Tuesday, 10 July 2012

The relationship between rentals and disposable income in countries undertaking internal devaluation

Just a short post about housing markets today. I find the relationship between rentals and income very interesting and I would like to look into it a little bit here. For those wanting to have a look at data, I used disposable income per inhabitant to take into account population growth and rentals' growth from the HICP calculation.

Here come a few charts (and even fewer words attached) depicting the relationship between rentals and disposable income in countries that have undertaken internal devaluation-like adjustment programs.

Our first stop is Ireland.

source: Eurostat, own calculations

As we can see during the boom years of the property bubble, when I assume pretty much everyone, wanted their own place, rentals fell while disposable income increased. What interests me more though is how rentals reacted during the current depression. With a one year lag (2008) rentals followed disposable income’s trajectory. It seems that there is no significant downward rigidity for rentals in Ireland.

Next stop is Estonia.

source: Eurostat, own calculations

As we can see rentals and disposable income moved pretty much as one. Downward rigidities, as far as rentals are concerned, seem to be even less present in the case of Estonia. Rentals growth lagged disposable income the years that the crisis raged (2009-2010) which maybe indicated a buyer’s market (as it should have been).

The next stop is neighbouring Latvia.

source: Eurostat, own calculations

Here too downward rigidities for rentals weren’t an issue during the very difficult years of 2009-2010.

Now let’s move to the south of Europe. Our first stop Is Portugal.

source: Eurostat, own calculations

Despite disposable income recording declines two out of the three past years, rentals didn’t decline, just rolled over. Admittedly, falls in disposable income were not as large as they were in the Baltics, but I think that we can safely infer that rentals display downward rigidities.

Our last stop is my native Greece. Here’s the chart.

source: Eurostat, own calcualations
As the chart makes obvious, after three successive years of falls in disposable income, rentals haven’t budged at all. Just one more market in Greece, where the word market is simply a euphemism…


  1. I feel the charts are erroneous. Based on my own experience, the 4% and 6% drop in rentals that you show in Greece in 09 and 10 simply is a joke. Property owners faced cuts from 15% to 30% in rentals received in those two years alone. Moreover, if you calculate vacancies you'll come across a fall of around 35% in the numbers. Maybe you should check your data again.

  2. Thank you for the comment...unfortunately these are the only official data on rentals that I'm aware of..This is what the ECB uses to calculate HICP. This of course does not mean that they necessarily give out a good on the-ground view on the subject..Your figures concern commercial properties or not...? If you have any other data sources that you can share, I would really appreciate it if you did...cheers...

  3. "the 4% and 6% drop in rentals that you show in Greece in 09 and 10 simply is a joke."

    What drop?

  4. Nick, unfortunately I have no hard data. But I do have lots of property which I rent out. And I also have very many friends who own or rent property in Greece and they all agree to these figures more or less: Commercial property -40% from the peak of 09. Homes -25%. For confirmation you can ask any realtor, or even go out and ask the tenants how much less do they pay now. Cheers

    1. Artaxia I do not doubt you...I'm sure u know a lot abt the R.E. market, while I obviously don't...it is just that this kind of data could be open to some kind of bias...for example most of my friends who rent, barely managed to negotiate their rentals being unchanged...It probably is one of the worse statistically-covered markets in Greece...and let's not forget that we're talking abt one of the main pillars of the so-called Greek growth model...cheers...

  5. Thanks for a very very clear and valuable submit. I am absolutely a violator of lots of these guidelines. I often find myself conflicted when producing a weblog post because I see me personally composing greater than people today would like to study, but I feel that I really have to do the topic matter proper rights by thoroughly covering it. I come to feel that by pursuing some of these guidelines I finish up cutting out significant factors for the dialogue. I guess you could have to come across a stability.

    PIC Bonus Singapore