Irish Rental Report Q1 2021 | Daft.ie

Ronan Lyons, Economist

12th May 2021

First signs of changing conditions in the rental market

At first glance, very little changed in Ireland's rental market in the first quarter of the year. The year-on-year change in the national average rent was 1.7%, up a little on the 0.9% increase recorded in the final quarter of 2020. This was driven not by a change in the regional trends but rather by their continuation - in Dublin rents were down 3.2%, almost exactly the same fall recorded in 2020Q4, while in the rest of the country rents were 7.1% higher - compared to an increase of 5.4% three months ago.

This marks the largest gap between Dublin and elsewhere in the country since 2014, when the opposite trend held. At that point, Dublin rental inflation was (just under) ten percentage points higher than rental inflation elsewhere in the country. Then as now, the trends in rental prices are driven by trends in availability and supply. And it is in those numbers that we may be starting to see the first signs of a normal service resuming in the rental market.

Least and most expensive areas

In the three months to November, Dublin saw an average of over 3,400 rental homes listed each month. While still well below the 4,000 on average needed to keep rents from rising - a statistic based on nearly two decades of the rental market - the rental market in 2020 was unlike anything that had been seen in the previous two decades, with almost zero mobility into the city or its rental market. In the three months to April, the number of homes advertised per month was just 2,829.

In other words, rental supply in the capital is already not as loose as it was six months ago. This can be seen in the total stock available to rent in Dublin on May 1st. This number stood at 2,474 - still up just over 20% compared to the same day in 2020 but down over one quarter from the high of 3,322 seen on December 1st. With the vaccination programme well underway and public health restrictions easing, it seems likely that renters are already thinking ahead and making decisions based on where things will be later in the year rather than where they are now or were recently.

Biggest quarterly gain since 2018

This brings us back to the trend in average rents. Rents in Dublin rose by 1.2% in the first quarter of 2021. While this was modest compared to what happened elsewhere in the country - more of that anon - it marks the strongest quarterly gain in rents in the capital since the third quarter of 2018. (For context, between 2013 and 2018, Dublin had 21 consecutive quarters where rental inflation averaged 2.8%.)

As mentioned, the rental market in the rest of the country shows very different trends to Dublin. Temporarily, at least, the very strong demand for rental accommodation associated with the capital has been reallocated to other parts of the country. In Connacht-Ulster, rents rose 4.6% in the first quarter alone, the second largest quarterly gain on record, and rents in the region are almost 8% higher than a year ago. In Munster, the increase over the last year has been greater (8.8%), while in the other cities and in Leinster (outside Dublin), year-on-year inflation is back above 6%.

In all four regions, this reflects extraordinarily weak availability of rental accommodation. While the number of listings has fallen - likely reflecting lockdown restrictions - demand has increased. Across all of Leinster, outside Dublin, there were just 392 homes available to rent on May 1st, the second lowest figure on record after February this year, in a series going back to 2006.

Trends elsewhere in the country are similar. Across the four major cities other than Dublin - Cork, Galway, Limerick and Waterford - there were just 304 homes for rent on May 1st. While there have been a couple of instances of availability being lower, this has never happened in May, normally a time of greater supply on the market.

This brings us back to the ultimate issue in the Irish housing system - a shortage of housing. Covid-19 has done many things and wrought changes previously thought unthinkable in many instances. What it cannot do, however, is change the simple fact that for close to thirty years, Ireland has built too few homes. This is particularly true for homes for smaller households, homes in urban areas and rental homes.

Ireland badly needs tens of thousands of new rental homes

As some semblance of normality resumes, and the worst affected sectors start to hire again, the iron laws of supply and demand will continue to be relevant - just as they have over the last 12 months and throughout the last few decades of the Irish housing system.

Last week, the topic of so-called 'cuckoo funds' came up, or as they are known in other countries 'landlords'. Ireland badly needs homes of all types - homes for owner occupiers, homes for private-market renters, and homes for those renting in the social sector. It is common practice for funds that wish to build new rental homes to first buy some that are already built, to 'test the water' so to speak.

Ireland badly needs the tens of thousands of new rental homes European pensioners and others have planned to build over the coming years. For this reason, any moves to prevent Ireland from getting the rental homes it needs will only make things worse, not better.