Irish Rental Report Q3 2022 | Daft.ie

Daft Reports

22nd Nov 2022

Iron laws of the market strike again

This latest Rental Report contains more grim reading for those hoping for an end to Ireland's rental woes any time soon. Each of the previous ten quarters had brought a new all-time high for the average market rent*. This quarter continues that trend, as rents rose again. That will surely not be a surprise to many.

But what is notable is the scale of the increase. Between June and September, rents rose nationwide by an average of 4.3%. That is ‐ by some distance ‐ the single largest quarterly increase ever recorded in the rental report in a series that goes back to the start of 2006. Until this latest report, the largest quarterly increase had been 3.4%.

Worse, it comes on the back of large increases in previous quarters, including an increase of 3.3% in the second quarter of the year. As a result, rents nationwide were an average of 14.1% higher in the third quarter of 2022 than a year previously. That is the highest annual rate of inflation in market rents recorded in the Daft Report since it was launched.

Even worse again, this is a national problem. There are some differences in the quarterly changes, with extraordinary three-month increases of nearly 7% in Leinster (outside Dublin) and Connacht-Ulster, but below 3% in Munster. But, year on year, the rates of increase are very similar across the country: 14.1% nationally, 14.3% in Dublin, 14.5% in the other cities and 13.8% outside the cities.

All of this was, unfortunately, easily predictable. A graph I have used on occasion in the past shows the link between how many homes are available to rent at any particular time and what happens to market rents afterwards. I have chosen Dublin, because it is one coherent market, but the same things applies across the country.

The graph shows on the horizontal axis how many homes are available to rent on the 1st day of a quarter. Over the last 15 years, this has typically varied from 1,500, when things are tight in the capital, to 4,000 or more when conditions are much looser. In 2009, when over 7,000 homes were available to rent in Dublin, there was significant downward pressure. More recently, during 2014-2019, there were typically only 1,500 or so homes on the market and rents rose by about 10% a year.

What has happened over the last 18 months has been an extraordinary collapse in the stock available to rent. In the graph, Dublin ‐ and the country ‐ has gone into uncharted territory on the left of the graph. On the first day of 2022Q3, there were just 495 homes to rent in Dublin. Rents rose 14% ‐ exactly in line with the 'line of best fit' which is shown on the graph.

Indeed, the two points furthest left on the graph are the most recent two quarters. Not only are they the most extreme shortages of rental homes in Dublin, with correspondingly large increases in rents, they are almost exactly on the line of best fit. To anyone who argues that supply and demand do not apply in housing, this figure is a clear rebuke.

The number available at any particular point in time is a stock and is a combination of supply and demand factors. Suppose 4,000 homes are put online during September. How many are still on the market on October 1st depends on the strength of demand. The extraordinary collapse in availability reflects a resurgence in demand since the darkest days of the covid19 pandemic in early 2021, as much as it does a fall in the flow of homes onto the market.

The total number of rental homes put on the market, nationally, has fallen steadily over the last decade. In 2016, there were about 75,000 homes put up for rent over the course of the year. By early 2022, that had fallen to less than 50,000 ‐ and in the last six months, it has fallen again to about 35,000.

Number Of Available Rental Homes In Dublin And In Ireland

Remarkably, there have been some commentators who ‐ despite being critical of the health of the housing system ‐ have tried to represent the fall in availability on daft.ie as merely evidence of a website struggling, rather than a rental market struggling. While it would be difficult for daft.ie if this were true, it would be great news for Ireland, as a country: no rental crisis, just an issue with a property portal.

However, anyone with any connection to the rental market, even indirect, is well aware that the trends shown in this report are not a reflection of a portal losing market share but instead reflect extraordinary pressure on the private rental segment. This can be seen, for example, in the number of tenancies registered with the Residential Tenancies Board (RTB) on an annual basis. In 2016, close to 90,000 new tenancies were registered. The most recent data made available by the RTB suggests that this has almost halved in the following five years, with fewer than 50,000 new tenancies registered in the year to March ‐ the fall in the flow of properties onto the open market is matched by a fall in tenancies being registered.

The compelling evidence from the rental market in Ireland over the last two decades ‐ and reaffirmed in very clear terms in the last few months ‐ is that, for any given level of rental demand, the best cure for high rents is supply.

As a country, we have tried a decade of not building new rental homes as a way to solve the shortage of rental homes. Maybe it's time we tried a different approach.

===

* Throughout, I use the term 'market rent' to refer to the listed rent. It is important to distinguish between these rents and those paid by sitting tenants, which, particularly with Rent Pressure Zones, may have a very different path of rents over time.