Rental market dysfunction set to continue through 2019

Penthouses for rent for €20,000 a month; Airbnb properties generating revenue of more than €100,000 a year; institutional landlords looking to push up rents by as much as 25 per cent; build-to-rent landlords paying €841,000 for a dockside apartment. This year may well be remembered as the year the rental market touched previously unforeseen highs, as rents continued their seemingly inexorable rise and money poured into the market from overseas investors.

But, with average rents across the State now at €1,122 and €1,620 in Dublin – and incomes increasing only gradually – one might reasonably ask: how much more the market can take over the coming year?

No-deal Brexit risks aside, the portents are for yet another year of outsize rents, with the fundamentals underpinning the market unlikely to shift just yet.

For Ronan Lyons, assistant professor of economics at Trinity College Dublin and author of the Daft.ie rent reports, the problem is still very much one of a lack of supply.

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“The shortage is as bad now as it has been at any time in the last seven years,” he says, adding: “The solution is additional supply to bring rents down.”

While there has been an uptick in planning permissions, he says it will be 2020 at the earliest before we see any significant relief, in terms of additional supply coming on to the market.

And where we do see new developments coming on stream, it’s often at the top end of the market. Consider the properties available for rent on Daft.ie in mid-December, for example. As one might perhaps expect, supply at the lower end of the market is the tightest, accounting for just 17 per cent of the overall properties available for rent. With the greatest number of people seeking out the most affordable properties, they are snapped up quickly.

Upper-end

More plentiful supply at the upper end of the market – more than half of all properties for rent are on the market for €2,000 or more a month, with 169 properties seeking a monthly rent of €4,000 or more – could be explained away by the fact that these properties are targeting a smaller number of people and therefore will take longer to rent. But this argument weakens somewhat when you take a look at the type of properties hitting the market; many are new developments that have been built specifically to target the build-to-rent sector.

At Northbank in Dublin’s docklands, Kennedy Wilson has 124 apartments, with rents from €2,100 for a one-bed. The same US property fund has two-beds for rent at the newly acquired Grange development in Stillorgan for €2,400 a month, or a two-bed from €3,300 at Capital Dock.

At the very top end of the market are a host of properties just hitting the rental market at Number One, Ballsbridge, with the Comer Group looking for rents starting at a very chunky €3,850 for a two-bed.

At 6 Hanover Quay, 120 apartments sold to Carysfort Capital last June for about €841,000 an apartment. With an expected yield of about 4 per cent on the development, it will be looking for monthly rents of about €3,000.

As many of these properties are being let by institutional investors with deep pockets, they can afford perhaps to wait a little longer for someone to pay what they’re asking for, unlike a small landlord with one or two properties who needs a tenant so they can pay their mortgage.

According to Lyons, the reason so many of these investors are pitching their properties at this market is because of the costs of construction.

“The high-end apartments are the only ones that are viable at the moment,” he says, though he adds that there also issues around “expertise and scale”.

One bright spot for tenants is that he expects these institutional players to seek to bulk up significantly the volume of apartments they let over time. The only way they can realistically capture a larger market share is by offering properties at lower rental rates.

“If you are good enough to get break-even rent down to €1,750, you’d be able to reach a significantly bigger chunk of the market,” Lyons says.

Regulations

The introduction of rent controls back in 2016, which limited rent increase in certain areas to 4 per cent, was supposed to abate rent growth. While it’s questionable the extent to which it has achieved that, what it has undoubtedly done is create a two-tier market, driving a bigger wedge between renters who are staying where they are, and those who need to move or rent for the first time.

Figures from the Residential Tenancies Board (RTB) show that rents for existing tenancies rose by about 5.4 per cent in the year to September – but new tenancies rose by almost 50 per cent more than that.

But we might see more of an impact in 2019; rent controls are due to expire on Christmas Eve 2019, but many expect them to be extended further. And this time around, landlords might be more inclined to abide by them. Minister for Housing Eoghan Murphy has just set out a range of measures to enable the RTB to investigate and sanction landlords, with fines of up to €30,000 for those who have exceeded the rent-control cap.

In addition, rules limiting Airbnb lets, other than in people’s main residence, to 90 nights a year, are due to be introduced next June. These could, it is hoped, bring as many as a couple of thousand properties back into the long-term rental sector.

The challenge, as always, will be in effectively policing the regulations.

What’s for rent in Dublin? And at what price?

# of properties % of total

For rent at €1,500 251 17

For rent at €1,550-€2,000 405 27

For rent at €2,050-€3,00 468 31

For rent at €3,050 378 25

Source: daft.ie