Rents 'likely to fall 5% while home prices steady' after Covid-19 lockdown

Rents may fall by 5% this year amid the fallout from the Covid-19 economic recession and house prices could remain little changed when sales transactions start up again -- in contrast to the financial crisis of a decade ago, Professor Ronan Lyons has predicted.

The fall in rental prices won't mean an end to the huge need for rental properties but instead indicates that Covid-19 unemployment will disproportionately affect renters, according to the TCD housing expert.

Prof Lyons said that in marked contrast to the last recession that rental prices will fall at a faster pace than house prices because the nature of the two recessions were different.

Peak to trough between 2007 and 2012, house prices fell by 60% while rents fell by about 30%, after the property market prices were inflated by huge amounts of mortgage bank lending. 

Prof Lyons said that as things stand that after house transactions had halted in the past three months amid the lockdown that home prices have fallen by 3% from a year ago, while rental prices appear unchanged.

However, when transactions resume, prices will be fairly flat in the year but that rentals will fall, he said. 

Home loan borrowers have “a lot of protection” in accessing payment breaks that are not available to renters. And significantly, renters are more likely to be working in accommodation or hospitality and may lose their jobs and face greater economic uncertainty than their home mortgage counterparts, he said.

“If you look at the sectors which are disproportionately affected by the current recession my sense is that sectors which renters concentrate are different from the sectors with home mortgages, who have been able to keep their jobs and work from home,” he said.

With an estimated shortage of 75,000 rental homes, the housing crisis will not ease despite the likely falls in rental prices. 

“The underlying need is definitely still there,” he said, adding that the demand for more one- and two-bedroom rental urban homes is likely to last for 20 years as Ireland's demographics change. 

The CSO's consumer price index showed that in May rental prices fell 0.1% in the month and were down 1.1% from May 2019. Mortgage interest costs have risen 0.3% in the month and were 2.4% higher from a year earlier, according to the CSO figures.