Archive for the ‘Righ Price Rentals Reports’ Category

Young, prospective home-buyers with steady(ish) jobs, no debt, a bundle of cash burning a hole in their accounts and a serious case of nesting-syndrome, are back on the weekend viewing circuit, say estate agents.

They tramp in and out of three-bed semi’s, city townhouses and dez-rez river-view apartments in all our major cities, then mark them off the listings they’ve torn out of the weekend’s property pages.

It’s Spring, for crying out loud; estate agents and property supplement editors take note: it’s what singletons and young couples do on sunny Saturday and Sunday afternoons in April and May when they can no longer suppress the image of their future offspring’s carriers, buggies, cradles, cots and toys filling their 500 square foot rental apartment or tiny city centre cottage to capacity. It does not represent a ‘green shoot’ or other sign of ‘recovery’.

The sensible viewers – at least the ones who read the rest of the domestic news – will ignore the self-serving ‘we’re out of recession’ nonsense, and keep paying over their rent.

They at least know that unlike friends and colleagues who bought property in the bubble years, they can always hand in their notice to their landlord and get a nicer place if they want, probably at a much lower price than what they’re paying for the past few years. If they lose their job, they’ve got a cushion of cash they can use to take the time to find another one, to retrain, to set up a business or immigrate.

The latest quarterly Daft.ie rental figures clearly show that this is still a renter’s market, and that this isn’t going to change so long as supply outpaces demand.

Other recent reports, from the CSO, the Irish Property Investment Report from the Irish Mortgage Brokers and PropertyWeek.ie and the ESRI/PTSB House Price Index also show that residential property prices are grossly overvalued and still falling and that there is still strong outward migration and unemployment. (Using yields as the starting point, the highly technical Irish Property Investment Report suggests that investment properties are currently overvalued by an average of 37% in Dublin, 43% in Cork, and 39% in Galway).

Throw in the reluctance of the banks to lend, the bad, bad news about the euro and indebtedness here and in the eurozone, and the longer term rental market starts to look a little firmer.

Property investors, with buy-to-let residential properties in Dublin and Cork cities, can also take a little reassurance from these latest Daft.ie figures. Their rents have stayed pretty static, with Dublin city centre rents actually up 1.3%, though other areas of the city and county are either neutral or down by 0.2% to 0.4%. (Year-on-year, rents are still down in Dublin between 13.3% and 15.9%, depending on the area).

If there’s any good news for the rest of country, the Daft.ie figures show that while the fall in rents continues, it’s at least at a slower pace than it was during the same quarter in 2009, when minus 4% and 5% was recorded.

Aside from Cork City, landlords are still struggling this quarter. Their rental income is down 3.1% in Limerick city, 1.2% in Galway and 0.5 in Waterford.

The year-on-year collapse in rental income is pretty shocking, given how borrowing rates have started creeping up, especially for the amateur landlords who may not have secured interest-only trackers or fixed rates. They are looking at fall of 11.8% in Cork, 8% in Galway, 12.9% in Limerick and 11.2% in Waterford.

Landlords with weak hearts should desist from looking at Daft’s estimate of the size of the fall since the 2007 rental peak.

As someone who spent more than half my life as a tenant, first in Montreal, a terrific renting city, and then here in Dublin in the 1980s, I think the development of a strong rental market in Ireland is very welcome. The quality of properties has soared (even it the management of them often leaves something to be desired). Regulation isn’t too onerous for landlords and provides plenty of flexibility for tenants.

If there is a danger, it is that the loss-making nature of so many buy-to-lets in particular – national average yields are 3.6% overall – could result in a deterioration of the rental housing stock if amateur landlords find it increasingly difficult to square the rent they receive with the cost of servicing loans and maintaining or periodically upgrading their properties, a necessary expenditure if you want to command a higher price.

The real economy, as opposed to the statistical one so beloved of economists, may be dis-improving more slowly, but it’s going to take more than fractional improvements in the pace of unemployment, Exchequer tax returns, or even consumer confidence to restore it to a state of recovery that the ordinary person can recognize.

And that’s only going to happen when they see that foreign and domestic businesses are hiring again, exports and domestic consumption is strong, the banks are solvent and open for business, the deficit and national debt is being paid off, and the euro is stable.

Until then, renters should be grateful that at least the size and quality of the rental market in this country is so robust: it sure beats the bedsit-land most of us lived in during the 1980s.

Michael Taft, Political & Economic Researcher, UNITE, commenting on the latest Daft research on the Irish property market.

The 2009 rental market provides further evidence of an unbalanced, boom-and-bust property market on the slide. National asking-rents fell by 15 percent, consistent with falls in industrial, commercial and retail rents. End of 2009 rents were 12 percent below end of 2002 levels. Stock over-hang, negative equity, plummeting investment – you couldn’t write a worse script.

