The Daft.ie Rental Report An analysis of recent trends in the Irish rental market Introduction by Ronan Lyons, Assistant Professor of Economics, Trinity College Dublin
Introduction by Ronan Lyons, Assistant Professor of Economics, Trinity College Dublin Where are we? Insights from the price-rent ratio Ronan Lyons is an economic researcher based at Balliol College, Oxford, where he lectures and is undertaking his doctorate in urban economics. He is also Economist with Daft.ie For pretty much everyone involved in the property market including home-owners, would-be first-time buyers, investors and the Government it is natural to wonder where house prices are now and how that compares to where they should be. I ve put should in inverted commas, as there is of course, no definitive answer to this. Nonetheless, there are metrics we can use to assess the housing market and they can shed insight on the current level of prices. A popular one is the ratio of household incomes to house prices. There is lots of barstool wisdom on this topic indeed it was reported last week that some TDs wanted to tie mortgages to the historic relationship between house prices and income. While the price/income ratio is useful, it is at best a rule of thumb and can vary from generation to generation, so historic comparisons may not be relevant. For example, compared to incomes, house prices are going to be a lot lower when interest rates are high than when they are low and our current interest rate environment is very different to the one that applied in the late 1970s and early 1980s. Survey evidence suggests that people are looking to borrow roughly 3.5 to 4 times household income when applying for a mortgage, so in general the price/income ratio seems roughly right but that is about as precise as one can be. A second metric is the deposit required by the typical first-time buyer. This tells us less about where prices should be but is very informative about the amount of risk that the system (both borrowers and lenders) is taking on. A typical deposit of 20% means the system is well insulated against price downturns. A system with just a 2% or 5% deposit is not, as Ireland found out to its cost in the last decade. Again, hard figures are difficult to come by but Central Bank figures indicate that the deposit required of the typical first-time buyer recently was between 15% and 20%. 1 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Gross yields in Ireland, for five property types, - Dublin city 1-bed Cork city 2-bed West Dublin 3-bed Commuter 4-bed Connacht 5-bed 2 The Daft.ie Rental Report, Continued on next page >
Introduction (cont d) by Ronan Lyons, Assistant Professor of Economics, Trinity College Dublin Where are we? Insights from the price-rent ratio But while those investing in our real estate or in our banks will look at something like the typical deposit as a measure of risk, they also want a measure of return. How does the price of a property compare to its fundamental value? The graph shows the gross yield that is, what fraction of the price is the annual rent for five property types (from 1-bed to 5-bed, urban and rural) from to, reflecting the latest figures contained in this Daft.ie Rental Report. How should this yield figure be read? In short, for homeowners, it should equal the mortgage interest rate plus a premium to reflect the risk of owning real estate (relative to the risk of renting). Back in or, someone like me might have stated that a 4-5% yield would be enough to both pay back the interest and reflect the risk taken. (In fact, I did think this.) These days, people think that realistically long-run interest rates for borrowing are likely to be at least 5% so the yield should probably be that plus whatever risk premium for buying rather than renting. The significant correction in yields since from 3% to 5% for 4-5 beds and from 4% to 8% for 1-3 beds makes a lot of sense when viewed in this light. What we have seen in the Irish housing market over the last seven years can be understood as first prices correcting to reflect both risk and return being