One thing we have all had to adjust to over the last few months is the so called “Covid fog” brought on by uncertainty and constant change. Property has not been immune from this, and we see more and more queries from property owners and other interested parties such as housing bodies and construction firms, regarding what the impact has been on the Galway housing sector.
Last week the Q3 Daft report was released which spurred a lot of calls to our office. This report listed an average Galway city rental price of €1,363 and it contrasted with the Residential Tenancies Board (RTB ) figure of €1,169 for Q2 2020. Most of the people contacting us wanted to know what is causing this change, and why rents appear to be rising this fast.
The first thing that needs to be considered is that both reports use different approaches, Daft advises that its figures are based on “properties advertised”, they do not necessarily reflect the actual rents that are paid. In contrast the RTB figures are based on actual rents paid on “new tenancies in existing housing stock and renewals of existing tenancies”.
Winters Property studies rents across the city on an ongoing basis, as one of the largest letting agents in the country we have both historic and current rental data on a large and statistically significant scale.
So, let’s look at the year on year change in rents. Based on new and long term let properties, what we have seen in Galway is an average monthly rent increase across the city and suburbs of 2.4 per cent in the 12 months since October 2019. This varies significantly with the 4.9 per cent year on year increase referenced in last week’s report. It is also well below the maximum four per cent increase allowed under the Rent Protection Zone (RPZ ) legislation, which had become almost a baseline figure over the last few years. However, given that rent increases were frozen for almost five months this year, many people are still wondering how rents have risen at all.
Galway has a well-documented shortage of supply of rental accommodation and this has not changed significantly in the last few months. We do, as a direct result of Covid-19, have some new properties coming to the rental market; this includes properties which were utilised as Airbnbs and some properties which have been taken out of the rental market to sell prior to the onset of Covid-19. As a result, these new properties are having some impact on the average rent figure, but there are not enough of them to impact the overall shortage of supply. It is interesting to note that in Dublin, where there has been much more building activity in recent years, some monthly rents are falling as supply catches up with a new Covid-19 impacted demand.
So, is there something else happening? Our data also indicates that the average rent being paid across all housing types in the Galway metropolitan area is €1,164, which is significantly lower than the €1,363 quoted in the report last week. Why such a difference between the actual figure and on the figure based on advertised prices?
In our experience one of the unintended impacts of the Rent Protection Legislation has been the locking in of some properties at rents well below current market rent. This usually occurs with older properties and long-term landlords, who correctly valued a good and reliable tenant ahead of the pursuit of market rents. Unfortunately, as many of these “good” landlords have discovered when trying to sell their property, because it is well below market rent its sale price is negatively impacted.
Under current legislation it is now almost impossible to bring a residential property up to prevailing market rents, regardless of the reasons behind the low rent.
Thus one possible explanation for the variance is that, in order to prevent this occurring to their properties, many landlords may be advertising and registering properties at higher rents, but in fact are giving discounts to their tenants on the actual rent payable. This allows them to maintain the long-term capital value of the property, which in many instances forms part of their pension plan.
One thing that is not in doubt is that the lack of supply of properties is currently the biggest driver of rental inflation, this is not just a Galway problem but is nationwide particularly in our five biggest cities. Over the next 20 years it is anticipated that the population of the Galway metropolitan area will grow by 40,000 to 48,000 people. As we have seen from the last six months, where and how we live can have a huge impact on our wellbeing and quality of life. Ultimately, if we are to provide homes for people, we need to be able to provide a good choice of properties for every stage of life, at affordable prices and delivered in a sustainable manner.
Over the coming months we hope to explore these and other property topics in more detail as we try to provoke informed debate on what the future of housing looks like and how we can avoid repeating past mistakes.
Enda McGuane MBS, MSCSI, MRICS is a chartered planning and development surveyor and managing director of Winters Property Management in Galway. He is a member of the Council of the Society of Chartered Surveyors Ireland.