Renting the Future

Gerard O'Neill, Chariman, Amárach Research

17th Feb 2009

Gerard O'Neill, Chairman of Amárach Research, commenting on the latest Daft research on the Irish property market.

An American friend was telling me recently about his grandparents and their crazy habit (in his opinion) of always keeping a lot of cash in the house. Under the mattress, so to speak. He reckoned it was a consequence of their having lived through the Great Depression and witnessing over 3,000 banks fail, wiping out a generation's savings in the process. Such formative experiences in our youth tend to shape our values and behaviours over the rest of our lives, long after the experiences have passed.

Here in Ireland, a generation of young people under 30 will never look at property the same way again as a result of what they are now experiencing - and will experience over the next few years. This is not a storm that will pass, loosening a few slates on the roof. Rather, we are experiencing an earthquake that will transform key features of Ireland's economic landscape beyond recognition. As with all such economic upheavals there are social, political and cultural consequences as well. One such consequence that I anticipate is a permanent demise in the Irish love affair - infatuation even - with property ownership. Especially debt-funded ownership. I would go further and agree with futurist Kevin Kelly (www.kk.org) that there's a big future for renting - not just property but also for entertainment, furniture, clothes, cars, etc. Renting is the new buying.

The appetite for ownership is a function of scarcity: when ownership is effectively the only guarantee of access to the benefits of a particular good or service then other arrangements are grossly inferior. But when the supply of something becomes abundant - even excessive relative to underlying demand - then ownership becomes unnecessary. We don't own the roads we drive on nor the world wide web that we surf yet we have more or less unlimited access to all we want when we want it. An ironic consequence of the recent failures of finance-fuelled capitalism may well be to undermine forever the foundational faith in private property ownership as a source of wealth and freedom. Though 'ironic' doesn't quite do justice to such an outcome.

So much for the future, what of the present? An appropriate description of many economic indicators right now is summed up by the phrase 'cliff-diving'. It's a phrase economists have taken to using to describe everything from interest rates to trade volumes to employment to consumer spending. This is my fourth recession in my adult life and I can safely say I have never witnessed so many indicators change direction so fast nor move so swiftly in the wrong direction. We're living in a whiplash economy, brought to a sudden stop by a wall of fear.

One feature of cliff-diving indices is that the rate of decline accelerates. Maximum velocity is characterised by double digit figures. So it is with rents in Ireland: the year-on-year rate of decline in the Daft.ie National Rent Index accelerated from -3.2% in Q3 2008 to -12.2% in Q4 2008. The January 2009 rate of decline stood at -13%. Supply is outpacing demand.

This is Ireland's first middle class recession - professionals are joining unskilled workers on the dole queues. If anything, it is the Irish middle class who are bearing the brunt of this recession as they are the ones with the most debt - typically geared to both incomes of working couples. Long gone are the days of a middle class comprising working husbands and stay-at-home mums: since 2001 the majority of married women of working age in Ireland have been in paid employment. That was how the middle class fuelled the expansion of the buy-to-let market, aidedand- abetted by our over-leveraged banks.

Now it is middle class areas that are being hardest hit by the collapse in rental prices. The fastest declining rental markets in Q4 2008 were South Dublin City (-10.0%) and South Dublin County (-15.2%). The latter was the fastest declining area in the country. Of course, so far we are looking at this from the perspective of the landlords. How many of them are there? A survey last year by Amárach Research for the Irish Banking Federation showed that 15% of adults aged 25-65 own a property other than their own, down from 20% the previous year. Not all of these owners of second homes and apartments rent them out - so an even smaller minority are actually exposed to the vicissitudes of the rental market. That said, the Government's ingenious plan to sharply increase taxes on people who own a second home might just have a few 'unforeseen' consequence: such as forcing those not renting out their properties to either rent them out or to sell them for whatever they can get. Expect falling rental prices and falling house prices to follow. Not to mention falling tax revenues from house sales (that are pro-rata to sales prices). But these are unforeseeable consequences don't forget.

What then about the renters? They are spoilt for choice, pure and simple. Moreover, with the banks afraid to lend and workers afraid for their jobs then the prospects for rental demand look good. And not just for one and two bedroom apartments either but so also for 3 and 4-bedroom houses. Expect a lot of people formally-known-as-middle-class to 'downshift' from the mortgage-indebtedness of home ownership to the liability-freedom of renting.

