Ireland’s rental market is broken – and could be in even bigger trouble – The Irish Times.

Ireland’s private rental market is one of the most expensive in the EU – Dublin in particular stands out.

Tánaiste Leo Varadkar said this week that young people won’t find cheaper rents in New York – which is true – but his comment that lower prices were only available in third or fourth tier cities or rural areas is not actually supported by the evidence.

According to EU data, rents in Dublin are around the highest in the EU league, but vary by property type.

Meanwhile, there is a widening gap between existing renters, especially those who have been living for several years, and newer renters and those currently looking for a property. We have a two-tier rental market.

Property shortages and strong demand are pushing up the prices of new rental properties, but the increase in existing prices has been significantly lower, largely due to the rental pressure zone rules introduced in 2016.

This has created a two-tiered market – expensive for those with leases, but certainly too expensive for many looking for a place to rent. Last year’s EU figures show that Dublin is the most expensive city to rent a small flat, ahead of even Copenhagen and Paris, although below London and New York.

[ Average Dublin advertised rents rise to €2,258, up 14.3%, amid ‘extreme shortage’ ]

Comparisons vary slightly by property type – and data from other sources show slightly different results – but there is no doubt that Dublin is a very expensive place to rent.

And despite rising rental levels for new leases, private landlords are leaving the market, complaining of burdensome regulation and taxation. There is no doubt that rising real estate prices also play a role here. But the rental market is broken and there could be even bigger problems.

1. Rising costs

This week, a survey by the website Daft shows that rental prices are rising sharply and have increased by 14.1 percent over the past year.

Worryingly, the 4.3 percent quarterly increase from July to September compared with the previous three months was by far the largest since the streak began in 2006.

Economist Ronan Lyons, commenting on the report, cited the “extraordinary collapse of rental stock” as the main reason for rising rental costs, with only 495 properties available for rent in Dublin on the first day of the third quarter. .

He notes that this depends on the post-Covid recovery of demand, as well as a lack of supply, a problem that has developed slowly but steadily in recent years. in 2016 about 75,000 houses were rented during the year.

Until 2022 this number fell to less than 50,000 at the beginning of 2015, and has fallen again to around 35,000 in the last six months. A similar downward trend is seen in tenancies registered with the Tenancy Board (RTB), from almost 90,000 in 2015. to less than 50,000 this year.

2. What Daft and RTB data show

Daft’s figures, based on advertisements on their website, reflect the rents now being offered for new leases. This gives a good picture of what is happening in the market. Another key data source is the data source compiled by the RTB based on new leases registered with it.

The most recent RTB data is for the second quarter of this year, at which time slightly lower figures are shown (the national average is EUR 1,464). This represents an 8.2 per cent year-on-year increase in registered new rents in the second quarter – it will be interesting to see if the third quarter figures reflect the rental growth shown in Daft’s figures.

Either way, we have a clear understanding of what’s happening in the new lease market and trends across the country. A worrying aspect of the RTB data is that the number of leases in the second quarter (12,701) fell by 16 percent compared to the second half. More evidence of the lack of rental properties.

However, the Daft and RTB figures do not show what everyone is currently paying on average in the private rented market. As sitting tenants have seen rents rise more slowly than new rents in many areas, the rent pressure zone (RPZ) rules are widening the gap between what they pay and new rents.

3. Two-level market

There is no complete data on all existing leases. Even the EU data is based on the sound of estate agents, so it is likely to mainly reflect the price of new leases.

But it is possible to take an educated stab. Daft carried out not only market supply research, but also research into existing rental relationships. While the company doesn’t release cash averages, it does use them to calculate annual increases in sitting tenants. And it shows that the gap is growing.

On average, rents for sitting tenants have increased by 3.4 percent per year over the past decade, and for new tenants by an average of 7.1 percent. In the squatter category, Dublin saw an average year-on-year increase of 4.9 per cent, compared with 1.6 per cent for the rest of the country.

Prior to the introduction of rent pressure zones in 2016, it is safe to assume that new and sitting tenants paid fairly similar rents, with a lower premium than now for a new tenancy.

The market worked differently, there was more supply, and tenants faced with high rental demand were able to move. If further from 2015 for rents we will apply Daft’s rent increase calculations from 2015, which suggests that the average rent across the market may now be around €1,150-€1,250, compared to Daft’s figure of €1,688 newly advertised. lease agreements. (The latest ESRI study, based on CSO data, put the average private rent at €1,084 in 2021, so the 2022 estimate above looks reasonable, with room for improvement in the meantime.)

In Dublin, all leases can average in the region of €1,800-1,900 on the same basis, compared to €2,250 now when new leases are published on Daft.

Given that this average will be boosted by newer, more expensive leases, the gap between more established and newer leases is now widening to become quite large.

Rent squeeze zones have protected existing tenants, but newer tenants are suffering as the market is squeezed between low supply and persistently high demand.

The average for all tenants appears to be €400-€500 per month below the average for all new leases.

It also does not mean that everything is fine for sitting tenants. October month. A report by ESRI researchers Barra Roantree, Michelle Barrett and Paul Redmond found that renter affordability suffered from €589 in 2012. up to 1,084 euros in 2021, which means that the poorest 20 percent when renting in the private market, typically almost a third of weekly disposable income was allocated to rent. Rising rents and cost of living pressures, meanwhile, will make it much more acute.

The gap between rents for incumbents and new tenants also has another major impact on the market, making it very difficult for existing tenants to move even if they want to, for example due to increased family size or dissatisfaction with existing ones. property. Thus, normal market movement is further constrained.

4. Warning signals

Unfortunately, market trends remain poor and the only thing that can reduce the pressure on rents in the short term is a recession.

New research, presented by Goodbody economist Dermot O’Leary at a housing agency conference on Thursday, shows how rising costs and higher interest rates, which demand higher returns for investors, could threaten the supply of flats.

[ €1.25bn invested in Dublin’s private rented sector in first three quarters of 2022 ]

He calculates that monthly rents must be well over 2,000 euros to make an apartment building viable. This in turn makes them available to only a small proportion of the population and means that government intervention on a wider scale is inevitable.

This is compounded by the continued withdrawal of private landlords from the market, as illustrated by recent supply figures. The Institute of Professional Auctioneers and Valuers pointed out this week that RTB termination notices were up 58 percent in the first half of the year compared to the first half of last year.

This combination of threats to new supply (in addition to what is already in the works) and the departure of private landlords threatens to deepen the crisis.