The Spar Generation

David McWilliams, Economic Commentator

13th Sep 2005

David McWilliams is our guest blogger, analysing the Quarter 2 2005 figures.

Walk into any Spar today and you will see them. They are buying breakfast rolls, working behind the hot food counter or just picking up twenty 'blue' after work. They are Ireland's renting population - the Spar Generation. Whether they are young foreign employees or local twenty-something customers grabbing something on the way home, they have one thing in common - they rent. Given that hot food sales at convenience shops has increased by over 36% in the past year, if you want to see the future of the Irish rental market, go no further than your local Spar.

In the three months to July, the Spar generation have helped the Irish rental market to stabilise following two years of declines. This is bad news if you are about to rent a place but good news if you have just bought a gaff. Well actually 'goodish' rather than unambiguously good. Because, while the falls in rents of 2003 and 2004 have plateaued, house and apartment prices continue to rise faster than rental income, which implies that residential yields continue to fall. Luckily, the interest rate cushion is still soft and feathery and there is little or no sign of Euro interest rates rising for the foreseeable future. But given that the market has only just stabilised and increased future supply will only be taken up if all the underlying factors remain supportive, any change to the rate environment could tip this finely balanced market over.

So what is the investor/landlord to make of this quarter's big picture? If you are buying today to generate an income from renting residential property, you have missed the boat. However, as the banks are lending hand over fist to the market, you can still make a few quid by avoiding being Paddy Last. That's the rule. As Paddies continue to buy property as if it is going out of fashion, everyone's exit strategy in this inflated market is to make sure there is another Paddy investor behind you to whom you can flog. So make sure you are not that guy - make sure you are not Paddy Last. Always keep the exit doors open.

If you are not thinking of selling, but are concerned about managing your income flow, then data on time to let and average vacancies is crucial. Anyone, from the largest player with a substantial portfolio to the amateur investor with one buy to let property, can deal with lower but stable monthly rent. In contrast, prolonged vacancies can throw even the best-laid financial plans off course.

On average in Dublin it is taking 16.4 days to rent your place. Properties in Dublin 6 are moving quickest - typically just under two weeks on the market. On the other hand, if you have a place in the commuter belt, you are looking at three weeks to shift it. Similarly, properties in the centre city are on average remaining vacant for 8.6 days, while out in the commuter areas, places are empty for the guts of a fortnight. The average vacancy period for the city as a whole is 9.6 days. So taken together with the average time to let, an investor should probably at best be calculating income on an eleven months calendar. On timing, the data show clear trends and the best time to look for tenants is August when both time to let and vacancies fall sharply, so maybe with a bit of planning you could smooth your annual cashflow. What about our renters - the Spar Generation? The message is don't panic. Rents have firmed but only slightly and there seems little likelihood of rents moving upwards rapidly. In Dublin the average rent is €1164, while Cork rents have been largely unchanged. In Galway, bar the normal cyclical increase in rents in early summer, rents are lower than they were a year and a half ago.

In terms of the type of property, it is getting more expensive to rent four bedroomed houses in Dublin and this may reflect a number of factors. First there is increasing evidence of a change in our immigration patterns with more families, particularly from central Europe arriving. Secondly, while the supply of apartments has increased apace, there have been relatively fewer bigger houses built over the past two years. Where houses have been built many have been second homes which are vacant during the year and not on the market. 3 and 4 beds apart, decent supply is the main factor keeping rents down. So the message to the Spar Generation in Dublin is don't panic, the market's dynamics are on your side, there are plenty of properties out their, so shop around.

In Cork, the picture is broadly similar but the market is tighter with both time to let and vacancy rates falling. Rents in Galway have recovered steadily in recent months but are still off their 2003 highs. While in Limerick, rents, particularly in three and four beds, are still soft. These broad trends are mirrored all over the county. Back in Dublin an interesting dichotomy has emerged at opposite ends of the Dart line. Rents in Howth have seen a 13.4% rise, while the bottom has fallen out of similarly fashionable Dalkey with rents falling in the seaside town by over 4% in the second quarter over the first. Now is a cheap time to move to Dublin's swankiest suburb!

Specific market and financial concerns aside, the most important factor driving rents over the next year will be the immigrants in the Spar Generation. They are the people that will generate extra demand, and it is the extra demand rather than the expected demand that will determine the direction of rents in the future. Immigration is driven by push and pull factors. The push factors driving young people out of central Europe in particular will continue as their economies fail to generate sufficient opportunities. Where the economies are growing such as Poland and the Baltics, they are not creating sufficient jobs so a significant proportion of the young labour will emigrate. In terms of the pull factors, Dublin was this year ranked in an international survey as the easiest place in Europe to get a job. So with the economy set to grow by 5%, job opportunities will be plentiful. The only clouds are oil prices at over $60 dollars a barrel which may slow things down but not substantially as interest rates will stay low. This is not to say that there is great value in the housing market, clearly there is not; but cheap money and profligate bank lending should preserve the 'good times' for a while longer.