miscalculated and then as rents fell reflecting unemployment and the decline of the real economy prices have to fall by more to compensate. What is interesting is the end of the upward trend in yields for, say, a three-bed home in West Dublin. In that segment, market participants seem to have decided that the balance between rents and prices is about right and the gross yield has fallen from about 7.5% earlier in the year to 7% now. This together with reasonably healthy findings in relation to income multiples and the typical deposit is encouraging for those affected by the housing market. A concern remains, however, about the low yields on family homes, both in the cities and elsewhere. While the average yield for a 3-bed nationwide is now 6.5%, it is 5% for 4-beds and 4.2% for 5-beds. This may be a simple reflection of the fact that, unlike owner-occupiers, investors (who primarily own 1-3 beds) have to worry about tax on their rental income and so require a higher gross yield. Or it may be a sign that the correction is not fully over yet. The economic literature is remarkably silent on this point so unfortunately, only time will tell. 3 The Daft.ie Rental Report,
Year-on-year since Mayo 541 Change: 0.5% Roscommon 539 Change: Galway City 816 Change: 3.6% Clare 543 Change: -1.0% Kerry 581 Change: 1.0% Limerick City 662 Change: 1.8% Donegal 507 Change: -0.1% Sligo 586 Change: 2.6% Galway county 553 Change: Limerick County 584 Change: -1.1% Leitrim 408 Change: 2.8% Longford 437 Change: 0.9% Westmeath 577 Change: 1.5% Offaly 560 Change: 0.8% Tipperary 576 Change: Waterford County 557 Change: -1.6% Laois 541 Change: 2.2% Kilkenny 622 Change: 2.0% Cavan 485 Change: 0.7% Monaghan 547 Change: 3.3% Meath 707 Change: 3.0% Waterford City 601 Change: -1.6% Louth 635 Change: 2.4% Wicklow 884 Change: 4.4% Wexford 597 Change: 0.7% Kildare 815 Change: 4.9% Carlow 590 Change: -2.6% Cork County 613 Change: Cork City 831 Change: 3.1% Dublin Close-up North Dublin County 989 Change: 6.5% North Dublin City 1,085 Change: 7.4% West Dublin County 990 Change: 6.3% Dublin City Centre 1,176 Change: 7.1% 4 The Daft.ie Rental Report, South Dublin County 1,331 Change: 8.4% South Dublin City 1,235 Change: 8.2%
Daft.ie National Rental Index -15.5 4.8% Rents nationally were 4.8% higher on average in the third quarter of than a year previously. The average rent nationwide between April and June was 842, compared to 804 a year previously. Daft.ie National Rental Index ( average = 100) Fifth consecutive quarterly rise in rents January February March April May June July August September October November December 2002 133.5 132.8 128.5 131.2 128.5 125.8 124.6 125.4 124.4 121.5 118.3 115.9 2003 2004 2005 116.3 119.4 119.5 120.4 116.3 114.8 115.1 116.3 115.8 113.2 110.7 110.2 110.3 111.1 110.6 111.3 109.5 109.3 111.1 113.4 114.1 113.7 111.7 111.5 112.7 114.2 115.3 115.4 113.6 112.8 114.3 116.2 116.0 117.3 117.2 118.9 119.1 119.5 120.0 121.2 121.9 122.4 123.5 126.6 128.4 129.1 127.3 127.1 129.1 130.6 132.4 132.8 134.5 135.1 135.5 133.8 134.3 134.0 128.0 128.1 128.9 126.3 124.9 124.3 126.2 125.0 124.8 127.2 126.4 123.6 120.4 117.3 117.1 114.6 112.2 110.2 108.7 107.1 105.7 105.8 104.7 103.2 101.3 100.3 101.8 101.3 101.2 100.5 100.6 99.9 99.8 100.9 100.5 100.1 98.7 98.4 99.4 99.8 99.5 99.4 99.1 98.8 99.3 100.3 99.6 99.1 98.5 98.9 99.2 99.4 99.3 99.1 99.0 99.0 99.9 100.8 101.0 100.9 101.3 100.9 101.5 101.7 102.6 102.6 103.6 103.6 103.7 105.9 106.6 107.4 Nationally, rents rose by an average of 2.1% quarter-on-quarter, the strongest gain in rents since mid-. Rents outside Dublin now rising Rents outside Dublin rose 1.8% year-onyear, compared to growth of 7.6% in the capital. 25000 Stock of Properties to Rent (start-of-month) & Flow of New Properties to Rent (during entire month), - Stock on the market lowest in six years Nationwide, there were 8,200 properties sitting on the market on November 1, the lowest level since November. 20000 Number of Properties 15000 10000 5000 0 II III IV II III IV II III IV II III IV II III IV II III IV II III IV II III The index is based on asking rents for properties advertised to let on Daft.ie. Figures are calculated from econometric regressions, which calculate s in price that are independent of s in observable measures of quality, such as location, or bedroom number. Inflow Stock Out Flow 5 The Daft.ie Rental Report,
