Here we go again. A standard Government response to problems in areas of the property market is more tax breaks. Now we are promised another round of budget tax measures aimed at tenants and landlords. Some of these sound reasonable – such as the reinstatement of tax credits for tenants and measures to try to keep smaller landlords in the market. But tax breaks are at best a stopgap and we have seen before how the law of unintended consequences so often applies.
Over the years, property tax breaks were a vehicle to allow high rollers avoid paying tax – tax shelters is the posh word – and an encouragement to less well-off people to overborrow and get involved in an over-inflated investment property market in the run-up to the financial crash. The market is in a different place now, of course, but the impact of tax measures remains as blunt and unpredictable as ever.
Few could oppose the idea of hard-pressed renters getting an additional tax credit – effectively cutting their income tax bill – but structuring this to give a decent benefit and ensuring it does not show up in higher rent bills is not easy. It could, for example, act to benefit those already renting – and many most certainly need it. But it will do little to help the hundreds now queueing to try to view scarce properties – as shown again last week in at least one online video for a viewing in Drumcondra. Landlords offering new tenancies could more easily “factor in” the tax credit in the monthly rent, further underlining the two-tier nature of the market.
Private landlords
Government policy has protected existing tenants by the introduction of new tenancy protections and rent pressure zones. These policies improved the lot of sitting tenants. But they have created the two tiers in the market – the split between existing tenants paying generally lower (though still high) rents and newer tenants either paying sky-high rents or often not able to find a property at all. The changes have also accelerated the flight of the private landlord out of the market.
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There are no “right” answers here, but there are trade-offs. And there are a host of anomalies. Longer-term landlords typically cannot sell their property at current market value with sitting tenants. So if landlords want to sell, they end the tenancy, putting more renters on the queue for accommodation. This is a key reason why so many tenancies are being ended.
Now to try to rebalance the pitch the other way, the Government is examining new tax breaks for landlords. Senior civil servants looked at the options in the pre-budget Tax Strategy Group papers, though you don’t have to read too far between the lines to see that they are not very keen. The problem of small landlords fleeing the market has been studied by civil servants as far back as 2017, but little has been done. Now, with house and apartment prices at or near record highs, there is another incentive for private landlords to sell up.
One contributory reason for this ironically is due to an expiring tax break which offers capital gains tax relief on the sale of properties acquired in 2012, 2013 or 2014 and sold from 2018 on. The amount of relief available each year is now running down, and this has given another incentive for those who purchased or inherited in those years to sell up. A tax break introduced to boost supply after the crash is now having the opposite effect.
Renting vs ownership
As the civil servants wrote in 2017 in a report on the issue, it would be a good idea to have a clear policy approach on the role of smaller landlords. It is part of a wider question – to what extent do we want to encourage rental – and particularly longer-term rental – as an option or is policy still based on home ownership? This unanswered question lies behind much of the policy confusion.
Balancing policy between short-term fixes and longer-term solutions is difficult. The political demand to “do something now” often takes priority. But more supply is the only answer to the rental problem. The problems here have taken years to build up – it followed a low overall supply of housing in the years after the financial crash and a virtual halt in local authority building, which pushes social housing tenants into private rented accommodation. This is often a poor outcome for the tenant and for the taxpayer – and has taken tens of thousands of houses out of the rental supply pool.
Tánaiste Leo Varadkar, in an interview this week with TheJournal.ie, said the Government needed “to have another go” at housing “because while our plans are working, they’re not working fast enough and that’s very obvious to me”. It is an honest appraisal and needs to be followed up.
This is all about speeding the process of building and the long-promised review of the planning process will be central. It is also about resourcing the key areas of the public system which can make this happen and making sure they do so. The concept of cost-rental accommodation – involving public subsidies to allow people in the middle ground to have an affordable rent – is a good one, but how quickly can this be brought on stream, together with more social houses?
Of course, there is scope for shorter-term measures too, whether they be tax changes or tighter rules on short-term lettings or opening up vacant properties. The lot of the smaller landlord needs to be re-examined. Tenants need a financial dig-out. But the only real solution is more rental properties at all levels of the market.