Finally, I am writing this overview from an internet café in Dublin. If you want to see the future for the rental market and particularly the foreign component that will drive it, spend a few hours in an internet café. Here you will see the rental market, with their pre-paid mobiles, hotmail addresses and MSN chat rooms. Next time you are worried about the direction of the market, drop in to a place like this and then go around the corner to Spar. If both are packed and busy, forget most of the hi-faluting economic commentary, feel the energy, drive and rental capacity of the immigrants and make your own calculations.


Discuss This Article

  • Re: The Daft Report Q2 2005

    Posted By: Anonymous Poster Date: Wednesday September 14, 2005 @09:01AM

    Good report, generally. Great to see raw data being usefully applied for commentary on a topic that most have an opinion on. Interesting to see the country v. Dublin comparions and the distinct downturn in Limerick. Regarding the rental "index" early in the report, is the index skewed slightly upwards in 2002 because the type/location of rental property advertised on daft.ie was different to what is advertised today? Is the data really saying there has been an "on average" 15% drop in rent? I would also like to see the report pushing itself a little more into analysis of the data. The data is rich, you should use it more.
    Overall, well done on the report.
    quinngt@eircom.ie

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: J.O'Connell Date: Wednesday September 14, 2005 @01:56PM

    A really good and interesting report. Very useful. Well done.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Johnny Waldron Date: Wednesday September 14, 2005 @03:30PM

    Enormously useful! Thanks for making it public

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Rog Date: Wednesday September 14, 2005 @03:43PM

    Well done. As one of the "Keep the first house" generation I find this a good way for me to resist the downward pressure at the next rent review!!

    thank you,

    R

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: row row row your boat Date: Wednesday September 14, 2005 @04:06PM

    tis all a rip off, Im emigrating!

    The government and the business men that fund them are making a killing!

    Banks are over-lending and there is too much speculation in what is a human right - the right to shelter.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Ide Date: Wednesday September 14, 2005 @06:23PM

    I agree....To use Maslow's theory, the 2 basic human rights are food and shelter.............Rip off Ireland has already denied us of one.....the right to a roof over our heads!!

    • Reply to this message
  • Some facts and suggestions

    Posted By: Facts are facts Date: Thursday September 15, 2005 @02:04PM

    Regressive Government policies are unfortunate, short sighted vote gaining stunts. The extremely poor tenant rights are not enforced leading to over half of rented accomodation is unsafe or below minimum legal standards.
    The lack of rent control (which has been established in exemplary Germany and Scandanavian countries) allows wealthy private landlords charge extortionate prices for small, substandard accomodation.
    These factors, coupled with the many regressive incentives offered by the government for buying a property (eg. mortgage tax relief, low interest ratesabolition of stamp duty) have greatly fuelled demand for privately owned accomodation. The rental sector must provide an alternative if the housing crisis is to be tackled.
    Rent regulation and quality control should be introduced with heavy fines so longtime complacent landlords will take them seriously and wake up to their responsobilities.
    A special capital gains tax focussing on speculators/ investors could be introduced, the introduction of a progressive property tax, the repeal of section 23/27. These would curbing speculation, thus increasing the supply of affordable housing for people wishing to buy a family home.

    This message was inspired by Professor of Economics, TCD, and housing expert PJ Drudy

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Anonymous Date: Wednesday September 14, 2005 @07:40PM

    It would be useful to bring twin bedroom into the report as it only states prices for double or single rooms.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: padraig Date: Wednesday September 14, 2005 @11:39PM

    While renting out our 4 bed house we found people are finding it diffcult to find very good quality houses we had at least 20 people who wanted our house and this was in august.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Michael Date: Thursday September 15, 2005 @09:05AM

    Great report, it was good to put numbers to
    what the current trends are.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Padraig O Spalpeen Date: Thursday September 15, 2005 @09:29AM

    Sadly, nothing in it with relevance to the North West of the Island!

    Perhaps next time!

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Anonymous Poster Date: Thursday September 15, 2005 @10:17AM

    Is it possible to see rents for a 2 bed in Dalkey, as opposed to rent generallay in Sth Co Dublin?

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Rupert Heather Date: Thursday September 15, 2005 @11:14AM

    This is an excellent report however I do not agree with David McWilliams interpretation of the renting population as being the 'Spar Generation'. While being a good sound bite I think this analysis misses the point. Twenty somethings and young foreign workers have always been those who would look to rent. In any city you will find a significant population of these poeple. The problem we have in Dublin is that there is not enough affordable housing for those who previously would have bought. Never mind twenty somethings, many of my friends and colleagues who are in settled jobs struggle to buy. In my opinion there is an older group of people who have been priced out of the house market as the disparity between wages and house prices grows ever wider.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Victor Date: Thursday September 15, 2005 @12:07PM

