Rental crisis: lack of supply is the real problem, not price rises

Analysis: two-tier market is emerging with existing tenants slow to move due to fears of rent rises

This graphic shows the change in the number of properties listed as available to rent on housing website Daft over the last 11 years.

This graphic shows the change in the number of properties listed as available to rent on housing website Daft over the last 11 years.

 

The really startling thing about the latest Daft rental report is the lack of supply in the market. Despite soaring rent levels - now in excess of Celtic Tiger peaks - the survey found less than 3,000 properties available for rental nationwide, the lowest since Daft started keeping records in 2006.

A growing economy is leading to rising demand, but it is clearly the lack of supply that is really driving new rental levels, now rising by almost 12 per cent nationally.

The Daft figures cover properties advertised on their site and thus give an insight into the rents facing people entering the market or looking to move from an existing property.

However, there is another, larger, group of people who are staying in their current rental properties.

For many of these, costs will be significantly lower.

While many leases only run for one year, a survey by Daft in May showed that this group on average had experienced increases of 27 per cent since 2013, while new rental levels had risen 50 per cent.

“Stayers” will also now be protected by the maximum increases in place in the so-called rental pressure zones ,introduced in 2016 in Dublin and Cork and extended this January. This generally limits annual rises to 4 per cent.

Split market

So we are quickly developing a split market.

This provides some protection to existing tenants who are paying generally lower rents, but those looking to move or enter the market are facing runaway rental inflation. This will, in turn,discourage people from giving up exiting leases.

Much like a tracker mortgage, giving up an existing rental property to move to a new one is likely to lead to a significantly higher monthly payment. And so the market dysfunction grows as the normal turnover of properties slows and people hold on to existing properties for dear life. No doubt the Airbnb phenomenon also takes some potential properties off the rental market.

Beyond Daft’s May survey, which looked at the experience of people who had used its site and what increases they had experienced since, we do not have any up-to-date data on overall rent levels and increases. It is surely worth getting this done to give a complete picture and start to judge what impact the new legislation is having.

The only real answer is increasing supply.

And houses cannot be built overnight, providing a political and economic dilemma for the Government and Minister for Housing Eoghan Murphy. The idea, put forward by Murphy, of looking at vacant properties is worth pursuing, though here again we lack comprehensive data.

Clearly all options here should be examined.

‘Digs’

Also, the promotion of the old concept of “ digs” for students coming to live in major cities - taking a room in someone’s home, as opposed to renting a property - deserves promotion. It could help both students and also older home owners whose families have left and who now have spare rooms, and perhaps find it hard to trade down due to the supply shortage.

However, we need action on the longer-term issues,too. Ronan Lyons, author of the Daft report, highlights the high cost of building houses and apartments here, which appears to result from a whole range of factors from planning rules, to land costs and so on.

We need information on these problems and policies to address them. More social housing is also clearly needed.

This is one of the biggest challenges facing the Government. We are already seeing the social and economic costs.

These will only increase, as students struggle to afford accommodation, the homeless crisis proves intractable and - at the other end of the market - it hits our ability to attract foreign direct investment, including financial institutions relocating due to Brexit.

The challenge, as ever, is to do what we can in the short-term, but to really focus on the longer-term solutions which are all about increasing supply.

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