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Surprise as Irish residential rents increase for the first time in four months

August 9, 2012 by namawinelake

This morning, Ireland’s Central Statistics Office (CSO) has released its inflation figures for July 2012. The monthly headline Consumer Price Index (CPI) fell by 0.1% compared to June 2012, but is up 1.6% year-on-year (which continues a downward trend seen in recent months compared with the 2%+ that pertained in January 2011). Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 9.8% in the past year, as ECB rate cuts and greater scrutiny of variable mortgage interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for nearly 6% of the basket which measures inflation, the impact on inflation was substantial.

Energy costs in homes on the other hand, which account for 5% of the total basket examined by the CSO, have risen by 10.5% in the past 12 months, the same annual increase as pertained in March, April, May and June. Natural gas continues to rocket with prices up 22.5% annually. This should be a cause for concern.

Elsewhere, private rents increased by 0.3% in July 2012 – the first monthly increase in four months – and over the past year, such rents are up by 2.0% according to the CSO – there is some small rounding in the figures above which show 2.2%.

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 3.9% increase (mostly recorded in February and October 2011 and February 2012).

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, but the Department seems to have conceded recently that the figure may be lower in the order of 30%.

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. The declines in April, May and June 2012, when three month notices given in January 2012 would have taken effect, might have been interpreted to herald the start of a trend, and the increase in July 2012 comes as a surprise.

In the past, 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. Property commentators including those in NAMA have pointed to a buoyant rental market as one of the bright spots in an otherwise dismal property market, but that buoyancy may deflate in coming months as the artificial supports of State-aided rent assistance dissipates

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Posted in Irish economy, Irish Property, NAMA, Politics | 4 Comments

4 Responses

  1. on August 9, 2012 at 5:14 pm Vince

    I simply don’t understand this. Markets should have kicked in and the general rents should have plummeted.
    Yes, we’ve the population of students pushing up the demand and really they are the only cohort that are actually moving within the State with any numbers but surely a form of transpiration to outlying towns should have taken much of the steam from that sector.


  2. on August 9, 2012 at 6:00 pm Sporthog

    Rents will have to rise a lot further than 2%.

    With extra levies on insurance, energy costs going up, the begrudgers clamoring for a increase in the NPPR and houshold tax, landlords are in a very tight corner.

    Not to mention the falling standards among some tenants, some of whom don’t give a damn about how they treat the rented property.

    All this adds to increasing costs for landlords who have to recoup some of the money to survive.


  3. on December 22, 2012 at 10:24 am matthew

    yes rents will have to go up by 20 per cent to pay for property tax/water charge/prtsb charge/ber charge/insurance/refuse charge/prsi /prsi/usc /tax all of which are levied on rental income.


  4. on December 22, 2012 at 10:27 am matthew

    irish tenants are going to have to come into the real world.



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