Such are the seismic economic and social shifts now underway. Indeed the traditional snobbery and stigma associated with renting ('a waste of money' as they used to be say before the onset of industrial scale negative equity), will disappear faster than 100% mortgage offers. I wonder what stories this generation of renters will tell their grandchildren?


HIGHLIGHTS:

Asking Price Index
Asking Price Index

Stock and Flow of Properties
Stock and Flow of Properties


SNAPSHOT:

Snapshot
Snapshot of Rents Nationwide

Discuss This Article

  • Re: The Daft Rental Report Q4 2008

    Posted By: Ste Date: Tuesday February 17, 2009 @11:53AM

    The "waste of money" notion of renting is really an Irish attitude and lets face it we haven't exactly been at the forefront of social advancement in Europe now have we.

    The rental price trend is now following the House price trend ( http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/3/Irish-House-Prices-Since-1996.html ) and both seem to be picking up pace. While this might be good for the Irish looking to either rent or buy it is really not good for the economy of the immediate future, perhaps it is good in the long run, both for the economy and for our own social advancement as a nation.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Cormac Woods Date: Tuesday February 17, 2009 @02:09PM

    I listened to your review of the Daft report this morning with their economist.

    There seemed to be a clearly drawn conclusion that because the number of rental properties has increased dramatically over the last year that Ireland is moving irreversibly to a culture of renting homes rather than buying. I fail to see the logic in this argument.

    We have a serious downturn in the property market because we built too many houses and the overall economy is slack. Also, we now have stagnation in the banking industry so loans are not readily available to people. I would suggest that there are more rental properties.

    1. Because many people bought investment properties and need to generate revenue for them.
    2. There is probably a migration trend out of the economy as jobless figures rise.

    The DAFT economist pointed to the increased number of properties on his website and the lowering of rental prices. Surely this points to an increased supply. Where is the increased demand.
    If there is an increased demand, then I suggest it is because at the moment

    1. People cannot get funding for purchase of homes.
    2. There is very little movement in the property Market as sellers are still unwilling to accept reasonable process and buyers are cagey because they think there is still better value to get.



    There has been a major change in the property market in Ireland, of that there is no doubt and I think the overall reaction to that is people are looking at rental more now as a temporary measure because they are currently unwilling or unable to purchase.


    Reading the following paragraph from the report, I am amazed at the conclusion drawn. This seems to suggest that we treat the roof over our heads the same as any other commodity. It is true that at the moment “ownership” is unnecessary but I still think we are a long way from a rental society when thinking about where we live. Also, Ireland is not particularly friendly to renters.

    The appetite for ownership is a function of scarcity: when ownership is effectively the only guarantee of access to the benefits of a particular good or service then other arrangements are grossly inferior. But when the supply of something becomes abundant - even excessive relative to underlying demand - then ownership becomes unnecessary. We don't own the roads we drive on nor the world wide web that we surf yet we have more or less unlimited access to all we want when we want it. An ironic consequence of the recent failures of finance-fuelled capitalism may well be to undermine forever the foundational faith in private property ownership as a source of wealth and freedom. Though 'ironic' doesn't quite do justice to such an outcome.


    In summary I think Ireland is more of a rental economy than in the past. However, I don’t think this report supports that.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Anonymous Poster Date: Tuesday February 17, 2009 @03:52PM

    Hi Cormac

    Just to clarify: it is our practice to open up the debate by asking an external commentator to offer his or her opinion on the current data and the market at large, in this case Gerard gives his view that the current situation may constitute a shock which may fundamentally change the relationship between Irish people and property. This is not the finding of the report however - the report simply offers facts, figures and outlines trends from these.

    thanks,
    Daft.ie

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Anonymous Poster Date: Thursday February 19, 2009 @06:26PM

    I'm currently looking for an apartment (1 or 2 bed) in south Dublin but sorry, prices remain extremely high...

    I cannot afford such level with my own salary.

    It's a pity because Landlord are currently loosing good opportunity to rent their vacant apartment as a lot of sharing renter keep an eye on the market.

    I truly not understand how such denial of the situation
    can be possible.

    I see some intersting apartment at 1100, 1200 €.
    At 700 or 800, I would take it immediatly... will pay,
    surely, each month...

    Yes I know I know, it's a 40% decrease, but wait, what can you expect in such economical situation? What retailers do with their prices? They cut! (up to 80%!!)

    Landlords seem to prefer to wait and not rent their apartment at a very high level of price rather than renting it for sure at a very lower price...

