Tuesday 16 January 2018

The Ronan Lyons column: Feeding a rental market starved of homes

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Ronan Lyons

The first two weeks of this column were focused on a perhaps unfamiliar measure of how healthy the housing sector is, by looking at how often the typical property changes hands. That, though, is a measure focused exclusively on the sales segment. As we know from the 2011 Census, nearly one third of households are renters.

This week and next, I'll be taking a look at the health of the rental sector. The focus today will be to look again at quantities rather than prices. The latest edition of the Daft.ie Rental Report, which I author, was released earlier this week and showed a combination of rapidly rising rents and incredibly tight supply in the rental market.

The story about rental prices is, perhaps, reasonably well-known. In short, rents in Dublin have risen by more than 40pc since 2010 and are effectively back at their 2008 peak. The picture in Cork and Galway cities is not much different, nor is it so in Dublin's commuter counties. Elsewhere in the country, rents began rising later - typic- ally in 2013 or 2014 - and remain more than 10pc below the peaks of nearly a decade ago.

But what about the availability of rental property? There are two ways of looking at this. The first is to look at the stock of properties available to rent at any given time and track that. This is done in the Rental Report, taking the first of the month as a barometer, and figures go back to the start of 2006. What this series shows is startling.

On February 1, 2016 there were fewer than 3,600 properties available to rent nationwide. To put this in perspective, three years ago, nearly 12,000 were available to rent, and on the same date in 2009 there were more than 20,000 rental properties on the market. Perhaps a fairer comparison is with the last time rents were rising rapidly, in 2006 and 2007. However, even in those years, there was an average of 6,700 properties on the market.

This shows just how starved the rental market now is. In Cork, Galway, Limerick and Waterford cities combined, there were only 322 properties available to rent on February 1 this year. For some perspective, these four cities had more than 50,000 rental homes in the 2011 Census.

What makes this even more concerning is that the number of households renting has, in all likelihood, increased substantially over the five years since the last Census. During that period, the population of the country has increased by almost 100,000 people - roughly 40,000 households - but at a time when access to the owner-occupier market has been limited.

I have mentioned that the first way of viewing rental supply is to look at the stock available at any particular time. The second is to look at the flow - how many properties are put up for rent in a given period? The figures accompanying this article show the total number of rental listings nationwide, each quarter, from the start of 2011 to the end of 2015.

What it shows is that there is a dwindling number of properties being put up for rent. In the final three months of 2011, more than 30,000 properties were advertised for rent. In the final three months of 2015, just over 16,000 were listed. In a country with a growing number of renters, there is a decreasing number of properties available to them.

Over the course of 2015, 80,000 properties were advertised for rent. With more than half-a-million households now renting in Ireland, this means only one in six rental properties was put up for rent.

Put another way, each rental property is changing hands once every six years. Renters who find somewhere to live are not interested in moving in a hurry. This undermines one of the advantages the rented sector has over the owner-occupied sector - mobility when needed.

Taken together, the signals from the rented sector in terms of availability are bad. This is the opposite to the owner-occupier segment where, despite the lack of new homes being built, the volume of transactions is recovering slowly towards healthy levels.

The rental sector, however, is where those at the margins live. This means policy-makers have an extra responsibility to ensure affordability and availability, particularly for those on lower incomes. Unfortunately, that is not the case.

Next week, we'll connect up the rented and owner-occupied sectors and look at perhaps the single most important metric of the health of the housing sector - the ratio of prices to rents.

Ronan Lyons is Assistant Professor of Economics at Trinity College Dublin and author of the Daft.ie Reports

Sunday Independent

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