Scheme will have little impact on shortage

The introduction of a "rent-a-room" scheme, announced in the Budget, will not have a major impact on the shortage of rental accommodation.

Under the scheme, homeowners will be able to earn up to £6,000 (€7,618) tax free from renting part of their home. Renting rooms will not change the tax-free status of private residences.

The scheme may prove attractive to some first-time buyers for whom the rental income would be a significant help to paying a large mortgage. It may also prove attractive to older people who may have feared that renting a room would bring them into the tax net.

One side-effect will be to legitimise the suburban householders who have been providing accommodation to foreign students. Their status would now appear to be officially tax free if the scheme turns out as all-embracing as it appears.

The measure will also benefit people living in large period homes who can rent out self-contained flats, particularly in basements.

A £500 tax-free rent per month would service a mortgage of about £70,000. Rooms in new homes generally rent at around £200 per month. In most cases, those availing of the scheme will be able to rent at least two rooms to gain full advantage.

However, the new scheme is not expected to impact seriously on the rental market in Dublin where supply has fallen behind demand since the Government's anti-speculative measures earlier this year. The property market will be disappointed that the Minister for Finance has not reduced the 9 per cent stamp duty and restored mortgage interest relief on residential investment properties. Because of the shortage of rental accommodation in Dublin city centre in particular, rents have increased dramatically in the last six months.