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 ( 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 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?


Asking Price Index
Asking Price Index

Stock and Flow of Properties
Stock and Flow of Properties


Snapshot of Rents Nationwide