Rental market not softening, Bacon insists in new reports

Rental Values: Two reports on rents in Dublin's city centre show that high specification apartments continue to perform strongly, according to the reports' author, economist Peter Bacon. Edel Morgan reports

Anecdotal evidence that apartment rental values have eased in Dublin city centre is simplistic and often based on average prices which tend to "exaggerate trends and fail to distinguish between different parts of the market", according to a report by economist Peter Bacon and his associates.

The report, Medium Term Projections of the Supply and Demand for Apartments in Dublin City Centre was commissioned by Treasury Holdings, which plans to build over 3,000 units at Spencer Dock on the north Dublin quays.

It was produced in tandem with a study entitled Methodological Issues In The Design of a Residential Letting Price Index and estimates for Dublin for 2000-2003 which endeavours to estimate the trend in rental values in Dublin by using "more sophisticated models" involving four methodologies. His analysis is based on data compiled and supplied by Hooke & MacDonald estate agents, who are major players in the apartment rental and sales market.

Among its findings is that, although rental values have eased overall in the past year in the city centre, high specification apartments continue to perform strongly.

Speaking about the reports this week, economist Peter Bacon warned of the "dangers" of anecdotal evidence "unless there is a total picture or sample of total picture" and criticises frequently-used terms like "softening of the market" as meaningless and misleading.

Dublin city centre is defined as roughly the area between the North Circular Road and the Grand Canal basin and between Parkgate Street and Heuston Station, although elements of the reports focus on the Dublin 1 and 2 areas.

While one report establishes a rental demand for high specification apartments, the second report concludes there is potential for 6,000 more of these units in the medium term.

This finding is partly arrived at by looking at population growth of 22.9 per cent between 1996 and 2002 in the city centre to 88,096, and estimates inward migration accounts for 11,700 - in stark contrast to a trend of out-migration in the rest of the city.

It deduces that supply has been driven by the availability of new housing and points to the big inflows of 15 to 24 year olds over this period.

It also says demand will continue because there is "considerable potential for continued growth in the population simply because of the age structure in 2002. However, if migration continues at 50 per cent of the recent rates then population will grow at about twice the rate forecast by natural increase . . . If sufficient new housing is provided then migration can continue at recent rates."

On this basis, it predicts a population growth of 18,225 by 2007 and of 38,560 by 2012, an increase of 44 per cent over 2002.

It estimates there is potential for around 6,000 units in city centre at a rate of 750 to 850 new high specification residential units per annum.

Peter Bacon however agrees that there are no guarantees when projecting into the future, especially given the uncertainties and lack of data regarding migration.

In 1996, projections on population growth and housing stock requirements proved to be way off the mark.

The second report estimates that the average household size in the city centre is likely to fall to 1.87 persons by 2012 and to 1.5 for those living in apartments.

"On this basis, it is estimated that population growth implies a net demand for 21,900 new housing units in the study area up the 2012."

Bacon says he makes no apologies for the highly technical nature of Methodological Issues In The Design of a Residential Letting Price Index and estimates for Dublin for 2000-2003. It took into account mean prices, median prices and repeat contracts and is based on Hooke and Macdonald's database containing rental values for 368 apartments in Dublin City Centre and 320 apartments in surrounding areas from 2000-2003.

It finds the "evidence suggest that values in the city have been more resilient than in the suburbs", says the report.

When asked this week about criticism levelled at him by the property industry over anti-investor measures recommended in a series of his reports and implemented by the Government between 1998-2001, Peter Bacon says he would "do it all again".

"By the second half of 2001, there was stability of new house prices. The measures were supposed to achieve that and were not designed to achieve other things. There is no evidence the measures caused a reduction in housebuilding.Output, including output in Dublin, continued to expand.

"Any measures taken should be looked at in the context of the time and what the government were trying to achieve.

"The reintroduction of mortgage interest rates came three months after 9/11, when the industry was worried about output and activity.

"When I read about the measures bringing the market to its knees, I wonder to what it is referring ."