This morning Ireland’s Central Statistics Office (CSO) has released its inflation figures for January 2012. The monthly headline Consumer Price Index (CPI) was down 0.5% compared to December 2011, but up 2.2% year-on-year (down from 2.5% in December 2011). The biggest driver of inflation in the past 12 months continues to be the CSO category of housing-related costs, and within that, the most significant component is mortgage interest which has risen 7.8% in the past 12 months as domestic bank-driven interest rate rises take effect, though this is substantially down from the 15-20% increases seen in recent months. Energy costs in homes have risen by 11% in the past 12 months.
It should be said that in the month of January 2012, inflation on mortgage interest fell by 5.6% as ECB interest rate reductions and domestic regulatory and political pressure bore fruit.
Mortgage interest comprises nearly 6% of the CPI “basket” so the effect is significant.
Elsewhere private rents rose by 0.2% in the month of January 2012and over the past year, such rents are up by 3.1%. It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 3.0% increase (mostly recorded in February and October 2011). At the start of January 2012, the Department of Social Protection reduced its rent assistance payments by up to 29% (an average of 13%) and the Department says that some 40% of the rented market in the State is affected by rent assistance payments, which at the end of 2011, was paid to 98,603 households. The Department’s 40% is derived from information provided to it by the Private Residential Tenancies Board. The Department is projecting it will save €55m in 2012 from its €500m budget for rent assistance, the saving comprising €33m to changes to the minimum contribution and €22m in relation to the new maximum limits.
Private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The betting on here is that private rents will come under pressure in the short term but it might take a couple of months for the changes to feed through as most renters will have a couple of months to renegotiate their rents or move.
The CSO has this month changed its format of presentation which is why you can now see private rents and public authority rents above. It is only private rents that is of interest on here as they represent market levels affecting private housing.
Read that linked earlier post on rent allowance reductions – very interesting.
Has anyone a total of the cost to the State of the rent allowance scheme over the last 15 years? Effectively it is a subsidy to owners rather than renters and must have seriously ‘distorted the market’.
How much public housing might have been built for the same money if the ideology of the government wasn’t inflating housing market prices, presided over for a time by Minister ‘De Brudder’ Ahern.
@ Conor The information is available in Section H of the Annual Statistical Reports of Dept. of Social Protection. The amounts paid in 2010 was €517M up from €511M in 2009.
Joan Burton also wrote the Introduction to the most recent DAFT rental report, which gives a reasonable analysis of the position. http://www.daft.ie/report/Daft-Rental-Report-Q4-2011.pdf
Most Claimants of rent supplement appear to fall into distinct groups, foreign nationals approx. 36% and Single Irish. I have asked the Dept. for a breakdown of claimants by family size and once obtained I will pass it on to NWL.
The current Minister asked the Local Authorities to take over the management of Rent Supplement, as they had the primary responsible bodies for housing, but they did not take up her offer. This would have brought all under the one roof.
So, cumulatively, €6billion over the last 15 years might cover it?
All to fund an investor feeding frenzy.
@ Conan
At 200,000 a house that would have been 30,000 houses built. or a mere 2,000 per year.
But how many people rely on rent allowance scheme?
The argument was made that housing provision should be left to the market… ie the state should disengage. This was accepted on the basis that land and building costs had gone through the roof (200,000 a house). But the state was pricing itself out of social housing provision by pushing up costs and investor demand because it was generously underwriting investor risk with rent allowances.
Then there were those Bacon reports with deal swops on social housing provision, so that market values would not suffer from having socially housed neighbours…
It’s hard to credit that rents can rise in a country with literally hundreds of thousands of rental properties lying fallow all across the land. The general static levels of rents is also hard to believe.
When economic history is written, Ireland in 2012 will be the definitive counterexample of the Efficient Market Hypothesis in the rental property sector.
If the building of housing is supported with tax breaks – many ghost estates exist for this reason – then they weren’t really built to be occupied. That accounts for why they are often in places with no amenities or services where no one wants to live.
@OMF
Where are the phantom investors for the ghost estates?
@OMF
In the dysfunctional commercial rental market, rent is the symptom the lease law is the disease.
There is a Nobel prize in Economics awaiting for whoever figures this nonsense out.
The sad reality is the the laws of supply and demand are often counter weighted with other heavier laws. The laws of vested interests, the laws of the protected elites.
@ NWL,
Although the increase isn’t huge, any increase is surprising. At a high level, the easy explanation is people are no longer buying properties and increasing demand for rental. In a way, this makes sense.
Though there is an alternative, which would be good to knock on the head one way or another. X% of previously privately rented accommodation has moved to RAS (and other similar schemes) over recent years. It is reasonable to assume that these were likely to be ‘less desireable’ than average (i.e. not able to place privately go to state). In turn, the average ‘desireability’ of the remaining private rental pool increases. This would result in higher average private rents without private rents increasing just ‘lower rents’ leaving the private market. What do you reckon?
@Ahura, I think settled rents are a tug of war between landlords and tenants. Landlords have rising costs, a desire to see an investment return on their property, theoretically more demand as potential buyers defer buying in a falling market and banks that mightn’t want to see uneconomic rents agreed. Tenants have less income, theoretically more choice as vacant homes should be forced onto the market as banks foreclose. There is imperfect information on what going rents are – the PRTB should be able to produce anonymised information but doesn’t – which might assist landlords more in setting asking prices. The 2012 prediction on here made in December 2011 was that residential rents would increase 0-5% in 2012, and then the rent assistance reductions were announced with average decreases of 13%, and I would tend to say rents will remain flat over the year with decreases in Mar/Apr/May as the rent assistance reductions kick in, and then modest increases.
Thanks NWL, though I’m not sure I made my alternative ‘possibility’ clear. To a large extent I agree with your reply. There is one dynamic that might be distorting the measurement system and the calculation of average rental price. Here’s a simple example of what I’m thinking.
Say in Dec 2010, suburb X has 200 private rental properties with rents ranging from 700 to 1800. Assuming an even distribution across the range, the average private rent for suburb X is 1250.
If the lowest quality 10% of properties have decided life is easier on the RAS and for simplicity, we assume the bottom 20 of the evenly distributed range leave.
So this gives us Dec 2011, suburb X has 180 private rental properties with rents ranging from 810 to 1800. Making same assumptions the average rent is 1305 or an increase of 4.4%.
Or in short, you don’t need price increases for the average to increase. It may be the case that the CSO adjust for this or it may also be true that this dynamic is not significant. I don’t know, but it would be nice to figure it out.
“Lloyds has taken provision for losses equal to about 70pc of its impaired mortgages’ value, well above the norm for other banks. “The Lloyds experience in Ireland reflects some of our concerns over the potential for further deterioration in the loan portfolios at the Irish banks,” NCB banking analyst Karl Goggin told clients.”
Down 70% and counting (are you listening NAMA?)….. Little wonder that rents are increasing as people opt to lease rather than buy. There is NO activity whatsoever in the Irish new homes market.