Chronic supply shortages persist in the rental market

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Ronan Lyons, Economist

11th May 2015

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

Chronic supply shortages persist in the rental market

Over the last five years, as Ireland entered and then successfully exited its Troika Programme, the housing market has remained one of the most important topics in social debate. However, the specifics being debated have changed fundamentally. When Ireland entered the Troika Programme in late 2010, this was triggered in part by the fall-out from excessive lending and excessive construction. The problem, in brief, was one of too many houses, rather than too few.

However, as became clear when the latest Census findings were published in mid-2011, Ireland's population continued to grow, even when economic conditions were at their weakest. While we won't know exactly until mid-2016 what has happened with the population since 2011, it seems likely that - with net outward migration easing - population growth has continued apace since 2011. This is highly unusual within a European context and is a "problem" most of our European neighbours would love to have.

Mortgage vs rent comparison

What this means for the housing sector is simple: more people mean more dwellings are needed. There was, and still remains in some circles, a belief that vacant homes somewhere in the State are a substitute for vacant homes where they are needed. However, the importance of employment means that cities - as natural job creators - are experiencing the bulk of population growth... but without any building. Dublin's population may grow by as many 100,000 families during the 2010s but, halfway through the decade, fewer than 10,000 new homes have been built in the capital.

In brief, the issue now is most certainly too few homes, rather than too many. This can be seen in a variety of problems faced by Irish society in 2015, from the working homeless to the students whose horizons for higher education are limited by expensive accommodation. It affects those on above-average incomes, who push for more mortgage credit to fight amongst each other for scarce commodities and affects those on below-average incomes, who are stuck between a rental market starved of supply and a moribund social housing sector.

Given this context, the latest Rental Report provides few surprises. In both year-on-year terms and quarterly, rents were higher in the first three months of 2015 across all 35 counties and urban regions analysed in the report. This is the third instance in four quarters of across-the-board quarterly increases. For many counties, particularly in the west of the country, the increase in rents of between 5% and 10% in the last two years reflects an improving real economy, together with a working down of excess supply from the bubble years. But for other areas, rent increases of between one quarter and one third over the last couple of years are far from benign.

Most expensive areas

In the commentary to the last report, a new trend was highlighted - the worst rates of rental inflation are no longer in the main Dublin markets and have passed instead to its commuter counties. This trend has solidified in recent months. Whereas year-on-year inflation in Dublin rents has eased from 16% to 6% since April 2014, inflation in the Commuter Counties has done the opposite, going from 7.6% in early 2014 to 14% now.

The easing of rental inflation in Dublin has little to do with supply coming on-stream, as the total number of properties on the market at any one time remains unhealthily low. The average number on the market at any one time 2006-2010 was just below 5,000. The current figure is one third of that, and this is a level that has pertained for the bulk of the last 18 months. Whereas 2011 saw almost 60,000 rental properties listed over the course of the year - a little over half of all rental properties in the capital - the last 12 months have seen just 35,000 listed.

As recently as 2006, more than two thirds of Dublin rental properties were listed that year (and almost half of all rental properties nationwide). Even taking the 2011 Census for the stock of rental properties - which is likely to be a conservative estimate of the base - the figure is now less than one third for Dublin and closer to one quarter nationwide. One of the trade-offs for ownership is less mobility, but this is voluntary. In a labour market where mobility matters, we have ended up with a rental market where tenants are afraid to move.

Rent nationally were 8.2% higher on average

As I have noted on a number of occasions before, the solution to the lack of accommodation is not a cap on rents. This tackles the symptom, not the cause. The solution is to address the high cost of building new homes, whether apartments or houses. Even in a world with free capital (i.e. no profit) and free land, the break-even rent associated with a two-bedroom apartment in Dublin is roughly €1,500 a month. A household earning €45,000 a year can sustainably pay no more than €1,000 a month on its accommodation.