    So clever... how to make money: don't rent your 1200€ 1bed... :-)

    So I'm gonna stay in my sharing property with 525€ rent/month... that's more clever I think... :-)

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Bob Date: Monday February 23, 2009 @02:10PM

    Strange, but at no stage do you suggest that the landlord won't obtain the price sought or that the property has been vacant for ages. In such circumstances it's hardly surprising that the owner does'nt jump at a reduced offer and given that many tenants stay put for 2-4 years, the cumulative impact of any 40% rent reduction over such a period will be notable. It thus makes commercial sense to lose a few months income and to hold out for the rent sought.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: John Date: Tuesday March 3, 2009 @05:07PM

    Unless an economical recovery occurs within 6 months, I think to wait a few month would be a little bit too optimistic...
    New apartments in my residence finished one year ago are still empty (I'm talking about dozens of apartment in a single residence, single place of a single district of Dublin)... I think the situation is the same everywhere in Dub and in Ireland.
    I can't read anywhere in Ireland newspapers any economic adviser talking about a strong and huge recovery before the end of the year (rather a timid, very little recovery not before 2011 and even maybe 2012)
    So to be patient, really and very patient will be the rule now for landlord who absolutely want to rent at celtic tiger price level...

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Emmet Date: Wednesday March 4, 2009 @02:26PM

    The reasson for landlords leaving rooms empty as a higher level is that they don't want people who will wreck the house taking rooms.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Michael Date: Sunday February 22, 2009 @10:46PM

    Does it not follow that if there is an increase in rental demand and difficulty in obtaining finance to purchase, that rent will invariably increase?

    It is appreciated that time will be an issue in terms of the economy recovering and employment levels to be maintained or accelerate.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: PO'd Date: Monday February 23, 2009 @10:28PM

    My sister signed a rental agreement for a 2 bedroom apartment on behalf of her and her friend. She paid a booking deposit of 1500 and the very same day her friend was made redundant and she could no longer afford to take the property.
    Now after not even setting foot through the door she has lost her deposit, since the lettings agency have refused to refund it. Can anyone tell me if this illegal? I am quite frankly disgusted, since the landlord has not been in any way inconvenienced, given that she cancelled the apartment on the very day she had paid her deposit. Help!!

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Bob Date: Tuesday February 24, 2009 @07:50AM

    Keeping all of the deposit is unreasonable, whatever about retaining a portion, to cover expenses. Many agents get paid on finding a tenant and thus should'nt be wholly out of pocket due solely to someone else's misfortune.

    Written contracts are usually made on signing an agreement and payment of money unless there is conduct such as fraud coercion or misrepresentation. As a deposit is often one month's rent, the tenant should examine any cancellation provision, as it might be cheaper for the tenant to occupy the property just for one month (ie. pay a month's rent but get the deposit back at the end of that period) thus allowing her to get something for her money.

    Take independent expert legal advice.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Coops Date: Tuesday February 24, 2009 @11:48AM

    In a way she's lucky. In the UK (at least I know that market a bit better), she'd be liable to pay rent for period she had signed up for until the landlord could let out the property instead.

    She did after all, sign a legal contract, and while it's unfortunate for her to have lost her job the same day, you cannot expect that that allows her to waive agreements she freely entered into.

    • Reply to this message
  • Re: House that has fallen in value

    Posted By: RAYMOND Date: Thursday February 26, 2009 @02:10AM

    I would like if someone here could give me some advice.
    I own a 3 bedroom house that i paid 230000 euros for back in 2006. The same house today is only worth 195000 euros
    My problem is i owe 190000 euros on the morgtage.. My morgtage is 1000 euros every month. The rent i get is 550 every month. What should i do? The price of houses are going to continue to go down. I do not live in the country and this is an investment property. I am thinking of handing it back to the bank. I will never get my money back and i cannot afford to pay 500 extra a month.

    Please give me some ideas


    Raymond

    • Reply to this message
  • Re: House that has fallen in value

    Posted By: Anonymous Poster Date: Friday February 27, 2009 @04:43PM

    Raymond, giving the house back to the bank will effect your credit rating. Put the property on the open market to see if you can at least get some offer on it, enough to clear your mortgage and you can walk away with your credit rating in tact. Good Luck

    • Reply to this message
  • Re: House that has fallen in value

    Posted By: Bob Date: Monday March 2, 2009 @08:08AM

    Property is a long term investment and you should'nt get cold feet when you first encounter difficulties. Explain your problem to the bank (you won't be alone in doing so) and ask for the mortgage to be changed to 'interest only' and perhaps for the mortgage to be extended for five years (with a view to reducing this time when incomes improve).

