The latest Irish rental price report has just been released. As always, Ronan Lyons has done great work documenting rental-price inflation.
Rental prices are at an all-time high. But Dublin is clearly diverging from the rest of the country, with what can only be described as rampant and runaway rental-price inflation, which is completely unsustainable.
The media – and housing economists more generally – have correctly pointed out the importance of high-demand and weak supply. In turn, the focus is explaining the weak supply of rental properties: AirBnB etc.
But what about the role of income-demand in driving up rental prices?
Surely, the high-wage ICT sectors of the economy have a role to play in driving up the price of domestic non-tradeables in Dublin city?
The elephant in the room is the role of inward migration, and the impact of non-Irish employment in Dublin’s Silicon Docks.
The two graphs below are taken from my research on FDI flows into the ICT sector. It shows two things: FDI in the ICT sector is central to the Irish recovery, and ICT is the highest paid sector in the economy.
So, who are these workers, and where do they all live?
Google opened it’s offices on Barrow Street in 2004. An additional 80+ Silicon Valley firms have since followed. By 2016, the sector had grown to around 16,000 employees. Most of the growth (labour market cluster effect) is driven by inward-migration of skilled multi-lingual graduates.
Might the Silicon Docks, and the inward migration of high-paid sales/tech workers from across the EMEA, explain the rental-price inflation?
This is not an argument against inward migration, nor the positive effects of Dublin’s high-tech sector. It’s been great. But it has a cost, which policymakers are clearly incapable of responding to: the rapid increase in non-tradeable prices, particularly housing-rental prices in Dublin.
It seems to me that it’s only a matter of time before a populist rhetoric emerges along the following lines: the Irish government use low corporate taxes to lure global MNC’s from Silicon Valley to employ mobile multi-lingual graduates from across the EU/globe, who pay 2,000 euro a month for 1-bed apartments, whilst the Irish serve them pints in the local bar.
Source: Regan & Brazys (2017); CSO and authors calculations.