Given the hugely important social and competitiveness implications of the cost of accommodation, it is clear that Ireland - and the greater Dublin area in particular - has a problem: the cost of building homes no longer bears any relation to the real economy. For policymakers, the first step in solving a problem is admitting you have one.

Map of year-on-year change from Q1 2014

Discuss This Article

  • Re: The Daft Rental Report Q1 2015

    Posted By: Fergus Burke Date: Monday May 11, 2015 @07:31PM

    It is nearly impossible to secure a rented accomadation when on HAP payment.

    Landlords need to be more open minded and fair.

    I am facing homelessness in the next month because of this very fact.

    Please god something needs to change.

    Thank you.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: john Date: Monday May 11, 2015 @10:44PM

    I am a middle class citizen and I earn just over 21k net a year with no health or other benefits. I pay 585 a month for a single room in South dublin. I could yarn on about how ridiculous it is to get a rental in Dublin but that's an awful long story which nearly everyone in my shoes will already understand. My biggest annoyance is that there isn't affordable housing, the banks are not lending that is absolute rubbish, with all the derelict estates in Dublin and other counties why can't we get them finished and put them down for the rent to buy which is essentially what council houses are instead of spending our money on essentially rubbish

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  • Re: The Daft Rental Report Q1 2015

    Posted By: Lilian Simpson Date: Tuesday May 12, 2015 @12:39PM

    The Rental prices in Dublin is ridiculous. The government should do something about it. My husband and I we are trying to find one double bedroom apartment in the city and its crazy out there, the prices its insane. Almost impossible find an apt under 1,000. How a family can survive in this city? It's very sad this reality and the families and the population need to pay for it. :(

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Bart Date: Tuesday May 12, 2015 @03:03PM

    Lilian, get out of there. We lived in the city centre as well but we moved out far away, to Limerick. Here, for EUR 1000 you can easily get a 4 bed house with garden.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Schalken Date: Tuesday May 12, 2015 @02:51PM

    We've been renting for the past 9 years in Blackrock. With 2 kids in school , childcare and the amount of rent we pay , we hardly have any money left over.
    Now that we're looking to buy a house , the prices in south county dublin seems to be way beyond our means.
    Banks may be lending but they seem to be lending way too less for ordinary people to buy a house.
    Sad reality for the thousands of hard working tax paying families while the bankers seem to get on with life as usual.
    If only the government could get in rent control and force banks to lend enough to families to buy a house.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: John o Connor Date: Monday June 8, 2015 @11:36AM

    Rent Controls is not the solution it failed when previously introduced
    and if anything will make the problem worse.

    I know for a fact as landlord myself that many of us are contemplating
    leaving the market selling up as a result of excessive taxation now over 50%
    a non functioning Prtb and now rent controls etc.

    Rents like any other commodity is determined by the laws of supply and
    demand as long as the shortage continues then there will be upward
    pressure on it. In reality there are to many tenants chasing fewer properties.

    The failure of successive governments to resolve the housing supply
    is the only issue here and non other.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: John Kelly Date: Thursday June 11, 2015 @02:25AM

    In as much as I sympathise with your present position in the rental market introducing controls now wont solve the problem if anything will make the problem worse.
    It will accelerate the fall in availability more and more landlords are likely to exit the market including myself. My tenants have indicated that they will be moving out soon and even at this stage there is a huge demand for people wishing to view my
    property with a view to securing a lease. They will potentially end up bidding against each other and so what happens the rent price goes up .... so not my fault.
    Unless and until this government gets it act together solve the supply issue the problem will just worse and worse

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  • Re: The Daft Rental Report Q1 2015

    Posted By: Susan Date: Wednesday May 13, 2015 @09:13AM

    We've been great tenants for a number of years now and our landlord has told us she wants a 25% increase, all because of media hype about rising demand. We just don't have it to give. Facing homelessness and upheaval, thanks Daft, thanks media. Greed is good?

