Analysis: Is there a way to keep tenants and landlords happy?

Change to cap on rent increases and tax cut on rent income may halt exodus of landlords

The move to tie rent increases in designated rent-pressure zones to inflation since July is backfiring as inflation is soaring. Photograph: Paul Faith/AFP via Getty Images

The move to tie rent increases in designated rent-pressure zones to inflation since July is backfiring as inflation is soaring. Photograph: Paul Faith/AFP via Getty Images

 

Tánaiste Leo Varadkar’s support for the private landlord in Dáil on Tuesday, calling for a balance between regulation of property rental costs and income for landlords, sparked a firestorm.

At a time of housing shortages and sky-high rents, Varadkar’s line “one person’s rent is another person’s income” appeared to many to be another example of the Fine Gael leader’s tin ear or a crude defence of his party’s constituents within the investment property-owning class.

Yet, beyond the angry response, there is a need for more nuanced policy to address a legitimate concern contributing to the housing crisis: the continuing exodus of small to medium-sized landlords.

About 2,000 landlords are selling up every year, based on figures from the Residential Tenancies Board for the past five years. There were 165,736 private landlords associated with registered tenancies at the end of last year compared with 212,000 in 2012.

The vast majority of these landlords are different to the large international investment property funds that dominate the public and political debate around “vulture funds” and the rental market. About 86 per cent of private landlords own just one or two properties.

But their numbers continue to fall. For every two landlords selling up, just one is buying.

Caps have been presented as a solution but the move to tie rent increases in designated rent-pressure zones to inflation since July is backfiring as inflation is soaring. Rents could rise possibly as much as the 4 per cent that rent increases were previously capped at every year in the zones.

Varadkar dismissed Sinn Féin’s call for a three-year ban on rent increases, saying that the inflation-linked change was “a rent freeze in real terms” but he offered no solutions of his own.

“You cannot cap income without capping costs. If the costs are going to increase, no business can function like that,” said Margaret McCormick of the Irish Property Owners Association.

Tax

A solution – to retain landlords and rein in rents – might be in changes to cost and income.

“The way to have your cake and eat it is to keep the rents low for tenants, but help the landlords retain more about of that rent and less of it in taxation,” said housing policy analyst Dr Lorcan Sirr, a lecturer in housing studies at Technological University Dublin.

He says this balance could be struck by linking rent increases to inflation but capping them at inflation up to 2 per cent to keep tenants happy and providing tax relief for private landlords who are currently taxed at more than 50 per cent on rent that is treated as personal income.

This would help even out the unequal tax treatment between long-standing private landlords and the big corporate landlords – the real-estate investment trusts, or Reits – who pay a fraction of the tax thanks to lucrative tax incentives to keep them investing.

And unlike private landlords, many funds, as new investors, have not been subject to rent caps and have been able to set their own rents based on a red-hot market.

“Giving landlords more rent isn’t necessarily the answer because that disadvantages the tenant,” said Dr Sirr. “But allowing them to keep more of the rent, even if the rent increases were less but they were allowed to keep more of it, would lead to a net better outcome.”

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