Sunday, March 12, 2023

Plunge in Irish rental residential properties raises prices

On February 1, 2023, it was estimated that the number of housing units for rent in Ireland was just over 1,000. This plunge in the market has resulted in pushing up the rents of the existing stock of rental properties.

Until land reforms in Ireland by the British administration, in the late 19th century and the early 20th century, the Anglo-Irish "absentee landlord" was a hated figure in Ireland. Today the term "landlord" is still a pejorative for some of the population.

There is a misleading notion that most landlords are making a lot of money, squeezing poorer people.

However, in 2021 the CSO (Central Statistics Office) reported that landlords (86%) owned only one or two properties. Most of them owned one. It added that half of all landlords earn less than €10,000 on these investments after allowable expenses — such as mortgage interest, depreciation on fittings and furniture, repair and maintenance costs and letting costs.

If an individual was taxed at a higher rate the net annual income from their investment was €5,150 or less. If the lower tax rate was applied it could be as high as €7,150.

The median price of a dwelling purchased in the 12 months to July 2022 was €295,000.

The return of 1.75% is not extortion.

The lowest median price for a house in the 12 months to July 2022 was €145,000 in Longford, while the highest median price was €610,000 in DĂșn Laoghaire-Rathdown.

According to Ronan Lyons of Trinity and producer of the Daft rental report, "Fewer than 1,100 homes were available to rent on February 1, 2023. This is largely unchanged from the number three months ago, at the time of the last report, and down almost 22% on the figure available on the same date a year ago.

But that figure from 2022 was itself a complete outlier in a series that stretches back to 2006. Between 2015 and 2019, a time when supply was very weak relative to demand — pulling up rents — there were typically 3,800 homes available to rent at the start of February. The average for February 1st over the full period 2006-2021 was 8,500."

Related statistics

The Irish population grew by 11.7% in 2011-2022 (535,000: 362,000 in 2016-2022) while net housing units were at 130,000 at Census 2022 in April (new completions from 2011 were at 163,000 in December 2022; 29,000 in 2011-2015). However, employment (15 years +) in 2011-2022 (Q3) jumped by 668,000 or 35% (the unemployment rate was above 15% in 2011 and at 4.5% in 2022). Non-Irish nationals (excluding naturalised) were at 13.8% of the population. Inward migration in 2016-2022 was 190,330 and almost 47,000 settled in the Dublin area in the 6-year period.

2013-2023 employment grew by 590, 000 while the population expanded by 468,000.

In the first two decades of the current century, the populations of the Netherlands and Denmark grew by 8 and 9% respectively; Sweden's population grew by 14% and Switzerland's expanded by 23%. The Irish population jumped by 29%.

According to the CSO the two counties, Dublin and Cork, account for 50% of inward Foreign Direct Investment (FDI) employment. The agency noted "It is important to highlight again that these figures refer to how many employees are residing in these counties. Dublin and Cork may have additional FDI employees residing in neighbouring counties and commuting into the cities."

In April 2022 the foreign rate in the total population was 18.5% compared with 14% for expatriates. The rates compared with the native-born population were 23% and 17%.

Foreign-born in Ireland overtake Irish-born in countries overseas

The latest Daft Rental Report by Ronan Lyons was published in February and it shows once again an extraordinary shortage of rental homes available across the country. This is a Twitter summary:

"A quick thread on what it shows, the implications and how some commentators seem to be misinterpreting some of the headline stats. (1/)

Firstly, on rents. The Daft Report's headline figures refer to open-market rents and are based on an analysis of tens of thousands of rental listings over the last 12 months. In short, mkt rents are increasing by 14% on average and at very similar rates across the country. (2/)

This leaves open-market rents on average 125% higher than their lowest point just over a decade ago and almost 70% higher than their previous Celtic Tiger peak. There are regional differences but they are second-order to the national scale of the problem. (3/)

Remember, these are not all-in average rents, they are only capturing open-market rents. Thanks to a bespoke survey of tenants, though, a supplementary series in the report captures rents paid by sitting tenants, who are more likely to be protected by RPZs (Rent Pressure Zone). (4/)