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  • Re: The Daft Rental Report Q1 2015

    Posted By: joe Date: Thursday May 14, 2015 @07:44PM

    Whatever about media hype etc the Governments move to impose rent control is forcing Landlords to get rent increases in before they get caught in the rent freeze trap.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: George Date: Wednesday May 13, 2015 @04:20PM

    Along with the central banks new lending criteria there should be also have been rental caps brought in. Now people cant afford to buy or rent and yet all we hear is that the economy is in recovery. The rate of new builds is not being implemented which is going to create a complete mess. The government just wants higher house prices so that the banks can balance their books, there is no concern for the renting or buying public. The only people whi have done ok out of all this is those on tracker mortgages but when the interest rates rise prepare for a second massive wave of defaults adding more pressure on the rental market. Nothing will be done untill it is too late.

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  • Re: The Daft Rental Report Q1 2015

    Posted By: Joe Date: Thursday May 14, 2015 @07:40PM

    The government is imposing more and more costs on landlords EG PRSI on rents,only 75% of interest is tax allowable and they also unilaterally cut rent subsidies.They now want Landlords to collect the water tax by retaining deposits and are considering introducing rent control and effectively life long tenancies which means that Landlords, some of whom are accidental landlords, cannot get vacant possession if they need to sell or to live in it themselves.In the meantime the PRTB is a joke-it takes a year or more to hear a complaint from a landlord and even then if it rules in their favour the Landlord has to go to court to enforce the order.In the meantime more and more Landlords are exiting the business thereby reducing the available rental stock.All the foregoing issues are causing rents to increase to unsustainable levels which is not in the interests of either tenants or landlords.

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  • Re: The Daft Rental Report Q1 2015

    Posted By: Paddy M Date: Monday May 18, 2015 @12:43AM

    The day that rent freeze or cap comes in is the Day my tenants get evicted. Let the Government look after them. I bought my apartment for my Daughter to Live in when she is old enough.
    And I would suggest that All Landlords do the Same.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Anonymous Poster Date: Monday May 18, 2015 @10:40AM

    "The solution is to address the high cost of building new homes, whether apartments or houses."

    I believe the solution is to complete the unfinished 'ghost estates' to resolve the unaddressed housing crisis.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Maggie Date: Monday May 18, 2015 @10:53AM

    The cost of providing rental accommodation is high, the taxation is unfair, where a tenant pays 1000 over half of that is going back to the Government in taxes and charges. Insurance, mortgage, repairs and maintenance, accountants fees, service charges etc have to be paid. Residential landlords are selling, because the situation is not sustainable.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Sean G. Date: Monday May 18, 2015 @08:30PM

    Yeah Maggie, but you still make 500 and you have someone paying for your mortgage. This is of course assuming you are one of the few landladies/landlords who carries out repairs and keeps the place in good nick. Most of the accommodations (in the cities at least) are substandard. Way too often wiring and plumbing are not up to HS regulation, furniture is old, windows are badly insulated... the list goes on. Landlords can rent out places in which they wouldn't let their dogs sleep. You can report the situation to city/county councils, PRTB or Threshold and landlords can just kick you out and get in a new tenant without changing anything in the house and without been prosecuted. Would you imagine failing several times your NCT because you have no proper breaks, lights or seat belts and still being allowed to drive around?
    This is at least the situation in cities for places that go for 1,000 or more (I'm talking about Dublin and Galway, cities I'm familiar with). Can you please tell me what taxes does the Government charge on 1,000 rental income? (Genuine question - I'd like to know).

    Sean G

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Kiss Date: Monday May 18, 2015 @07:12PM

    Its disaster,we have 2 weeks to move out,nothing to rent.even at these hight prices.why Daft is keeping properties like active,when really they are not on market already...

