A tale of two cities: the rental market and the wider economy

Ronan Lyons, Economist

19th Aug 2013

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

A tale of two cities: the rental market and the wider economy

As with all of the recent editions of the Daft.ie Report, the 2013 Q2 Rental Report shows the property market in Dublin experiencing very different conditions to much of the country. Rents in Dublin are now 7.5% higher than a year previously, after registering their fourth consecutive quarter of growth. This is the fastest rate of rent inflation since mid-2007, six years ago, and reflects tight supply in the Dublin market.

In the sales market, prices in Dublin are rising while they are falling elsewhere. In the rental market, there is a clear difference between the capital and elsewhere but rents outside Dublin are now stable, having risen 0.9% (or €6 on average) in the year to mid-2013. Again, this is about supply and demand.

Over the last year, roughly 3,700 units have been rented out in Dublin each month. Currently, there are fewer than 2,400 available to rent in the capital, even as the autumn rush begins. Elsewhere in the country, the 8,600 units available to rent look sufficient to meet demand that measures typically 6,400 units each month.

This is relevant for Ireland's third-level students, many of whom will be looking for a new place to live over the coming weeks. Whereas a group of friends renting a four-bedroom house in Dublin may have to fork out between 10% and 15% more than last year, their counterparts attending ITs around the country will probably have their rent unchanged.

But trends in the rental market are of interest to more than just the students. Where it reflects the underlying strength of demand for accommodation, a rise in rents gives us an insight into how different parts of the country are faring economically. The graph shows the year-on-year change in rents in Dublin and in Waterford city.

Annual change in rents, Dublin and Waterford cities, 2007-2013

The contrast is stark - not only are rents rising in Dublin, it appears that rent inflation is accelerating. In Waterford, on the other hand, the fall in rents may have stabilised at roughly 3% a year, but rents are still falling. This must reflect conditions in the local labour market, which was hit hard, not only with the loss of construction jobs, but also developments such as the closure of Talk Talk. The numbers signing on to the Live Register in the city have risen from below 5,000 in 2007 to 12,000 today.

Unlike Cork, with its pharmaceuticals hub, and Galway, with its medical devices sector, Waterford lacks an IDA hub around which the local economy can build. Often the public sector can act as a hub but the parlous state of public finances in this country means that Waterford cannot rely on this any time soon. Much the same is true for Limerick and it is worth contrasting Cork and Galway, where rents are rising gently (about 2-3% a year) with Limerick and Waterford, where rents continue to fall.

The good news is that the problem is also the solution. Cities like Waterford and Limerick compete with others, both in Ireland and abroad, on costs as well as productivity. Low costs of accommodating workers is good news from a competitiveness point of view and as the cost of housing and office space in Dublin rises, cities like Limerick and Waterford will become more competitive, particularly for projects that don't require a central location, such as corporate services or back office functions.

So hopefully, as this year's crop of students go from house-hunting to graduating over the next few years, the economic fortunes of Ireland's regional cities will have improved.

Discuss This Article

  • Re: The Daft Rental Report Q2 2013

    Posted By: Jim Murray Date: Monday August 19, 2013 @12:58PM

    Some buyers will clearly wait to see what happens and will pay increasing monthly rents to landlords in the interim, often for poor quality accommodation, since builders are no longer here to respond to market changes by constructing fewer homes.

    However, as the pent-up demand for housing increases, buyers will realise, in considerable numbers, that they are only delaying the inevitable and will look to purchase their own homes, especially when the difference between mortgage payments and rents narrows, as is now occurring.

    At that stage (late 2014), prices will jump as a result of the time taken for builders(are there any left to take development risk?) to respond to the market and buyers, fearing that prices will escalate as before, will again make higher offers for the limited housing available, thus further driving the market upwards.