And indeed there is evidence that RPZs help sitting tenants by hurting those unfortunate enough to have to move on the open market: 'stayer' rents increased 3% in 2022 while 'mover' rents rose 14%. And since RPZs came in, stayer rents are up 18% vs mover rents up 75%. (5/)

More specifically, over the last 15-20 years and looking at the national level, when about 10,000 rental listings came onto the market each month, there was on average no upward or downward pressure on market rents. (7/)

When there were as many as 15,000 rental listings per month (as in 2008/09), rents fell. But when there have been fewer than 10,000, typically rents have been pulled up due to a lack of supply. (8/)

During 2015-2019, the market was tight, with just 5,500 listings coming on each month on average. Unsurprisingly with supply that tight, rents rose steadily. However, since early 2021, the flow of rental listings has fallen further - to just 2,700 per month in 2022. (9/)

In other words, the rental market in Ireland is missing something like 7,000 homes coming on to the market each month. Bringing the market back into balance would require 7,000 new rental homes each month - for how many months? For the length of the typical tenancy. (10/)

The typical tenancy has gone from ~1.5 yrs to about 4 yrs over the last decade. Significantly more supply would change that - but even in benign scenario, those 7k new homes would be needed *every month* for 2.5-3 years. (11/)

But what about Dublin's new rental stock? One problem is that it's solely in Dublin - the whole country is short rental homes. But the second is that it's just a start: maybe 6,000 new rental homes were completed last year, less than 10% of Dublin's shortfall. (12/)

Over the past 10-15 years, Ireland should have been steadily adding to its rental stock. But a combination of high costs and a policy/tax system unsure of whether it wanted smaller-scale or larger-scale investors (if any) meant there is a lost decade of rental supply. (13/)

Make no mistake: adding 400-500 new rental homes per month in Dublin over the past 18 months has definitely helped, relative to a scenario where they hadn't got built. But tens of thousands more are needed - and all across the country. (14/)

That is why it is so disheartening so see public policy and local authorities try to limit the construction of new rental homes. It shows that policymakers simply do not understand the scale, causes and solutions to Ireland's 10+ year-old rental crisis. (15/)

To be clear, the solution to Ireland's housing shortage will involve building new owner-occupier homes, social housing and market rental homes. It's not either/or, it's all three. Something like 50,000 new homes are required each and every year to mid-century. (end/)"

Leo Varadkar, an taoiseach, said this week that 40,000 landlords had sold up and left the rental market in the last five years.

“We need to get them back into the market,” Varadkar said. “I do think that there has been a demonisation of landlords, by our political system and by wider society over the past number of years."

He disclosed that he is now a landlord and renting out his former home.

Vacancy rates

At a national level according to Census 2022 vacant properties amounted to 166,753; 35,380 of vacant properties were rental; Deceased 27,489; Renovation 27,438; For sale 17,826; Farmhouse 12,334; Nursing Home/ Hospital 11,130; New build 6,752; With relatives 5,138; Emigrated 2,478; Other reason / Not Stated 24,477 (e.g. travel, properties owned by people who are working overseas etc

The census vacancy rate was 7.8% in 2022.

Census vacancy rates vary between counties with urban populations and more rural counties. In Meath, the Census vacancy rate fell by less than 1 percentage point from under 7% in 2016 to 5.8% in 2022. In Roscommon, the Census vacancy rate fell by 4 percentage points from 17% in 2016 to 13% in 2022. County Dublin was 5.5% and South Dublin was 4%.

The CSO noted that of the 166,753 vacant dwellings in 2022, almost one in three of the dwellings that could be linked were also vacant in 2016 (48,387). Of the 48,387 dwellings linked over the two census periods, nearly half (23,483) were also vacant in Census 2011.

OECD data for 2020 show that "Malta, Japan, Cyprus and Hungary record the largest share of vacant dwellings, at over 12%. By contrast, vacancy rates are lowest in Iceland, Switzerland and England (United Kingdom) at less than 3%. Moreover, the share of vacant dwellings is larger in rural areas, compared to urban areas, in all countries except Portugal (though the difference is very small). The biggest differences in vacancy rates between rural and urban areas are recorded in Chile (over 15 percentage points) and the Czech Republic (nearly 12 percentage points)."