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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.