Lars Frisell thought it would be easy to find an apartment to rent in Dublin, the epicenter of western Europe’s biggest real estate crash, after he moved from Sweden to become chief economist at Ireland’s central bank.
Three months later, he’s still looking, joining the ranks of students, high-tech professionals and frustrated would-be homebuyers competing for space and pushing up rents in the Irish capital.
“You’d think that there’d be so many apartments and so many houses available,” Frisell told a gathering of Irish accountants on Aug. 30. “There’s not.”
The property crash and lack of financing has encouraged the Irish to rent rather than own their properties, lifting the number of households in rented accommodation by 47 percent in five years, the Central Statistics Office said in a report last week. That’s creating an opportunity for real estate investors to profit from higher rental income.
Kennedy-Wilson Holdings Inc. wants to own more than a thousand homes in Ireland after purchasing a 210-apartment block close to Google Inc.’s European headquarters, according to Peter Collins, the Dublin-based managing director of the U.S. investment firm’s European unit.
Ireland “is very much a rental play for us,” Collins said.
Kennedy-Wilson teamed with Canadian insurer Fairfax Financial Holdings Ltd. to buy the Dublin apartments for about 40 million euros ($50 million) in June. The Beverly Hills, California-based company owns about 14,000 homes across Japan and the U.S.
Renting a home became more common after Ireland’s 10-year property boom ended in 2007. The proportion of households that own their homes dropped to 70 percent last year from 75 percent in 2006, according to the Central Statistics Office report.
Average rents have fallen by about a quarter since the market’s peak, less than the 50 percent decline in prices. In Ireland’s largest cities, Dublin and Cork, rents have climbed on an annual basis for the last six quarters even as prices have declined, according to Ronan Lyons, an economist at the Daft.ie website.
Rents for three-bedroom properties in central Dublin rose 12 percent to 1,709 euros a month in the second quarter from a year earlier, while the average rent across all property types in the city center increased 1.8 percent.
Ireland’s largest real estate auction is due to take place in Dublin next month. A former convent and a Georgian house are among the 130 properties that will be offered for sale at the Shelbourne Hotel by Allsop Space.
Dublin tends to fare better than the rest of Ireland in part because U.S. companies drawn to the country tend to be based in or around the capital. Google and Facebook Inc. are within ten minutes’ walk of each other across Grand Canal Square, close to the River Liffey, in a neighborhood now known as Googletown.
“A lot of people coming in here maybe for one or two years working for the Googles and Facebooks” will drive demand for rental homes, said Collins at Kennedy-Wilson.
The squeeze is being felt elsewhere, with students returning for the new academic year struggling to find apartments.
“I got the bad news two weeks ago,” said Micheal Gallagher, student welfare officer at University College Dublin, after his landlord increased the rent for his three-bedroom south Dublin house by 100 euros to 1,400 euros from this month. “I’m going to stick with it anyway because I know from my job it’s difficult to find a new house.”
Some potential homebuyers have been deterred by the difficulty of obtaining a loan. New mortgage lending fell 22 percent in the first quarter, according to the Irish Banking Federation.
Even those that can finance a purchase are holding off because they expect prices to fall further, according to the central bank’s Frisell. Home values rose 0.2 percent in July from the previous month, after dropping 1.1 percent in June. On an annual basis, there was a decline of about 14 percent. In Dublin, house prices were 17 percent lower than a year earlier.
“There’s so much psychology in this,” Frisell said in his presentation last week. “There are so many buyers out there waiting to buy because if you would expect prices to go down just a bit further, you’d be waiting.”
Home construction has almost ground to a halt since the 2008 crash. Housing completions dropped to about 10,480 nationally in 2011 from about 93,400 in 2006, according to Frisell’s presentation.
The number of empty properties fell 4 percent across the country between 2006 and 2011, according to census figures released last week. In Dublin, the vacancy rate is now about 8 percent, compared with 15 percent nationally, the report showed. About 4,200 rental properties were on the market at the start of August, down from 5,400 a year ago, according to Daft.ie.
“Planners in Dublin shouldn’t be tricked into believing that the national narrative will apply everywhere and Ireland is swimming in property,” Lyons said. “Because property takes a long time to build, we should be looking now where we are going to get our next batch of supply for Dublin.”
With so few houses in the pipeline, some economists expect rents to keep rising, at least in the biggest cities.
“For Dublin as a whole, you’ll probably see rents rise, but at a pretty slow pace” through the first half of next year, Lyons said.
Other analysts said that signs of a bottom in the property market may tempt some would-be buyers to make a move. That would help to slow the increase in rents.
“It takes very little,” Frisell said. “As soon as people start anticipating ‘Oh, we might have hit the bottom, I’d better get in there before prices start rising,’ and it all starts swinging in the other direction.”