That does not surprise me. In fact, I think that high rents remaining sticky is going to be a point of consternation for Pinsters going forward.
I don’t agree with the idea that because you are bearish on sale prices you have to be bearish on rents. I am massively bearish on the former and pretty neutral on the latter and don’t see an inconsistency in that.
First, because even if rents were to stay where they are now it still means sales prices are 25%+/- too high based on yields. Since that figure rhymes with my own guesstimation of the drops to come, current rents seem neutral to me.
And second, in terms of affordability, rents don’t seem that out of line. 1/3 income is achievable in most parts of Dublin commensurate with income/area. Which is not to say rents won’t fall, but that falls won’t be down to legacy bubble issues as much as future austerity/general economic fuckedness.
In short, most of the hot air has left the rental market and it’s now down to fundamentals and government/Troika policy, which should see rents drop somewhat. But the sales market is still away with the fairies because of residual bubble hot air.
As will surely be pointed out, there’s a ferocious lack of the word “asking” in the report.
Personally don’t think it is nearly as significant for rental prices as sales prices.
Uploaded with ImageShack.us
Look at the Daft rental index and you can see that the pattern of rents has been completely different to the pattern of house prices.
In 2002 when it started, the cost of rent was already falling.
It fell until March 2004, when it was about 18% down, then it rose quite slowly until early 2008.
In early 2008 rents were roughly the same as they had been in 2002.
How much had house prices increased in the same period?
After that, rents fell for 18 months and then stopped falling when they hit 75% of the 2007 level where it’s stayed pretty much ever since.
Even with rent allowance, rents were never as over inflated as house prices, so you can expect the falls to be very different.
Based on the allowance given by the social welfare office I have compared the average asking rent to the maximum allowance for various property types across the countries
It would appear that this is the case for many regions across the country.
For a couple receiving rent allowance assuming that they would rent their own 1 bedroom apartment the rent allowance is 7% above the average rent across the country. The rent allowance is higher in 21 of the 28 regions across the country
For a couple with 1 child I have assumed they would rent a 2 bed. The rent allowance is higher by 1% and higher in 17 of the 28 regions.
For a couple with 2 children I have assumed they would rent a 3 bed. The rent allowance for this segment is lower than the average rent by 7% and is only higher in 7 of the 28 regions
I have just used the simple average to get the overall average for the country but in reality different weights should apply in practice.
For the “Dublin - other local authorities” region I have just used the average of South and West County
There is very strong evidence that rent allowance is now placing an artifical floor under the rental market.
Will Joan Burton have the courage to reform the landlord social welfare in the next budget?
Great work, Dreaded_Estate. The great unknown, of course, is how much a scheme open only to those without full-time employment and not in full-time education is in the same market as the rest of the rental market.
The next step might be for me to look at falls by bedroom number and by region and see if those region-bedroom segments where rent allowance is accepted most have shown different falls than other segments and whether the price has been sticky at the social welfare rates.
Other thoughts welcome.
My own thoughts on (1) the surge in rental supply (and its likely effect on rents) and (2) current residential property yields are up over on the blog at this link:
ronanlyons.com/2011/08/16/wi … ents-down/
Shock horror, in cities with a large number of students, the supply of rental properties increases in May, as it appears to do every year. I wonder what will happen supply in August / September…
Mortgagebroker’s take on Dreaded_Estate’s work:
mortgagebrokers.ie/blog/inde … are-wrong/
Does anyone have a history of rent allowance?
When it started, what it replaced, when it was increased and when it was decreased.
I’ve never gotten it myself so I’ve never followed its ups and downs.
According to this it was cut between 6% and 10% in 2009
Was it cut again in 2010?
I know it’s on the list to be cut in 2011.
He keeps saying that DE is wrong, but his figures on 2-beds (which he describes as “the key accommodation in ‘standard letting property’”) are the exact same as DE’s!
Are we not friends with Karl anymore ? I thought we were. Anyway I raised this many times, that Rent supplement is artificially flooring the market, and I’m at least happy to note that Karl and Ronan are at least putting serious consideration to analyzing the premise.
What if we look at the null hypothesis - if Rent supp wasn’t there, what would rents be ? Can we run any yield figures in reverse to get a projected rent … ?
If rent allowance is artificially flooring the market, then cuts in rent allowance should be visible in the average cost of renting.
When was rent allowance cut?
and when in the past was it raised?
Great analysis DE
post left on Karl’s site:
It is pretty significant in the context of Karl’s post though, isn’t it?
Apart from Dublin 3-beds, which are 16% more expensive on average than RA will pay, all other housing types are no more than 12% more expensive on average than RA…but isn’t that 12% (or less!) almost certainly eaten up by the difference between asking and clearing rents?
My apologies to him if I have that wrong.
Other issue with RA is that it increases if you have more kids whereas the guy on low income doesn’t get a wage increase if he has a child.
University fees? 10 years to go until I ‘give up’ work…
Thanks for this Ronan.
The Dublin yields graph really surprises me, so I picked an area I know at random - Knocklyon - to see what I could see. I think Knocklyon is a very good bell-weather area. I only chose direct rent/buy equivalents, only picked houses and worked out over 12 months rental, assuming full asking price on both rentals and sales for simplicity. Fwiw, I didn’t turn down any equivalents for the sake of winning an argument.
4-bed Dargle Wood
4-bed Glenvara Park
Only a handful examples obviously, but this seems a fairly typical outcome when you look at suburban Dublin houses. Whatever the exact figure, I find the proposition that Dublin property is “not too far off the NAMA benchmark yield of 6%” kinda hard to swallow.
To be more fair in Woodstown…:
Rent: As above
Buy : €260,000 : daft.ie/searchsale.daft?id=579847
Yield : 5.3%
(Yes I realise that the 260k house for sale is an anomaly, but as someone around here points out often enough, the real sales prices are being set at the edge of the market).
Also there is a house for sale in Glenvara for 250K
Rent: As above (1,100)
Buy : €250,000 : daft.ie/searchsale.daft?id=559115
Yield : 5.3%
Just to clarify, I think the woodstown one is probably overvalued by about 80K, and the glenvara one by similar.