Waterford Rental Sector AnalysisAugust 17, 2018
The latest Daft.ie rental report has landed and contains some startling insights into the property market in Waterford City and County. While we’re well aware of the rental crisis in Dublin, this report highlights the issue as a national problem with average rent increases of 12.4% across the country. Renting in Ireland is now 27% higher than the 2008 peak.
Rent Pressure Zones
In 2016 the government enacted Rent Predictability Measures under the Planning and Development (Housing) and Residential Tenancies Act 2016. This was intended to moderate the rise in rents in the parts of the country where rents are highest and rising, and where households have greatest difficulties in finding accommodation they can afford. In these areas, called Rent Pressure Zones (“RPZ”), rents should only be able to rise according to a prescribed formula by a maximum of 4% annually.
The headline figures for the past 12 months show rent increases in Waterford City (19.3%) are far outpacing the national average and have hit an all-time high. In fact, only Limerick had a greater increase over the year at 20.7%.
The Daft.ie report clearly shows this legislation is failing renters around the country but it also highlights a possible need to add Waterford and Limerick to the list of RPZs.
The increases are caused by many factors and we are seeing the consequences every day in Sherry FitzGerald John Rohan. There is currently an enormous demand for quality rental properties in Waterford. Letting times have reduced in some cases to just a few hours with queues for viewings and, at times, our office is unable to handle the volume of calls coming in as soon as a rental property is advertised.
Local sources suggest there are currently around 500 job vacancies in the city which if filled, would add to the demand. In addition the South East Regional Planning Guidelines estimeate a growth rate of 5% or 2,500 people to 2022. Estimates for those currently waiting for homes is around 1,500. An additional 4,400 18-35 year olds live at home with family in the city, the majority are, or soon will be, looking to rent or buy a home placing increased demand on an already precious housing supply.
To further compound supply issues, the ERSI foresees growth in Waterford reaching 50% by 2030. Over 10 years that equates to 1,300 homes to buy or rent needed each year in the city centre alone. The county and suburbs need an additional 30% or 700 units to bring the total to 2,000 as an annual demand run-rate to simply meet population growth targets.
In addition to the demand outlined above, we foresee further pressure coming from the tourism industry. On the other end of the Greenway, tourism and trade are up 30%. It is already seeing a bounce in employment and the housing demand that goes with it. We’ve seen figures of as high as 80% of properties sold in Dungarvan going to support tourism. As Waterford City further develops the market potential of its side of the Greenway, research suggests as many as 500 units could be lost to Airbnb and short term lets.
While this is all terrible news for renters, and we are very sympathetic to their plight, it is now a very competitive market for investors too.
Firstly, there is a glut of supply as investors are choosing to hold on to properties as the potential yield increases year on year. With rental income increasing faster than the value of the property it could be some time before this trend changes. We have seen return on investment figures for high quality properties in the region of 9% based on a recently sold 2-bedroom apartment in Railway Square selling for €115,000 and yielding €10,800 in rent per annum.
We are seeing enormous demand for investment property, especially close to Waterford City Centre. The highest demand and return in the city is for one and two apartments and two bed homes. Turnaround times for turn key properties are, in some cases, less than one week to sale agreed. In many ways it is a seller’s market with many holding out for, and achieving, higher sale prices.
The dysfunction in the rental market is having a knock-on effect on first-time buyers and hopeful owner-occupiers as it drives property prices higher and forcing them to remain in the rental market.
With work on The Michael Street Shopping Centre due to start in early 2019 followed by The North Quays in Q2 2019 it is estimated the city will need 3,000 more housing units by 2022. The current rate of supply is just 260 units per year across the county, it would take 11 years before that supply is met leading to many more years of rent increases ahead.
In short, given the stresses already on the on the market coupled with tourism and job growth projections, we can only see the under-supply issue getting worse and driving further increases in house and rental prices significantly across Waterford City and County.
Of course, none of this considers the great unknown; Brexit.
The full Daft.ie Rental Report is available here: https://www.daft.ie/blog/wp-content/uploads/2018/08/Daft_Report_Rental_2018_Q2.pdf