Daft.ie Snapshot of Rent Nationwide What can I ask for? Can I afford it? rents across Ireland, by postcode/region and bedroom number, Quarter 3, Daft.ie Snapshot of Rents Nationwide Dublin 1 Dublin 2 Dublin 3 Dublin 4 Dublin 5 Dublin 6 Dublin 6W Dublin 7 Dublin 8 Dublin 9 Dublin 10 Dublin 11 Dublin 12 Dublin 13 Dublin 14 Dublin 15 Dublin 16 Dublin 17 Dublin 18 Dublin 20 Dublin 22 Dublin 24 North Co Dublin South Co Dublin West Dublin Cork City Galway City Limerick City Waterford City Dublin Commuter Counties West Leinster South-East Leinster Munster Connaught Ulster 1bed 2bed 3bed 4bed 5bed 952 1,177 1,561 1,745 1,000 1,366 1,815 813 1,103 1,325 1,812 1,073 1,481 1,995 2,612 4,082 791 1,010 1,220 1,398 838 1,200 1,711 2,361 3,071 828 1,219 1,411 1,743 2,993 747 1,055 1,297 1,587 2,021 835 1,102 1,412 1,715 794 1,058 1,279 1,491 1,697 824 924 1,035 820 924 1,134 1,359 1,649 845 1,011 1,186 1,360 849 1,104 1,195 1,653 933 1,290 1,579 1,940 2,750 931 995 1,045 1,157 1,574 927 1,194 1,393 1,910 1,039 983 1,248 1,491 1,826 3,744 1,006 996 1,119 1,247 903 935 951 1,120 782 775 958 1,113 1,297 799 971 1,126 1,439 2,885 988 1,308 1,660 2,187 4,347 797 928 1,055 1,120 1,461 622 793 906 1,121 1,368 554 763 922 1,019 1,347 465 593 734 834 949 419 503 656 709 782 555 708 785 956 1,164 402 487 604 646 741 430 543 636 713 785 424 530 630 705 774 387 463 619 642 703 361 435 560 607 620 6 The Daft.ie Rental Report,
Rental trends in Dublin From Quarter 1, to Quarter 2, 1,700 rents by region, - 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 Dublin City Centre North Dublin City South Dublin City North County Dublin South County Dublin West County Dublin West County Dublin rent: 990 Quarter-on-quarter : 1.9% Year-on-year : 6.3% Change from peak: -22.8% North County Dublin rent: 989 Quarter-on-quarter : 1.8% Year-on-year : 6.5% Change from peak: -21.4% South County Dublin rent: 1,331 Quarter-on-quarter : 2.3% Year-on-year : 8.4% Change from peak: -17.5% North Dublin City rent: 1,085 Quarter-on-quarter : 2.1% Year-on-year : 7.4% Change from peak: -21.7% Dublin City Centre rent: 1,176 Quarter-on-quarter : 2.5% Year-on-year : 7.1% Change from peak: -2 South Dublin City rent: 1,235 Quarter-on-quarter : 2.6% Year-on-year : 8.2% Change from peak: -17.8% The year-on-year increase in rents has remained at between 7% and 8% in most parts of Dublin. Rents in the capital remain 20% below levels but are now 12% above levels. On November 1, there were just 1,500 properties available to rent in the capital, the lowest level recorded. Vacancy periods in Dublin remain very short and rent-a-room costs are rising in most segments. Rent-a-room income trends Area Dublin City Centre North Dublin City South Dublin City North Co. Dublin South Co. Dublin West Co. Dublin Single Room rent % Yr/yr 434 8.0% 354 7.6% 390 3.7% 320 11.1% 417 4.3% 290-1.4% Double Room rent % Yr/yr 540 6.5% 434 5.3% 503 3.5% 389 3.2% 489 3.8% 397 4.7% Vacancy 1.7 2.8 1.9 2.9 2.7 4.1 7 The Daft.ie Rental Report,
Rental trends in other cities From Quarter 1, to Quarter 2, 1,200 rents by region, - 1,100 1,000 900 800 700 600 500 Cork City Galway City Limerick City Waterford City Limerick City rent: 662 Quarter-on-quarter : 3.1% Year-on-year : 1.8% Change from peak: -23.3% Cork City Galway City rent: 831 Quarter-on-quarter : 3.1% Year-on-year : 3.1% Change from peak: -23.1% rent: 816 Quarter-on-quarter : 3.1% Year-on-year : 3.6% Change from peak: -15.1% Waterford City rent: 601 Quarter-on-quarter : 1.7% Year-on-year : -1.6% Change from peak: -28.6% Limerick posted its first year-on-year rise in rents in the third quarter of the year, with rents up 1.8%. Elsewhere, rents are between 3% and 4% higher in Cork and Galway but 1.6% lower in Waterford. Across the four cities, there were just 1,100 properties available to rent on November 1, compared to 1,700 a year ago. Rent-a-room costs across the four cities are largely stable for single rooms but rising for many double-room segments. Rent-a-room income trends Area Cork City Centre Cork City Suburbs Cork Commuter Towns Galway City Centre Galway City Suburbs Limerick City Centre Limerick City Suburbs Waterford City Centre Single Room rent % Yr/yr 304 265 0.8% 271 11.5% 291-269 240-0.8% 230-0.9% 249 - Double Room rent % Yr/yr 351-1.4% 333 5.0% 320 1.9% 347 2.4% 315 2.6% 279-4.8% 270-272 5.0% Vacancy 14 6 4.2 3.6 3.9 5.8 9.2 44.8 8 The Daft.ie Rental Report,