    As current market conditions are purely temporary, those awaiting further price reductions will be disappointed and whilst the situation would be different if housing supply had remained constant or if immigration had reduced, neither occurred, on which basis, the supply and demand equation still endorses the likelihood of higher prices

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Mark Date: Tuesday August 20, 2013 @11:25AM

    As of today banks have the power to repossess homes and buy to lets which are not co-operating with the banks. 43,700 legal letters have been issued seeking reposessions. This is going to be a major turning point in the housing market and as unfair as it may seem to some it will have a negative knock on effect on the prices of housing in Ireland as more and more property will flood the market easing the pressures which are currently gaining in supply and demand. Those who have been renting over the past decade may see this as the turning point which will allow then to afford a house of their own as the market starts to finally reach its true value and move on from the elephant in the room which was unpaid mortgages and stategic defaulters. Rents may therefore lessen as demand drops as more people become homeowners.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Frank Walsh Date: Tuesday August 20, 2013 @05:55PM

    I disagree , Banks wil use a credible threat of repossessions to get people to pay more, but nothing like that number of repossesions will take place , Banks will avoid cystalizing losses onto the balance sheet , otherwise they will be need to be capitalised again and thus it becomes a tax payers liability.


    No government wanting election will have RTE showing mass repossession and althought the banks will carry a big stick it .....it will never get the potical backing

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Garry Hayes Date: Wednesday August 21, 2013 @04:28PM

    Repossesion does not mean no possesion , all those that lose homes will still need somewhere to live , most likely rental is the answer. Therefore , investors will pick up some property and rent back to people who lose there homes

    The porblem going forward in ireland in lack of supply , no developers or banks are there to take development risks whilst every year 70000 country irish people move to dublin.

    Since 2008 , we as a county have only build 15,000 new homes , thats 3000 per year , we need 50000 units to stand still ..............that's not going to happen in the next five years.


    Prices will go up and up and well as rents in Dublin.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: John Date: Friday August 23, 2013 @03:18PM

    Totally agree. Even if these reposessions happen, people need a home. Despite all the doom and gloom talks, Ireland is still at the top in Europe. You can get a modern 4 bed detached property 20 mins from Galway for around 160-200K. at the moment. Compared to England, Netherlands, Belgium etc. prices are very low. The food industry is also growing and Ireland will be a major player in years to come. Of course it has been tough but I see a lot of companies relocating to Ireland again and if the right skills are tought, Irish people have a future in Ireland. Of course you still have people searching the dream in Australia etc. but the bubble will burst soon enough and many Irish will be glad to call Ireland their home. We can complain about the weather, but no earthquakes here, no extreme flooding and hardly any snow.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Michael Date: Tuesday August 20, 2013 @12:36PM

    I have followed the house price and rental price situation on daft.ie for a number of years now. In relation to availability of properties it would be interesting month on month to monitor the number of properties for sale in proportion to the population density in each county and then partial into the equation the distance to larger population centres within 25klm. in terms of the rental market it would be interesting to see the proportion of rental accommodation being offered in the major centres of population vis-a-vis the smaller areas. The balance of rental and ownership of a home will continue to fluctuate until distance from home to work becomes more of a convenience than a liability.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Brian Date: Tuesday August 20, 2013 @01:54PM

    I agree with Mark, with the repossesions about to take effect, its hard to believe that house prices are going to rise anytime soon. This comes just as one foreign bank has declared its intentions to enter the market, and another looking very likely. These banks do not have the expense of Tracker Mortgages to service so will be able to offer lower interest rates to buyers. What would be more interesting is it appears likely they will loan to developers - this will help with demand for housing and keep prices from rising due to lack of demand.
    All in all, this will mean an easing on any price increase in both the seller and rental markets.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Realist Date: Tuesday August 20, 2013 @03:37PM

    New entrants (lenders) into the market is excatly what is called for. They will add liquidity, breath and depth to the property market. Debt usually just gets rolled over and renewed, as long as the underlying asset is of good quality. In Ireland there is plenty of good quality assets out there, but the unwillingness of existing lenders to renew credit facilities is / was freezing up the market and restricting supply. In the US / Germany when rates fall, people lock in great 20 / 30 year interest rates and if the rates fall again after this as they usually do in an up and down credit cycle, then people simpluy refi again. Once incremental liquidty is added to the market in Ireland, there will be movement again. What is happening now is a limited churing of cash by banks for residential mortgage lending, where new lending is say 60% of the amount banks are getting back in through the amortisation of their existing mortgage portfolio, so net net, there is a credit contraction. New entrants will facilitate deleveraging of legacy bank balance sheet while improving their asset quality as the underlying value of their back book rises.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Tom Date: Wednesday August 21, 2013 @08:20AM