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Anonymous Poster Date: Friday February 27, 2009 @08:26PM

    I notice alot of double, triple or more adverts of same property with differenet agents. The reason this happens is landlords feel insecure,due to the recession.

    Secondly with the sales market slowing, more auctioneers have started to concentrate on the rental market.

    Can these facts undermine DAFTs report?

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Anonymous Poster Date: Sunday March 8, 2009 @12:58AM

    I have wondered this also, especially when the Agents quote different prices. Landlords are now using more than one agent as it is taking property longer to let, they feel having it with up to three agents is benefiting them - covering more ground so to speak. However the opposite is true, each agent will know that another agent is on the property and each agent will want to be the one to let the property. Does this make them work harder, not really as they are probably advertising in the same places and tenants will see the property marketed twice. They view the property with one agent, then contact the second and offer a lower price or other negotiation tactics e.g. inclusion of refuse charges, ntl etc. The second agent wanting to let above the first agent persuades the landlord this is a good offer. This leaves the landlord with a lower rent and additional costs. Find an Agent you like and trust that they alone will do the best job for you, too many cooks and all that!

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Anonymous Poster Date: Tuesday March 10, 2009 @09:08AM

    Statistically speaking, all this would do is make the rent seem 'more certain' (technically a lower p-value) than it actually is. It wouldn't actually distort the model, unless you had a property that should be looking for 800 being posted five times for 1,500 or something like that...

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Mark from Edinburgh Date: Saturday February 28, 2009 @08:14AM

    i too own investment property in Ireland and like you live outewith the state. i dont understand what has changed so dramaticaly in your circumstances that you now find yourself unable to afford the previously affordable 500 euro shortfall?? handing back the keys is NOT an option as never again would you be able to buy another property when the economy turns around but you would also be throwing away your 40.000 euro deposit, can you afford to do this?? 500 per month over the short term is easier on the pocket than the heamoraging of 40k. keep your head and your nerve, though it may take several years for property to increase in value, house sales will begin to pick up by the end of the year at this point there will be a chink of light and in a relatively short time you will at the very least recoup your 40k deposit. remeber this, the more that owners reduce thier prices to sell the longer it will take for them to pick up. cheap is not good! consider eveything over the long term,ultimately you have a very good pension pot. good luck.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: kimberley Date: Tuesday March 31, 2009 @05:16PM

    Thank-you Mark,I really needed to hear something just a little bit encouraging in these trying times.
    I rent a flat in Jersey where I live(property prices were way too high for me to buy),and recently purchased a slightly run down 3 bed semi in Kerry(where i lived as a child) for 125euros-£100k at the time. I am slowly doing it up,and wil probably let it to pay the small mortgage. It is meant to be a pension/retirement home for me.It breaks my heart to see ireland apparently going down the tubes - event though I did get 35k off the asking price of my house,so I cant complain.
    I would like to enter into a supportive exchange with others in buy to let situation in ireland,and am also interested in possibly swapping for a one bed flat in tralee - bargain!.
    Keep your chin up guys - marks right,this will turn around. We just have to toughen it out!

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: will Date: Monday March 9, 2009 @08:50PM

    so many theories...yet one fundamental point is missing in all this: Ireland is an overpriced country with poor quality goods and services. get a grip!

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Matthias Date: Monday March 16, 2009 @10:12AM

    "yet one fundamental point is missing in all this: Ireland is an overpriced country with poor quality goods and services."

    You take the words out of my mouth.

    I am wondering what Irish landlords will think or do if expected property prices go down by 40 or 50%.

    Stock markets also went down by 50% and more!

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: ted Date: Thursday March 12, 2009 @02:25PM

    I have to agree to will the infrastructure is weak you don`t get anywhere here without a car but instead of having monetary reserves we are facing a deficit of 10% (there is s.th. called a 3% criteria in the EU)

    problem for the market is the indicated tax increases will put further pressure on the property market because you can`t pay in mortgage/rent what you have to pay in taxes

    • Reply to this message
  • Re: The Daft Rental Report Q4 2008

    Posted By: Bob Date: Monday March 23, 2009 @02:38AM

    Revenue data shows that house purchases under €500k are on the rise again! How will this affect rent levels, given that most buyers will probably be in shared accommodation currently, rather than being the sole occupier of a house or apartment? Does this trend question the views set out in the present Daft report?

    • 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 Rental Report Q4 2008

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