Rental trends outside the cities From Quarter 1, to Quarter 2, 1,100 rents by region, - 1,000 900 800 700 600 500 400 Dublin Commuter Counties West Leinster South-East Leinster Munster Connaught Ulster Connacht rent: 542 Quarter-on-quarter : 1.0% Year-on-year : 1.0% Change from peak: -21.3% West Leinster rent: 543 Quarter-on-quarter : 1.4% Year-on-year : 1.4% Change from peak: -26.1% Ulster rent: 509 Quarter-on-quarter : 1.3% Year-on-year : 0.8% Change from peak: -22.4% Dublin Commuter Counties rent: 768 Quarter-on-quarter : 2.3% Year-on-year : 4.0% Change from peak: -26.5% Rents are rising relatively strongly in Dublin s commuter counties, up 4% year-on-year. In Munster, however, rents are und compared to a year ago. The number of properties available to rent outside the cities stood at 6,100 on November 1, the lowest level since April. Rent-a-room costs are rising at roughly 5% in the commuter counties but elsewhere, trends are mixed. Rent-a-room income trends Munster rent: 585 Quarter-on-quarter : Year-on-year : -0.1% Change from peak: -26.4% South-East Leinster rent: 603 Quarter-on-quarter : 1.2% Year-on-year : 0.5% Change from peak: -24.2% Area Dublin Comm. Counties West Leinster South-East Leinster Munster Connaught Ulster Single Room rent % Yr/Yr 289 6.0% 213-1.7% 269 1.7% 233 4.6% 218-6.0% 213 6.5% Double Room rent % Yr/Yr 339 3.9% 252 2.2% 288 2.4% 260 2.4% 257 1.6% 231 - Vacancy 6.6 36.9 9.0 11.7 21.0 6.8 9 The Daft.ie Rental Report,
First Time Buyer and Investor Information Can we afford it? The mortgage cost, including mortgage interest relief and income from the rent-a-room scheme, by region and bedroom number. First-time buyer information: Rent-a-room income and net loan burden Location \ Bedroom # Dublin City Centre North Dublin City South Dublin City North Dublin County South Dublin County West Dublin County Dublin Commuter Counties West Leinster South-East Leinster Munster Cork City Limerick City Waterford City Connaught/Ulster Galway City Single room 434 354 390 320 417 290 289 213 269 233 280 235 249 216 280 Double room 540 434 503 389 489 397 339 252 288 260 335 275 272 244 331 1-bed, no letting 593 448 603 386 646 378 347 263 263 311 370 371 252 362 309 2-bed, no letting 679 660 832 687 1,003 564 454 306 335 365 485 488 314 336 475 2-bed, letting 1 double 139 226 329 298 514 167 115 54 47 106 150 213 42 92 144 3-bed, no letting 1,061 978 1,330 890 1,265 761 635 404 484 502 671 794 391 431 643 3-bed, letting 1 double 521 544 827 501 776 364 297 152 196 243 336 519 119 187 312 3-bed, letting 1 double and 1 single 87 190 437 181 359 74 8-61 - 73 10 56 284-130 - 29 32 4-bed, no letting 1,481 1,972 1,483 2,119 1,157 953 623 714 786 982 906 749 622 874 4-bed, letting 1 double 1,047 1,469 1,094 1,630 760 614 371 426 527 647 631 477 378 543 4-bed, letting 1 double and 1 single 693 1,079 774 1,213 470 325 158 157 294 367 396 228 162 263 Mortgage repayments are based on the following application: 30 years, 3.6% variable mortgage [average for new business], 90% LTV - since the start of, no mortgage interest relief is applied Investor Information: Snapshot of gross yields across the country (and year on year, in percentage points) Location \ Bedroom # Dublin City Centre North Dublin City South Dublin City North Dublin County South Dublin County West Dublin County Dublin Commuter Counties West Leinster South-East Leinster Munster Cork City Limerick City Waterford City Connaught/Ulster Galway City 8.2% 6.6% 6.2% 6.4% 5.6% 7.2% 5.8% 6.0% 5.8% 5.4% 6.5% 6.8% 7.0% 5.7% 7.0% 5.9% Yr/yr Yr/yr Yr/yr Yr/yr