With about 20,000 residential properties for rent at any one time, DAFT.ie is Ireland’s premier online resource for renting. On Monday, it produced its quarterly report on the rental market after examining the characteristics of the properties for rent on its own site. Despite using asking prices, it is regarded as the best and most comprehensive periodic publication dealing with the rental market in Ireland. Actual rental prices are maintained by the public sector organisation, the Private Residential Tenancies Board but they claim the Data Protection Act prevents them from publishing statistics even on an aggregated or anonymised basis. Oddly enough they do have available on their website a full list of rented residential property in the State which is available here.
So with the caveat that the research deals with rental asking prices, the current report concludes that rents are stabilising (increasing by 0.1% on average from the start to end of Quarter 1, 2010 and within that average there is some evidence of asking price increases). This entry examines the recent history of rental prices and compares rental prices with property prices. Here is a graph of rental asking prices versus property settled prices (capital values) since January 2002 (that’s as far back as DAFT.ie has produced data). The rental line shows the DAFT.ie national rental index. The property line shows the Permanent TSB/ESRI national house price index – this was produced on a monthly basis upto December 2009 but is now quarterly – I have smoothed the Q1, 2010 decline in prices by averaging the quarterly drop and equally dividing the drop between each of the first three months. The third line is the ratio, the rental index divided by the house price index. This is an attempt to show movement in rental yields though plainly a rental index divided by a property index will not be meaningful in terms of absolute values produced but the movement is interesting.
I think we can divide our past into four segments.
From 2002 – mid 2007. capital values were rising consistently though from the start of 2005 at a less breakneck rate. The ECB rate fell from 3% to 2% over the period. Rents were declining until mid 2004 and then started to slowly rise but did not keep pace with capital rises (evidenced by the ratio continuing to decline from mid 2004 to mid 2007). Arguably what was happening here is that landlords were subsidising rents with capital appreciation ie if your house is worth 100 at the start of the year but 110 at the end then if rent is only 1, you still make a return of 11% even though the yield is 1%.
Mid 2007 – Mid 2008. capital values were dropping sharply and rental prices were rising rapidly. The ECB rate went from 2% to 4%. This may be because landlords were no longer looking to capital appreciation to subsidize rental income or because they could no longer release equity from their property which was dropping in value or they were reacting to higher interest rates.
Mid 2008 – End 2009. capital values continued to drop sharply and rental prices dropped at a similar rate evidenced by the ratio staying stable. This was a period when unemployment was rising rapidly and wages came under pressure through income levies and private sector cuts. The ECB rate fell from 4% to 1%.
End 2009 – present. Capital values continued to drop at a reduced rate compared with the last quarter of 2009. Rental prices stabilised. And the ratio has begun to climb strongly. Although unemployment is at a high level, it is stabilising. Domestic bank variable interest rates are rising.
The short term future. Apart from our Minister for Finance, it is difficult to find commentators who are predicting short-term rises in capital values. Most commentators appear to be predicting double digit falls from present levels. Looking at the ratio over the past eight years we are 20% off the floors reached at the height of the boom in 2007 but we are some 50% off the ratio before the boom started in 2002. Of course our economic circumstances (GDP growth, employment) were better then and we were still enjoying net inward migration. So my prediction is that rents will outperform capital values by either rising modestly (if capital values drop modestly in price) or falling at a lesser rate than the fall in capital values if capital values drop more dramatically.
NAMA Wine Lake 