Irish Rental Report Q4 2023 | Daft.ie

Ronan Lyons, Economist

23rd Feb 2024

New rental supply in Dublin sets the template for the rest of the country

Across the country, rental inflation halved in 2023 compared to 2022. That is the good news from the latest Daft.ie Rental Report, covering the final quarter of 2023 and reviewing the year as a whole.

Unsurprisingly, that good news is tempered by further context: the overall rate of inflation remains far higher than the levels one would expect to see in a healthy rental market. Open-market rents rose by 6.8% on average across the country in 2023, compared to a near-record 13.7% in 2022. Added to the 10.3% increase seen in 2021, this means that rents in the open market are now, on average, 36% higher than they were at the outbreak of covid19.

Rents Have Increased By 6.8%

But this in turn only tells part of the story. Compared to rents at the outbreak of covid, rents in Dublin at the end of 2023 were up by roughly one quarter ‐ and indeed for much of the worst part of the pandemic (from 2020Q2 to 2021Q2), rents in the capital were static, as demand evaporated.

In the north-west, however, rents in the open market at the end of 2023 were three-quarters higher than at the outbreak of covid19 in early 2020. On average, outside Dublin, rents are about 50% higher than pre-covid levels.

In the early part of the pandemic, there was what might be termed a reshuffling of rental demand around the country. Many of those previously tied to being in or close to Dublin, because they had to be in an office in the capital on a daily basis, found themselves able to choose their location. And they voted with their feet and moved to cheaper rental markets.

But in effect, this simply took what had been an urban problem over the preceding decade ‐ a worsening shortage of rental accommodation ‐ and made it a national problem. Rents in Dublin in 2019 were about double what they had been almost a decade earlier when they bottomed out. But rents in Donegal were only one third higher than their lower.

Now that comparison to the post-Celtic Tiger low is largely the same in both markets: open-market rents in Dublin are 133% higher, while rents in Donegal are 138% higher.

Average Rent Nationally

Indeed, of 29 markets outside Dublin tracked in each Daft.ie Report, only Tipperary has seen a smaller increase compared to the post-Celtic Tiger low. As recently as 2019, only three markets (Meath, Louth and Limerick City) had seen bigger percentage increases.

But while a flight to value may have characterised the first few quarters after the outbreak of covid19, they do not capture what has happened over the last two years. By mid-2022, Dublin was one of the markets seeing the biggest increases, once again.

A significant part of this new phase in Ireland's rental market stems from the country reopening up fully after covid-related lockdowns. This meant those cooped up in parents rooms or waiting elsewhere to move to the same city their job was located in could finally do so. But on top of this, Russia's invasion of Ukraine created additional pressures as almost 100,000 people fleeing war arrived in Ireland.

By the end of 2022, everywhere in Ireland was seeing double-digit inflation in open-market rents. Those double-digits increases have persisted in many parts of the country. For Munster as a whole, rents increased 10.8% in 2023, while the midlands counties of Leinster and its south-east also saw increases above 10%. And in Connacht the increase was almost 15% and in the three Ulster counties almost 17%.

But in Dublin, rents in the open market rose by just 2.6% during 2023, with increases of between 2% and 3% seen in four of its six regions.

What explains this? The answer is a simple if surprisingly controversial one: new supply.

In 2017 and 2018, about 4,400 apartments were built in the country, the vast majority in Dublin and the vast majority of those for rental. This rate, of roughly 33 per week in Dublin, has increased substantially in the last five years ‐ covid lockdowns notwithstanding.

The Number Of Available Rental Homes In Ireland

In 2022, an average of 133 apartments were built per week in Dublin, while in 2023, that rate increased further to 175 per week. Only a small fraction of those apartments were for owner-occupiers ‐ an issue for another day ‐ while a larger fraction were for social rental.

But the majority have been new apartments available on the open market. This surge of 20,000 new apartments between 2021 and 2023 in the capital ‐ more than three times the number of apartments built in the entire rest of the country in the same period ‐ is what explains the slowdown in rental inflation in Dublin.

The Available Number Of Rental Homes In Dublin

These are the delayed fruits of the confluence of favourable factors in the late 2010s that brought lots of capital into Dublin to build new rentals. Those factors included the external macroeconomic environment, the 'Strategic Housing Development' initiative and the 'Build to Rent' planning code ‐ as well as, of course, the need for new rental accommodation.

The need for new accommodation remains ‐ and outside Dublin hasn't been addressed at all. But all of the other factors are gone. Unless policy actions are taken to change course, over the next few years, the number of new rental homes built in Dublin will fall again, while it will remain close to zero elsewhere in the country.

2023 shows what new rental supply can do to address rental market challenges. It remains to be seen whether that lesson will be learned.