The runaway rental market is showing little sign of slowing down. According to the latest survey from Daft.ie, rents in Dublin are up 10.9 per cent in the year to September 2018 and have risen 11.3 per cent countrywide. In some areas, rents have risen by more than 100 per cent since the boom years.
Average rents, the survey says, have reached a record €1,334 – that’s €304, or 30 per cent, more expensive than during the worst excesses of the Celtic tiger and 57 per cent above their 2011 low. Meanwhile, rents in the capital are more than €520 a month – or 36 per cent – higher than their peak a little over a decade ago.
The picture outside Dublin is similar. Average Limerick city rents of €1,131 are 20.3 per cent higher than a year ago; Waterford rents are up 19.7 per cent to €955; Galway is up 16.1 per cent to €1,226; and Cork rents have risen 13.7 per cent to €1,301. Outside the five main cities, rents are up by an average of 10.6 per cent.
The cheapest place to rent is Leitrim, with average rents of €577, while the most expensive is south Co Dublin at €2,156 a month. It’s worth pointing out, too, that repayments on the average mortgage in Dublin are about 40 per cent cheaper a month than renting – but the deposit you need to get that property continues to edge upwards.
Meanwhile, the number of rental properties on the market continues to fall – there were just 3,214 properties for rent countrywide on November 1st, a drop of 4.5 per cent on a year ago and the lowest November total since 2006. However, the number of properties available for rent in Dublin rose 6.4 per cent.
"There has been a continued outflow of investors from the buy-to-let market," says Marian Finnegan, chief economist and director of research with the Sherry FitzGerald Group. "Reflecting the trends of recent years, 35 per cent of vendors were selling their investment properties, while investors entering the second-hand market represented only 18 per cent of purchasers. The lettings market has effectively lost tens of thousands of units in recent years.
“Current market conditions are clearly a direct response to inadequate supply levels, and yet the Government’s policy to date does not address this imbalance at all in the short term. Instead, it focused on capping rental inflation to 4 per cent in key urban areas. This was disappointing and ineffective as is evident by the latest Residential Tenancies Board data on rental inflation, which show annual inflation levels of greater than 7 per cent in both Dublin and Ireland as a whole. Without a notable increase in supply of rental property, we can expect further rental inflation of greater than 4 per cent in 2019.”
‘Huge concern’
Ronan Lyons, assistant professor of economics at Trinity College Dublin, is on record as saying that the rental market is a cause for "huge concern, with very strong demand not being met by supply" and has pointed to a shortage of apartments" on the market. He said in The Irish Times recently: "The increase in residential construction is being driven by estate houses, not apartment schemes. Dramatically increasing the construction of urban apartments, for both market and social housing sectors, must become the priority for policymakers in 2019."
Clarie Neary, head of residential management and lettings at Savills, sees evidence of resistance to rental increases in the Dublin city centre market. “Properties seeking too much rent are not letting,” she says. “State rent caps are also governing this section of the market, so city centre rents are stabilising. Outside of the city centre, property is renting very well as high rents in the city centre are pushing some renters out to the suburbs in search of lower rents.
“We don’t see any major increase in the supply of rental property to the Dublin market over the next 24 months. As a result, tenants are very keen to keep their tenancies. Companies are even starting to pay a portion of their worker’s rent. I see lots of stock to rent in Dublin in the €2,000-€3,000 a month range but, in the €1,500-€1,800 a month range, there’s not enough supply and this is where the real pinch point is in the market. Not enough entry-level apartments are being built either. So a tight rental market in some segments looks like it’s here to stay.”
For those thinking of moving back to Ireland, Neary recommends checking potential salary levels against the rental market as part of the decision to return home. Returnees should also have all their paperwork – CVs, references, etc – ready and in order, to give themselves the best chance of securing a letting.
Meanwhile, your future landlord is less likely to be a small-scale operator, as institutional investors and specialist funds are gearing up to get a piece of the action.
Build-to-rent – where developers typically sell entire apartment blocks to property funds – is starting to take off in the Irish market. Developers like the model as it reduces risk (they only have to find one buyer) while the steady, if unspectacular, rental yields attract the institutional investors. Tenants, too, tend to get a better rental experience with an institutional landlord – renters paying €3,300 for a two-bedroom apartment at Kennedy Wilson’s Capital Docks scheme in the south docklands, for example, get a concierge service, cinema, gym and games room.
But a new wave of institutional landlords is not going to solve the rental crisis in the short to medium term. As a result, tightness in the rental market looks like it’s here to stay and it will surely continue to damage our competitiveness. One recent survey, for example, suggested almost a quarter of employees have sought pay rises in response to the housing crisis. Even the big tech companies, some of the best payers in town, are rumoured to be supplementing the rents their workers pay.
Until the economy can supply the market with sufficient units to meet demand, the direction of rents looks like a one-way bet.