Rent rises striking when compared to inflation, wages

Analysis: Lack of supply, increased demand and lack building combines to create crisis

Landlords complain that renting is not an economical business for many, due to high taxes and charges, even with rents rising. Building of houses by local authorities collapsed during the bust, so there is little additional supply of public housing.

Landlords complain that renting is not an economical business for many, due to high taxes and charges, even with rents rising. Building of houses by local authorities collapsed during the bust, so there is little additional supply of public housing.

 

The increase in rents in the latest figures is not a one-off.

Rental costs bottomed out in late 2011/early 2012. Gradual increases in rents in the first couple of years thereafter turned into sharp annual rises of 9 per cent plus since 2014. Rents have now risen by a third since their lowest posts.

While there have been regional changes over the period, overall the story is of a galloping ahead of rental changes.

The increases are all the more striking when compared to the rate of inflation, or the increase in wages.

Inflation

As the graphic shows, there has been basically no generalised inflation in the economy in the last few years, and wages have also been flat, with pay increases only becoming evident in recent months.

The result is that after-tax household incomes remain well below the level they reached before the economic crisis, while rental costs have now breached the €1,000 a month average and are now slightly ahead of 2008 levels in Dublin and just behind elsewhere.

So the chunk being taken out of after-tax income by rent is rising sharply. Economist Ronan Lyons calculates that these levels of rent are now becoming unaffordable for many households, using the guideline that no more than one third of after-tax income should go on rent.

Supply

For someone on €45,000, this would work out at about €1,000 a month, he said. With many people earning less than this and rent still rising, the squeeze is obvious. Lyons highlights average monthly rents in West Dublin, now at €1,300, as an example.

The headline reason is the obvious one – a lack of supply of rental properties and a continued demand in the market. The Daft figures show just over 3,000 properties available for rent nationwide with over 1,100 of these in Dublin – the latter the lowest figure since the survey started in 2006. On the flip side, a growing economy and population is increasing demand.

Scratch the surface, though, and deeper problems lie beneath. There is a chronic lack of new builds – and a real issue about the cost of building here and how that knocks on to purchase and rental costs.

Landlords complain that renting is not an economical business for many, due to high taxes and charges, even with rents rising. Building of houses by local authorities collapsed during the bust, so there is little additional supply of public housing.

This is the complex web facing the new housing minister, Simon Coveney. There is not even agreement on solutions – some call for rent controls, others argue that this will further hit the supply of rental properties. But it is clear that “something” has to be done as rising rents price more and more people out of the market .

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