Yr/yr 1-bed 2-bed 3-bed 4-bed 5-bed - -0.1% - 0.1% 0.7% 0.5% 1.0% 0.5% 7.9% 8.4% 7.1% 10.1% 7.0% 1 7.9% 7.6% 8.0% 6.7% 8.2% 7.9% 7.9% 5.2% 9.1% 7.3% -1.6% 1.3% 0.8% 1.8% 1.7% 1.0% - 0.5% 0.8% 1.0% 0.7% - 0.8% 8.7% 7.7% 7.2% 6.9% 6.0% 8.5% 7.7% 7.8% 8.0% 7.1% 8.0% 7.9% 7.9% 7.0% 8.1% 7.4% - 0.5% - 1.0% 0.7% - 1.6% 7.2% 6.3% 5.8% 6.3% 5.6% 7.2% 6.1% 7.4% 6.5% 6.1% 6.6% 7.4% 8.3% 7.3% 7.3% 6.5% -3.7% 0.1% 0.1% - - -0.1% 0.8% 1.4% 0.7% -0.1% 5.2% 5.1% 4.8% 4.7% 5.7% 4.9% 5.1% 4.9% 4.4% 5.6% 5.3% 4.8% 5.2% 6.0% 5.0% - 0.5% 0.7% - 4.2% 5.2% 7.1% 5.8% 3.9% 4.4% 3.8% 4.3% 3.8% 4.7% 5.3% 4.5% 4.4% 5.8% 4.2% Yr/yr - - 3.7% 1.8% -1.4% -0.1% 0.5% 0.1% 1.8% 1.1% 10 The Daft.ie Rental Report,
About the Report Over the last 10 years, Daft.ie has collected a vast amount of data on the Irish property market. In alone, more than 260,000 properties were advertised on the site. About Daft.ie Daft.ie is Ireland s largest property website. The latest audited report from ABC (Sep ) shows monthly traffic of 130 million page impressions (pages of information received) and 1.976 million unique users per month across Daft Media s property websites (daft.ie, rent.ie, let.ie, property.ie). This makes Daft.ie the biggest property website in Ireland across all demographics. The goal of the Daft Report is to use this information to help all actors in the property market make informed decisions about buying and selling. In addition, because it is freely available, the Daft Report can help inform the media, the general public and policymakers about the latest developments in the property market. The Daft.ie Rental Report was launched in 2005. It has already become the definitive barometer of the Irish rental market and is being used by the Central Bank, mortgage institutions, financial analysts and the general public alike. Since its introduction at the start of, the Daft.ie Asking Price Index is also being recognised as the earliest available reliable indicator of developments in house prices in Ireland. This is the Daft.ie Rental Report, the partner to the Daft.ie House Price Report issued last month. Together, they give house-hunters and investors more information to help them make their decisions. These twin reports mean that Daft is the only objective monitor of trends in both rental and sales markets on a monthly basis, making the report an essential barometer for anyone with an interest in the Irish property market. Methodology and Sample Size The statistics are based on properties advertised on Daft.ie for a given period. The regressions used are hedonic price regressions, accounting for all available and measurable attributes of properties, with a Cooks Distance filter for outliers. The average monthly sample size for lettings properties is over 10,000. Indices are based on standard methods, holding the mix of characteristics constant, with the annual average of used as the base. For more on the methodology, please see www.daft.ie/research. 11 The Daft.ie Rental Report,
Disclaimer The Daft.ie Report is prepared from information that we believe is collated with care, but we do not make any statement as to its accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the indices, snapshots or analysis at any time for regulatory or other reasons. Persons seeking to place reliance on any information contained in this report for their own or third party commercial purposes do so at their own risk. Coming Next The Daft.ie House Price Report in Review In early January The Daft.ie House Price Report will be published in early January and will provide a detailed regional analysis of asking prices and transaction prices as well as all the usual indices, snapshots, trends and regional analysis, providing the public with Ireland s most up-to-date information on the housing market. Credits Economic Analysis: Ronan Lyons Marketing & Communications: Kieran Harte Layout and Design: Ciara Mulvany All data is Copyright Daft Media Limited. The information contained in this report may only be reproduced if the source is clearly credited. Please contact Daft.ie on 01-4218700 for further information.