There has been a lot of discussion about the affordability of buying a house, given the rapid rise in prices. But the latest Daft.ie survey shows that pretty much anywhere in the country, renting is now more expensive than buying for small and average size properties. While those already in leases are being protected by rules limiting rental rises, this means increasing numbers looking for a place to rent will either be defeated by their inability to find a place, or its cost.
“It is clear from the analysis of renting versus buying in the Daft.ie report that the real affordability crisis is in the rental sector,” according to Dermot O’Leary, chief economist at Goodbody stockbrokers. The Daft figures show, for example, that a one-bed apartment in Dublin 2 would cost €1,784 monthly to rent on current prices, while mortgage repayments on an 85 per cent loan-to-value loan would be €1,253. For a three-bed house in Kildare it is €1,232 to rent, while mortgage repayments are €766 a month. Only for larger properties does the equation turn in favour of renting.
But while buying is often more affordable than renting, this assumes you can save the required deposit. And high rents, in themselves, will make it difficult for many to do so.
Rents were always going to bounce off the low floor they reached after the crash, when supply was way ahead of demand, but they have gone further, faster, than most forecasters expected and are now 70 per cent off their floor. More telling, perhaps, is that on average rents are now 23 per cent above their pre-crash, 2008 levels. Over the same period average consumer prices across the economy have not budged – the CSO’s consumer price index is now at the same level as it was when rents peaked in 2008.
Supply is key
So rents are now taking a much larger chunk of people’s incomes and for many the price will now be unaffordable. This will push those working in city centres – particularly Dublin – into the same dilemma as housebuyers forced to decide whether to go to cheaper areas and commute, or to try to stretch to afford current rents.
As economist Ronan Lyons writes in his commentary with the Daft.ie report, the only answer is increased supply. There are some signs of more houses and apartments coming on stream, but inevitably this is slow. Whatever the Government does in the short term, rents look like they will continue to rise, with all the evidence suggesting that the economy is growing rapidly and more jobs are coming on stream. This will keep demand high. At the same time just 3,100 properties were available for rent nationwide in April, down over 15 per cent on the same date a year ago and the lowest recorded for this time of year.
Rising house prices
Despite the 4 per cent cap on rental increases across much of the country, rental cost rises continue in double digits.This suggests that those with leases are getting protected, but those looking for properties are being asked to pay up. Many in the industry argue that the rent caps are also restricting supply on the market.
The Government is promising to do what it can to increase housing supply under the new national development plan and other interventions. But the problem is that this takes time. In the meantime, the mainly younger generation of renters will continue to face higher costs. Ironically, on the same day as the Daft report, new Central Bank figures showed that the wealth of Irish households has returned to its pre-crash levels, largely due to rising house prices. Those with houses, particularly the older generations with low or paid-off mortgages, are gaining hugely, but those trying to rent or get into the housing market are under the cosh.
