Rental affordability in Ireland. Is it cheaper to buy than rent?

30 year loan cost v average monthly rent

Affordability issues in the housing market are resulting in increasing numbers renting. This situation is exerting upward pressure on rents and now creating rental affordability issues. This raises the questions is it more affordable to buy than rent and what is an affordable rent for households?
 
Given the continued increase in rental costs, a current slowdown in the rate of housing price increase[1] raises the attractiveness of ownership over rental. Determining is it really cheaper to buy than rent is important for the State when looking to create solutions to address current housing provision issues, and, for developers when determining the target market and price level for their housing product?
 
Our study (download here) calculates estimated median household income levels in each county in Ireland[2] and determines the proportion of household income available for housing costs. The proportion of household income available towards housing costs is then compared to average rents in each county to determine the affordability of renting in that county. This analysis highlights that: 

• Average rents are not affordable in Wicklow, Meath, Louth, Kildare, Galway, Dublin and Cork for households with median income levels, and 
• When rent is above 33% of estimated household disposable income it becomes unaffordable for a median household to rent.

From the CSO property price register (and in particular first-time buyer house price data) the cost of a 30-year mortgage to buy a median FTB home is calculated for each county. This cost is then compared with average rental cost in that County. This element of our analysis highlights that:

• It would be cheaper to purchase than rent in the majority of counties in Ireland.
• However, Central Bank income multipliers for lending may have to increase to allow such households to purchase given borrowing limit imposed by a 3.5x income multiplier.

Given (for the seventh month in a row) the number of homeless people in Ireland exceeds 10,000, a sustainable level of housing supply needs to be provided with significant acceleration in construction required to rapidly increase housing numbers, more readily meet demand, reduce rental costs and bring down homeless numbers. 
 
The issues around housing provision and housing affordability are complex and affect every family but none more so that the vulnerable people in our society – a functioning rental market needs to be in place with a range of options provided by state and private sector available for families. Options that need to be considered include a structured cost rental model using low cost loans, increased rent supplements and housing assistance payment rates in line with market rent. At the same time a balance needs to be made between the Central Bank’s safeguarding of financial stability and the ability of households to get loans costing less than current rental cost to purchase affordable homes.

[1] Source: https://www.daft.ie/report/2019-Q3-houseprice-daftreport.pdf

[2] Source: Keogh Consulting calculations from 2017 SILC data