that an income which is in addition to your normal day job SHOULD be taxed (and one which as I said results in you owning a property worth more than any pension contributions could ever hope to amount to), why do you believe your income needs to be at the figure you quoted before taxation?

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  • Re: The Daft Rental Report Q4 2015

    Posted By: Linda Date: Friday February 12, 2016 @03:38AM

    Most of the social housing pressure experienced in this country is being relieved by private landlords, through undervalued RAS & HAP schemes, many of whom are struggling to upkeep their own mortgages. Yet these landlords are given no government support and have been overburdened with rising and extra costs and taxes over the last 4 years.

    Due to increased pressures in recent years landlords are exiting this market quicker than new ones are entering. As a result of this shortage of private rental supply we, at The Drogheda Property Shop, find ourselves regretfully only housing one in every 20 suitably qualified RAS/HAP recipients who need homes.

    There are just too many people who are genuinely in need of help and too few landlords to support the demand.

    The next government might consider encouraging new landlords to enter the market through forms of tax incentives and easing of regulation. This coupled with a controlled building boom may be the immediate response which is urgently required to this catastrophic crisis which Ireland is in.

    Then, in my opinion, rental prices may begin to stabilise.

    The question is: Which party can deliver?

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