    The entrance of new players in the mortgage market would be advantageous for all. Easier availability of mortgage funds should add an impetus to the property market & on to the general market via property upgrades, furniture purchases etc. It could help the Banks lower their over exposure to the greater property market as existing customer might find it easier to get funds from new entrants. Unfortunately all of this takes considerable time - getting a licence from the Central Bank, setting up an assessment centre, online portal etc.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Alan Date: Wednesday August 21, 2013 @08:47AM

    New lenders?! Investec is the bank behind Start Mortgages...and also another sub prime lender in Ireland. They are the largest sub prime mortgage lenders here. New customers just be forewarned and beware.

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  • Re: The Daft Rental Report Q2 2013

    Posted By: frank wheeler Date: Monday September 9, 2013 @01:37PM

    is cheaper to buy now than rent , if your mortgage is 400 a month then 100 is interest , thats the real cost , the 300 goes to pay down debt thus increasing your wealth .
    I know people who rent and they do so for the location , but what happens to them when they are pensioners

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Frank Walsh Date: Friday September 20, 2013 @04:09PM

    There is a cost for cheap housing! Nobody can afford it. The hidden costs of housing over the last decade have been the subsidisation of vast numbers of peoples accomodation by the paying/buying public plus the exorbitant labour costs which were well above union rates for long periods.Its going to be a long time before we see large housing developments start again, whats built now is it! the population is rising(fact) and once you take out the housing stock in areas where nobody wants it there wont be much left. Interest rates will rise(fact) there has never been a better time to buy. Yes there will be hardships for new buyers(not changing the car/getting rid of the second car, no sking holiday etc, this is all relative) but ask the older generation what situation they were in when they bought. anybody who finds a home they can afford, finance, should avail of the opportuinity now, threr will never be a better time

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Matt Melia Date: Thursday September 26, 2013 @11:57AM

    It is amazing how many negative people there are out there - typical Irish to put everything down all the time...it is the biggest problem here...no confidence in oneself so no confidence in any one else. One thing is certainly true - House prices will go back up..they have done so in every housing bubble-bust cycle ...usually taking 4 - 6 years to run their crash cycle...so we probably have one year left before they stop falling and then another 5 years of almost stagnant growth before the next bubble develops....starting maybe 2017.....whether all you negative people out there like it or not! Why would Daft suddenly start saying rents are rising after so many quarters of telling us they were still falling...but then there are the Maires out there who think the world is out to get them...! Time to get out the champagne!!!

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Bob Date: Friday September 27, 2013 @09:29AM

    Return to Ireland effect
    So will they return? Four in 10 would like to move back to Ireland in the next three years, but just 22 per cent think it is likely to happen. Almost one in six is definite they don’t want to move back in the near future, while a similar number again aren’t too bothered either way. One in four is undecided about where they want to be in three years’ time.

    The most significant life event that would motivate emigrants to move home is having children, with six in 10 saying they would like to raise kids here, where they could be close to friends and family, avail of the Irish education system and feel part of a community. One in six would prefer to raise their children abroad, where better job opportunities would ensure financial security for their family.

    Some emigrants envisage moving “home” when the time comes to buy their first house, but the likelihood of being granted a mortgage here is cited as a disincentive

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  • Re: The Daft Rental Report Q2 2013

    Posted By: Joan Date: Friday September 27, 2013 @02:51PM

    No doubt the moving back home factor is going to be massive in the next five years , those that left in 2008 to 2011 will be making lifetime decisions about where they want to live having gained new skill sets abroad .. if the employment market continuing to improve especially for the service sector in Dublin one could see that house price again will come under pressure as they did in 1995 to 2005 as those returning push up demand , problem now is that units being complete are less than 7000 per annum for the whole of ireland with most being build outside of Dublin

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