Wednesday 21 November 2018

Rental gap between supply and demand is countrywide

When it comes to housing in the Budget, it struck me that a lot of the anger, where there was anger, related to mortgage interest relief for residential landlords being extended to 100pc.. Photo: Stock
When it comes to housing in the Budget, it struck me that a lot of the anger, where there was anger, related to mortgage interest relief for residential landlords being extended to 100pc.. Photo: Stock

The Ronan Lyons Column

Last week, the latest Daft.ie Rental Report was released. Its main findings were not unexpected: market rents continue to rise, and at a rate above 10pc on average. At least in the long term, that is an unsustainable rate of rental growth.

Indeed, in a healthy rental market, rents would have increased by roughly zero over the last few years - in line with general prices and in line with the idea that new supply can emerge to satisfy demand.

But we have a far-from-healthy market. Countrywide, rents are now 11.5pc higher than a year ago - and up 70pc on average from their lowest point over five years ago. There is a third relevant comparison - with the peak. In almost all parts of the country, rents are now well above their Celtic Tiger peak, which occurred in the rental market in early 2008.

Rents have now increased every quarter for the last 23 quarters - nearly six years - and for each of the last eight quarters, year-on-year inflation has been above 10pc and a new all-time record rent has been set nationwide.

This picture is remarkably similar around the country. The year-on-year change in rents is 10pc in Dublin 4, 12pc in North Co Dublin, 10pc in Co Galway and 11pc in Co Wexford. So the mismatch between supply and demand is countrywide.

But those changes in the last 12 months are only part of the story. The turning point - when rents went from falling to rising - was different around the country. So the cumulative rise in rents from their lowest point varies quite a bit, depending on which market you're looking at.

The table alongside this piece shows the five hottest and five coldest rental markets in the country, using an exclusive new set of figures drilling into nearly 400 rental micro-markets around the country.

The hottest markets are those that have seen not only one of the largest increases in the last year but also from their last lowest point. It's clear that Dublin dominates, but equally that it's not necessarily the fanciest areas.

Alongside Sandycove, one of the country's most expensive markets, is Dublin 17 (near Darndale and Clongriffin) and Dublin 20 (Palmerstown). In those hottest markets, rents have effectively doubled from their lows in 2012-13.

At the other end of the market, it is Co Donegal that dominates. Three of the five coldest markets - defined by the change in rents over the last 12 months and since the low - are in the county. The other two are in north-west Mayo and Ardagh in Limerick.

In the coldest markets, rents have risen by less than 20pc from their lows. And in many of those markets, rents only bottomed out in 2014 rather than in 2011.

It is worth digging into those colder markets a little more. Of the 389 micro-markets around the country, 11 are currently showing falling rents - not rising. Eight of those are in the north west, furthest away from urban centres.

And seven are in Co Donegal, where the nearest urban centre - if you don't count Letterkenny - is across a Border whose future is extraordinarily uncertain right now. There are 14 micro-markets in Co Donegal in total, so what can we tell from the others?

Whereas rents near Derry are falling and are only 15pc higher than their lowest point, rents in Letterkenny are up - albeit modestly, by 3.5pc - in the last year. They are also roughly one-third higher than four years ago. What do we take from all this detail? There is an obvious point: Brexit uncertainty is incredibly detrimental to the local economies that will be most affected.

And there is a deeper point. While Letterkenny is not a large town - its population in 2016 was roughly 20,000 - even that can act as an economic centre for the area nearby. In particular, the location of jobs is what matters.

Ireland is in the somewhat unusual position of having a growing urbanised labour market but a static and sprawled housing market. Solving sprawl will take time and a diversity of housing options, not just another ring of three- or four-bed semis on greenfield sites.

Solving static housing supply doesn't have to take time, though. As it has been for the last five or so years, the mantra must be: supply, supply, supply.

  • Ronan Lyons is assistant professor of economics at Trinity College Dublin and author of the Daft.ie Reports.

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