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Robert Date: Wednesday May 20, 2015 @03:27AM

    Nothing will change and never has changed with the greedy bean counters in charge for profit is far more important to them than fairly treating those not in their league. The bloody royalty of money and connection is still with us. so many of the sad complaint here sound like the peasantry of old begging for the boot to be removed from their neck by the Lotds of the land. As in America the problem is not the government bit a government run by and for the rich.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: John B Date: Wednesday May 20, 2015 @04:56PM

    There are very few people who invested in rental property over the past few years actually making any profits on the rent due to a lots of additional costs such as property taxes, high interest rates, insurance and property management fees. Bear in mind, anyone investing in property or any similar investment would normally only do so to achieve a return otherwise why would they bother (vs not for profit rentals = social housing etc). Btw, I do not have a rental property and I rented for over 10 years.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Michael Date: Tuesday June 2, 2015 @11:34AM

    I have 3 properties rented now but have now just decided to exit and sell. It is almost impossible to break even with all the taxes and other issues. Threats of rent controls are the last straw.

    There will now be 3 more families for the Govt to rehouse.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Anonymous Poster Date: Wednesday June 3, 2015 @09:24AM

    Just like Micheal I see no future in rental properties and have decided to sell . 40 more families for the Govt to rehouse as the auctioneer has told me that the houses will go back to private homes.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Rafiq Sumar Date: Friday June 5, 2015 @11:54AM

    Hello ,

    I need some guidence on how to rent my property to the social housing as i heard an ad on radio that govertment will lease the house on 20 years including maintaince etc.

    If i have a property how would i have the govertment to lease it from me.

    What type of property are the social housing looking for.

    I will appreaciate your help.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Wes Date: Sunday June 7, 2015 @02:16PM

    I do acknowledge that there are bad landlords out there but personally I redecorate after each tenancy, make constant improvements on BER ratings etc, always return the deposit on time and often have to grin and bear it when I don't receive adequate notice to quit from tenants. I have never benefited from a rent increase during a tenancy. Recently I have guaranteed that there will be no rent increases for three years for new tenancies within the lease conditions. If I sold out now after 20 years of being a landlord I would just about break even because some of the properties would be sold at a loss. Any landlord I know is in the same position. It is hard thankless work. Landlords have little power if a tenant refuses to pay the rent and it can take two years to have the PRTB sort out non payment of rent issues - enough to bankrupt any landlord. Law, the media and sympathy appear to be completely biaised in favour of tenants. There was no sympathy for landlords when rents dropped drastically in 2008 and remained low until 2013. Most landlords are tax compliant and registered with the PRTB and few commentators note that it is the Government who is the greatest nett beneficiary of these higher rental returns in the form of greater tax receipts from rental income. The same Government who failed to forecast or plan for the massive shortage of rental property.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: John o Connor Date: Monday June 8, 2015 @11:53AM

    I fully concur with all the points made in your comment. I am a landlord
    myself with one property and maintain it to a very high standard in terms
    of decorating and fix anything that goes wrong for my tenants immediately.

    The rent I charge is well below the market rate for the area the house is based
    and also in terms of size. I have very good tenants so its quid pro quo I wont penalise them by massive rent increases

    Its very costly and as you say the government takes over half of the rent in tax.
    It presides over a quango Prtb it makes you wonder if its worth all the hassle.

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Mary O'REilly Date: Wednesday June 10, 2015 @03:00PM

    I get taxed at 41% as revenue only take into account some of your expenses & only part of your mortgage. I had to rent my apartment as could not afford to sell. It cost me 6,000 in expenses last year PLUS mortgage. In the past 2 months alone I have had 5,500 in expenses as the whole place had to be re-decorated after previous tenants sub-letted and have to pay agent 900, 90 PRTB, painter, maintenance fee, income tax for last year and also down 2 months rent while place was being fixed up etc etc. That will give you some idea on landlord costs

    • Reply to this message
  • Re: The Daft Rental Report Q1 2015

    Posted By: Anonymous Poster Date: Monday June 22, 2015 @10:39AM

    what exactly would rent control be. how would it work etc etc?

    • Reply to this message

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