Though numerous commentators are talking up the prospect of ‘turning the corner’, we may be entering a period of what the IMF has described as a ’statistical recovery but a human recession’, something the Government’s deflationary policies are clearly engendering. Their fiscally irrelevant cuts in public sector wages and social welfare rates (despite claims, such cuts will have little impact on the Exchequer’s deficit) presage a general drive to depress income and growth. January redundancy notifications exceeded the 2009 monthly average. Consumer spending could come under pressure from anticipated ECB interest rate hikes later this year (the domestic banks will beat them to it). Some may be turning the corner; the rest of us are walking a different street.

Falling rents may be welcomed by tenants but this may come at the price of reduced investment and more stock withdrawal (in the last six months of 2009, 20 percent was withdrawn – a result of over-concentration from the buy-to-let and tax-shield sectors). Rising rents – and January 2010 saw a slight increase, focused mostly on inner city Dublin – will be welcomed by landlords and their creditors but hardly by tenants, and certainly not by the enterprise sector which will suffer from displaced spending and upward wage pressures. The interaction of falling incomes, rising interest rates, higher unemployment and emigration could break in any number of directions for the rental market – most of them not good.

We need a ready supply of quality units at affordable rents which nonetheless provide a solid return to maintain investment (yields in 2009 were marginally above 2006 levels but this may come under pressure by next year without rent hikes). We need this to assist labour mobility and provide sustainable land-use. This is all the more the case when dealing with a commodity that is a social need, a special kind of good, and not just another item of consumption or capital.

To analyse the rental market using traditional instruments of supply, demand and return-on-investment can only take us so far. A significant section of the market is being kept afloat by massive public subsidy through rent supplement, the Rental Accommodation Scheme and the prospective social leasing arrangements. The escalating proportion of rent-subsidised tenants (estimated to be between a third and half of all tenancies) is such that traditional demarcations between ‘public’ and ‘private’ are no longer illuminating. Supply, demand and ROI are increasingly determined by public policy, not alleged free-acting market agents.

Historically, the private rented sector has been ignored by Governments although recent reforms such as abolishing bedsits are a welcome step. Nonetheless, the sector remains a fragmented, under-capitalised ‘cottage’ industry, lacking the professionalism and modern synergy with a strong regulatory culture that prevails in other EU countries. Much of this short-coming can be put down to the lack of institutional investors, insufficient regulatory over-sight, limited powers (and resources) for local government, and insufficient public capital.

We require a fundamental overhaul in the rented sector to increase investment, standards and tenant-safeguards while maintaining consistent rent levels and long-term yields. How do we get there from here? In other countries long-term stable institutional investment is attracted through special vehicles such as Real Estate Investment Trusts in the US. Here institutional funds were channelled through buy-to-let which contributed to the fragmented, boom-and-bust rental market. In other countries, rental markets provide life-long living, accommodating a range of demographics from singles, to families with children to pensioner; here, local authorities, shifting from managing housing stock in blocks and estates, are increasingly managing the leasing of a wide variety of private sector units spread out geographically and varying widely in standards; indeed, local authorities have found it difficult to find accommodation that reaches its’ standard for tenants.

The public sector will be crucial to achieving such a transformation. Though tax incentives and other subsidies will be essential, large-scale institutional investment will be understandably wary at first. To kick-start this process, new municipal housing authorities or publicly-structured housing associations/cooperatives could be established. This would provide economies of scale, lower input costs per unit, raise management standards and design a market accessible and attractive to all demographics. Such vehicles could attract institutional investment, even by guaranteeing yields over the long-term. To the extent that such bodies would provide for both the public and private markets, traversing a divide that doesn’t functionally exist in many sectors, this could reduce the cost to taxpayers.

This transformation would be accompanied by complete financial, rent and yield transparency. There is no reason why data regarding rents paid, yields and available stock should not be freely available to all. The private rented sector is plagued by lack of data which is why Daft provides a considerable public service.

In this new dispensation, the fortunes of the small-scale investor and provider could also flourish. Working from a new base-line of standards, rent levels and yields, the committed investor could inject flexibility into the market in terms of product differentiation, location and provision without disturbing the underlying stability.

As Dr. Nat O’Connor of TASC points out, the idea that middle to high-income people will all become owner occupiers is coming to an end. Hence, the renting demographic will broaden. In short, the future will be renting.

All the more need, then, for a quality-driven market – stable, professional, and profitable. This will no doubt require considerable upfront public investment. But the social and economic returns would be high. And such investment could be a small antidote to the Government’s deflationary policies. This would help ensure that any statistical recovery is translated into a human recovery.