Should landlords get a budget tax cut? A property agent debates with an economist

Regina Mangan: Yes, 10,500 notices to quit were served to tenants in the first six months of 2023. The facts speak for themselves

I’ve listened to numerous debates over whether landlords should pay less tax on rental income and heard questions about whether landlords actually need tax cuts. “They’re staying in the market anyway,” the argument goes.

Here are some figures from my own agency, based in Waterford, which tell a different story. Of 15 properties we have for sale right now, six are rentals. Last week alone, we issued five notices to tenants because of landlords selling up. On the day I’m writing this, we received another notice for an eviction request.

We manage in the region of 350 properties. Sixty-seven per cent of our landlords have mortgages. About 70 per cent of our landlords with apartments in Waterford are in negative equity. When many of these apartments were purchased 15 years ago, they cost on average between €300,000 and €350,000. They are now worth, on average, in the region of €135,000. Top that with low rents due to rent pressure zones (RPZ) and high taxes, it just doesn’t make sense for them to stay in this business.

Landlords are frequently demonised, but mostly they are regular people who provide a hugely needed service. More than 70 per cent of our landlords own one or two properties and work across all fields. They are teachers, plumbers, electricians, IT staff, medical and professional services. One, who I’ll call Peter*, owns a former corporation house we are selling. His tenant was excellent but was only paying €360 per month. He couldn’t increase the rent when the RPZ was introduced and it was financially unsustainable. His tenant had to move in with her parents because she couldn’t find a rental property.

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Another, Mary*, has a one-bed apartment in a premium development in Waterford city. The monthly market rent is valued at €1,000; the rent she can actually charge is €686 due to the RPZ. She ends up with about €300 per month after tax and expenses and so is selling up.

Another landlord I’ll call Betty* has two houses. One is renting for €1,000 and the other €979 per month — again lower than the market rate. With increased interest rates, her combined mortgage repayments are now €3,600. She and her husband are retired and this is a huge burden.

Below-market rent due to RPZ is the nail in the coffin for many landlords. According to the ESRI, the Residential Tenancy Board (RTB) data illustrates that existing tenants pay 15.2 per cent less than new tenants on average for similar properties. In some cases, it’s up to 39 per cent less. High rents reported in the data are mainly charged by institutional landlords. Those institutions pay little to no tax so it is not a level playing field.

Meanwhile, there is a grossly unfair tax treatment of small property owners who pay in the region of 52 per cent tax on their rental income.

Ireland has been moving towards a larger proportion of people renting, just like our European counterparts. We need rental properties to provide stock for a functioning economy.

We have regular calls from pharma companies and relocation companies to assist in locating rental properties for people moving from all over the world to the southeast. Mostly, we are not in a position to help them as there are so few properties available. In order to retain small property owners in the market and attract individuals looking to invest for their pension, the tax treatment needs to be lowered from its current rate of 52 per cent.

If landlords are to benefit from reduced tax they should be obliged to provide security of tenure to their tenant — this would be a win-win approach. A realistic timeline of five years’ security of tenure makes sense.

Increasing RPZ rents to the market value at the time the RPZ was introduced — not today’s market rent — would give landlords like my clients a reason to stay in the marketplace.

According to RTB data, 10,488 notices to quit were served to tenants in the first six months of 2023. The facts speak for themselves.

• Regina Mangan is managing director of Liberty Blue estate agency. Names of landlords have been changed

Barra Roantree: No. Cutting taxes for landlords would be an expensive and ineffective response to our affordability crisis

Our failure to build enough homes over the past 15 years has left those in the private rental sector facing extremely high and unaffordable rents. But recent proposals to cut taxes for landlords in the budget would be an ineffective and expensive response to this affordability crisis.

The rationale given for these tax cuts is to stop the supposed “exodus” of landlords leaving the private rental sector, particularly those with one or two rental properties. While there are some small-scale landlords leaving the market, the true extent of such exits is unknown.

This is because landlords have only been required to register annually with the RTB since last year, making data from earlier registrations unreliable. Indeed, data from other sources suggests the overall size of the private rental sector has grown, with the inflow of new larger-scale landlords offsetting any exits by smaller-scale ones.

That is not to say all is fine. Far from it. We have a chronic shortage of housing, with too few homes for our growing population.

But cutting taxes on rental income would benefit landlords whether or not they had ever thought about leaving the market. And the evidence we have suggests that tax does not weigh heavily on the minds of those who are considering leaving.

Rather, those small-scale landlords who are leaving the market appear to be doing so because they became landlords during the Celtic Tiger, have a different primary occupation and are now approaching retirement. There is little reason to think that tax cuts will be effective in substantially altering the decisions of these ageing, accidental landlords.

And even if tax cuts were effective at deterring the exit of some landlords who would otherwise have left, they would be an incredibly expensive way of trying to maintain existing levels of rental accommodation.

Consider the proposal to introduce a new €14,000 tax-free allowance for landlords, which would cost about €400 million per year were all 160,000 who report residential rental income to Revenue to be eligible. This means that even if the measure implausibly deterred, say, 10,000 landlords from leaving the market, it would effectively be at a cost of €40,000 per year for each landlord retained. Such deadweight makes cutting taxes for landlords an incredibly expensive as well as ineffective response to our affordability crisis.

Instead, policy should focus on making it easier and cheaper for housing to be built, whether by the public or private sector. This includes things like more active land management by the State as well as reducing development levies that fund the cost of improvements to local facilities and amenities. Such levies act to reduce housing output and are likely borne by the occupants of newly built homes rather than all those who benefit. A better approach would be to finance these improvements through a higher local property tax paid by all residents.

Delivering more housing will also require reform of the planning system, which all too often is used to defend the interests of existing homeowners against those of potential future residents. In addition to ensuring Local Authorities zone sufficient land to meet realistic demand forecasts and limiting the ability of local residents to take judicial review proceedings against new housing, reform here should try to expand the scope of exempted developments.

For example, a proposal featured in the Science Gallery’s Housing Unlocked exhibition earlier this year suggested exempting mews housing from planning permission could facilitate building up to 20,000 units inside the Dublin M50 alone. This would make use of now largely obsolete laneways built to provide access to the rear of dwellings in high-demand, low-density suburbs.

Reforms like these — rather than expensive and ineffective tax cuts for landlords — are what is required if we are to have any hope of building the 40,000 to 60,000 units per year that we need to address the decade-long affordability crisis.

• Barra Roantree is an assistant professor of Economics and programme director of the MSc in Economic Policy at Trinity College Dublin.