    Extremely interesting. You can learn a lot of things about the market trends and how it reacts for new immigrants. The most interesting is a drop of 'time to let' in summer'04 after new member states joined EU. Very good job! It should be published in newspapers.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: peter malbasha Date: Thursday September 15, 2005 @05:39PM

    excellent commentary. very useful.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: fahad Iqbal Date: Thursday September 15, 2005 @10:00PM

    This is a great report from Dublin Letting Market. I really agree of all property investors and it is also greatfull for EU people.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Mr Marketing Date: Friday September 16, 2005 @02:46PM

    One thing that everyone seems to be getting wrong is the preconception that builders are not building as many 3+ bedroom houses any more due to lack of demand. I would counter this by saying that less larger houses are being built due to there being a bigger profit margin building smaller houses, straight into the buy to let market rather than family homes.
    There is also the issue of stamp duty on reselling larger properties which will keep the size of new houses artificially small.
    Can anyone disagree that the houses that we 'tolerate' these days are actually smaller (and less well built) that those that our parents own?
    Opinions?

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Louise Kehoe Date: Wednesday September 21, 2005 @02:41PM

    I find that the figures describing the cost for renting a single room in shared accomadation for Dublin 15 very high, is this true. From past experience the average price was E290, I lived in D15 for a year and never found it that pricy

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Anonymous Poster Date: Sunday October 2, 2005 @05:39PM

    good report! i am currently living outside ireland but have a property let in galway. it's good to get a feel for how the property/rental market is doing.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Ann Date: Saturday November 5, 2005 @08:30AM

    Great report and very helpful, for someone about to invest it can guide you where to invest.Actually got to see on a one pager the different rent you can achieve depending on where you decide to invest so that looking at the property price, working out the monthly repayments, the Daft report shows if you can pay off interest & principle (still possible!)or what the shortfall will be monthly.Ask for HOK Property Outlook whose research dovetails nicely with the Daft report.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Philip Date: Friday November 25, 2005 @03:27PM

    This is now my 2nd time to read the DAFT report and its easy to read with nice clear, precise graphics with lay-man explanations.

    Some additonal topiecs might include;
    (a) "mad" predictions from the current perspective. This would provide some (possibly) light-hearted relief from all the stats and also would provide a "time-capsule" or historic snap shots in time.

    (b) Any chance of adding an overseas top 10 offers list?

    Given all of the above perhaps its a newsletter I'm thinking of. Any takers???

    Regards & keep up the good work.

    Philip

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: eoin Date: Sunday December 11, 2005 @12:27AM

    Thanks for the report: it is nicely laid out.

    The statistics in the first report and the second report seem to be at odds, slightly - this may be a normalization problem.

    In any case - taking the statistics for the second report - there is some statistical inexactness. The monthly percentages are the average rents per month as a percentage of the yearly average for 2002. Since I am interested in the discrepancy between rent prices and house prices, it is more useful to see rents as an average for each month as a percentage of the peak month recorded .That is how we measure drops in house prices, or stock markets etc.

    Now, as it turns out, the highest average month recorded is the first month recorded in the Daft statistics: Jan 2002. I cannot be sure that this month is the peak of rent in Dublin, and it most probably isn't as it would be quite the concidence. But going with it, nevertheless, we see that the average rent for a two bedroomed house fell from 110% of the 2002 yearly average to 81% of that average in Dec 2004. That is the drop.

    If we renormalise Jan 2002 to 100% , then the rental market dropped to 73.6% of that peak - a drop of 26.4%. And I am sure that the drop from the real rental peak - which is, no doubt, pre 2002 - is even greater.

    In that time house prices continued to increase and accelerate in many cases. More evidence of a bubble.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Anonymous Poster Date: Wednesday May 28, 2008 @01:49PM

    Hi David, given the number of properties sitting on the market going nowhere, do you think it is a good time to purchase in 2008?

    • Reply to this message
  • Asking Price what price actually paid for property

    Posted By: Margaret Date: Wednesday April 8, 2009 @09:38PM

    I would like to find out what prices property sold for as opposed to asking price.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: dave Date: Wednesday December 30, 2009 @12:17AM

    How right you were - all the greedy gits who ended up paddy last got stung badly. well done on calling it.

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Stephen Date: Monday January 25, 2010 @06:04PM

    Hind sight is awonderful thing so Iake my hat off to "row,row,row the boat" and "Ide" whose comments on the 14th September 2005 were among the few that called it right at the height of the madness.

    If either of you see this, let's know how you're getting on.

    Stephen

    • Reply to this message
  • Re: The Daft Report Q2 2005

    Posted By: Owen Date: Saturday June 9, 2012 @05:39PM

    Any chance that David could do an updated report. The report was good, but a similar repor as of now and into the future would be appreciated.

    • Reply to this message

Respond to Article

Your Name: (Optional)

Subject:

Message:

We ask you to keep your comments on-topic and suitable for a general audience. The article you are commenting on is entitled: The Daft Report Q2 2005

Please Note: Your message will not be displayed on the website until its contents have been checked by a member of staff.