Irish Rental Report Q1 2023 | Daft.ie

Ronan Lyons, Economist

15th May 2023

Keeping the tap turned on

The figures in this latest report offer some crumbs of comfort for those of us gravely concerned about the health of Ireland's rental market. For over a decade now, the rental market has been characterized by worsening availability and, as a consequence, higher and higher rents. The only exceptions were rural parts of Ireland back in 2012 and 2013, when they were still dealing with issues of housing excess rather than shortage and ‐ more recently ‐ the covid19 pandemic, when almost overnight rental demand evaporated in Dublin.

Rents Have Increased 11.7% In One Year

By early 2021, though, as society reopened, demand re-emerged and at a pace that few predicted. During 2021 and 2022, open-market rents increased by an average of almost 3% per quarter ‐ reflecting an extraordinary mismatch between very strong demand, increased further by the arrival of tens of thousands of Ukrainian refugees, and weakening supply.

The extent to which the existing rental stock has changed in recent years is unclear. In the pages of these reports, we have been doing our best to track 'new arrivals' into the rental market. However, to keep track of the stock of rental homes, we need to know both entries into and exits from the market by properties.

Unfortunately, between a combination of moving to a new digital system and moving to a new system of annual registrations (rather than every four years), it seems that we as a country have temporarily lost the ability. I have no doubt that we will soon be able to understand the stock of rental homes ‐ if not quite in real time than at least on a monthly basis ‐ but in the meantime, we are left in the dark a bit.

We do know that in the second half of 2022, almost 5,350 landlords gave notice of termination in order to sell the property. It is highly unlikely that these properties will stay in the rental segment, given the strong sales market and the paucity of buy-to-let mortgages. On top of these, a further 1,500 are to be effectively changed into owner-occupier dwellings as the landlord (or a family member) is moving into the property. Together with some classed as 'change of use' and others that will be out of commission for some time as they are being renovated, the rental segment lost probably 7,000 homes in six months.

Offsetting these are homes coming on to the market in developments that have opened up for the first time. All of these were in Dublin. Between the first of July and the first of December, across almost 30 developments that were opening up, the number of registered tenancies effectively doubled from 1,270 to almost 2,600. There may be other smaller developments that opened in this period, which means this figure might understate the true increase.

But this is the fastest rate at which new rental homes have been coming onto the market in almost two decades. And despite that, it is unlikely to have been enough.

All in, a best-case scenario is that Dublin added 3,000 new rental homes in the second half of 2022 ‐ while the country lost 7,000. Given that Dublin is about 40% of the rental market, it probably lost the same number of existing rental homes. Dublin is treading water while the rest of the country lost about 4,000 rental homes in six months.

The Number Of Available Rental Homes In Ireland Is 959

The government's policy in relation to rental homes had been ‐ roughly for the period 2018 to 2021 ‐ to boost the entries into the rental market. However, this came after an earlier policy, from late 2015, regulating not only rents within tenancies but also rents between tenancies. Within-tenancy rent controls are a reasonably common feature of rental systems across the high-income world. But across-tenancy rent controls are an entirely different beast, with potentially deleterious effects on the supply of rental homes.

Together with a vast array of other new rental regulations, across-tenancy rent controls seem to have done exactly as experts would have predicted, in other words. And while government policy has not reformed this yet, it has shifted from encouraging new entries into the rental market to discouraging ‐ or indeed stopping, to the greatest extent possible ‐ exits from the rental market.

It is an understandable response to a chronic situation. But stopping property owners from selling their property is not a long-term solution. Policy needs to shift back to encouraging new entries into the rental market. This will take time ‐ and reform of planning and zoning, as well as targeted reductions in construction costs. But ultimately, adding significantly to the stock of rental homes, year on year, over the coming 10-15 years, is the only way to undo the damage done over the past 10-15 years.