A renter's market
With an oversupply of properties and tumbling prices, renting seems the way to go, writes Caroline Madden
IN THE Chinese calendar, 2009 is the year of the ox, but in Ireland it looks set to be the year of the renter. Economists are predicting that rents will drop by at least 10 per cent in the year ahead, compounding similar falls in 2008.
Tenants are waking up to the fact that it’s a buyers’ market and negotiating lower rents and better conditions (see panel). In many cases, they are renting properties that they could never afford to buy.
Large, luxurious homes are coming on to the rental market for the first time. Meanwhile, new standards are coming into force next month which will improve the quality of existing rental accommodation.
Forget about grotty bedsits, coin-operated electricity meters and rent hikes – tenant power is in the ascendant.
The downward pressure on rents has been caused primarily by a glut of properties flooding the market. Developers, buy-to-let investors and those trading up who found themselves unable to sell their properties have become reluctant landlords.
The result has been a deluge of rental stock coming on stream; the number of rental properties listed on daft.ie tops 20,000, compared with 5,000 two years ago. Property website myhome.ie has seen the number of properties advertised on its site double in the last six months of 2008.
“What’s happened is that people bought [properties] to flip,” says Dr Stephen Kinsella, of the Kemmy Business School in UL. “They weren’t selling so they put them on the rental market. So what’s been happening over the last number of months is that the supply of available high-quality, brand new housing, especially apartment housing, has gone through the roof.”
On the other side of the rental equation, demand has flagged due to the exodus of migrant workers from Ireland. The ESRI expects that net outward migration will reach 50,000 in the year to April 2009, which would free up even more rental properties.
“You don’t need a PhD in economics to know when the supply of something goes up, the price of it is going to go down,” says Dr Kinsella. This is exactly what has happened.
According to Daft’s most recent rental report, average rents had fallen to €1,300 by last October, the lowest price recorded since late 2006. Although final figures for 2008 have yet to be finalised, Daft’s economist Ronan Lyons estimates that rents fell by between 10 and 12 per cent over the course of the year and he expects similar declines in 2009.
Small towns, such as those in areas designated for section 23 tax relief, are likely to be hardest hit, he predicts. Downward pressure will also be particularly intense at the top end of the rental market. Landlords renting out luxury properties such as penthouses could previously command “prestige prices”, Lyons says, but this is unlikely to be the case now.
“Those take a big hit when sentiment is low.”
The upshot is that owners trying to rent out opulent homes have had to scale back their expectations significantly.
For example, according to property website www.thepropertypin. com, which tracks the reduction in asking rents on properties, a seven-bedroom house in Killiney which was originally advertised with a crippling price tag of €18,000 a month has been reduced to a still breathtaking, but considerably smaller, monthly outlay of €10,000.
Until recently, renting was widely perceived as a course of action taken out of necessity by students and low earners or as a stop-gap measure for people who couldn’t afford to get onto the property ladder. However, many people who wouldn’t have considered it in the past are now choosing to rent rather than buy.
“We’re certainly seeing a new age group renting – we’re seeing an older age profile,” a spokeswoman for www.myhome.ie says. “That for us has been one of the key changes in 2008.”
Families with children are now making the deliberate decision to rent for now and to revisit the buying decision at a later stage.
“You’re seeing the young professional now making a decision that renting is what they want to do,” she adds. “They want to rent because they want to live somewhere cool and trendy and they don’t particularly want the hassle of a mortgage or owning their own place.”
In addition, the “dead money” argument often bandied about during the era of soaring property prices doesn’t stand up to scrutiny in the current market. For starters, it tends to be substantially more expensive to service a mortgage on a property than it is to rent it at the moment – and that is if a mortgage can even be arranged at all.
Many aspiring homeowners are more than happy to rent for the time being while they wait for the market to bottom out, as they expect that the price of their desired home will fall by more than they will pay out in rent in the meantime.
“No one wants to buy a house when the expectation is that the price of the house is going to fall further,” says Dr Kinsella. “It doesn’t make sense for anybody to be in a situation where they’re intentionally walking into negative equity.
“It depends on their individual circumstances, but in the short term, I think for most people, renting is the better option right now,” he adds.
In light of the property implosion, can we expect to see a permanent shift in the Irish attitude towards home ownership and an acceptance of renting as a viable long-term living arrangement as is the case in many European countries?
“I think it will take another two or three generations for that to happen,” Dr Kinsella says. “Irish people are absolutely addicted to buying land. It’s a cultural and societal thing. Everyone wants to own their own home. That’s just part of the Irish psyche.”
Until the property market has bottomed out, though, until the overhang of rental stock is sold off, the gap between the cost of renting and buying closes and banks loosen their lending criteria, renting will continue to enjoy a revival.
Top tips: becoming a savvy renter
1. Shop around
According to Kevin Baneham of the national housing organisation Threshold, there is plenty of scope for tenants to negotiate lower rent.
He advises people to look around their area and establish whether there is cheaper or better accommodation out there.
If you are not willing to move in order to save money, then at least try haggling with your existing landlord by presenting them with evidence (for example advertisements) of better-value rental accommodation available in your vicinity.
If you’re a good tenant, they won’t want to lose you and may be willing to negotiate.
2. Don’t automatically renew your lease
Once you have been living in a rental property for more than six months, you have security of tenure, which means that the landlord can only end your tenancy on specific grounds, for example if they intend to sell the property.
Baneham says that, two years ago, many landlords were offloading their investment properties but the situation has changed now as rental properties aren’t selling.
“The change in housing sales has given much more security on rented houses,” he says.
Baneham advises tenants not to sign a new lease automatically if they have been renting the property for more than six months. They will already have security of tenure, so they should weigh up whether it is in their best interests to commit to paying a set rent for a fixed period.
3. Claim tax relief
If you are paying for private rented accommodation, you are entitled to tax relief at 20 per cent on your rental payments up to certain limits.
You can apply for this by completing a Rent 1 form, available on www. revenue.ie.
You can also claim it by registering with the PAYE anytime system on the Revenue website.
4. Know your rights
It is important for tenants to be familiar with their legal rights.
For example, landlords are only allowed to enter the rental premises with the tenant’s permission, and they may only raise the rent once in a 12-month period unless there has been a substantial change in the nature of the accommodation.
Further details of rental rights can be found on www.threshold.ie
5. Don’t be afraid to complain
If a dispute arises with your landlord, you should bring your complaint to the Private Residential Tenancies Board (www.prtb.ie).
Threshold provides a free advocacy service to tenants at hearings of the PRTB.