Rental property market needs urgent remedy

By Brian Keegan

Another week, another report on the dire state of the rental property market. suggests this month there is a mere 3,000 rental properties available. The normal rules of supply and demand would suggest this creates a bonanza for landlords. So why isn’t anybody who can, offering residential property to rent? I wonder if it is part of the national psyche to be suspicious of landlords.

It’s a question which has exercised the Department of Finance as well

. While most of us focus on Budget Day on the changes to the tax and the USC rates and bands, Budget Day is also an opportunity for the Department to publish some of its policy research

. This year, buried in a mound of Budget documents, was a report with the off-putting title of the Tax and Fiscal Treatment of Rental Accommodation Providers.

That report notes the supply of rented residential accommodation is not responding to demand. It blames a number of factors, and not just funding issues. It recognises that improvements to minimum accommodation standards, rent certainty measures for tenants, and also tax restrictions have imposed a burden on landlords and limited the return on investment properties in the short term.

It’s an aspect of the Irish rental market that most landlords are small, in the sense they manage only one or two properties. Four of five residential landlords have just one or two tenancies. One in three are accidental landlords — people who did not buy to invest but instead through circumstances of the downturn were obliged to vacate and rent so they could move to less costly accommodation.

Property rental is still largely a part-time occupation. It is sometimes pointed out the big win for landlords is the fact that tenants are paying for their properties. In reality, there is an ongoing funding requirement from the landlord to supplement the rental income. Even if monthly rents are covering monthly repayments on borrowings, there are inevitable repairs and renewals to be paid for.

Typically, 40% or more of the rental income will disappear each year in income tax, USC and PRSI because the rent is rarely the sole income of the landlord. The economic model is such that landlords must constantly top-up the rents to satisfy bank repayments where the property is under a mortgage.

The fact remains there are insufficient rental properties available. This deficit needs to be sorted out. New residential units is only one part of the solution. We need to bring existing properties which are not rented onto the market. It could be achieved by allowing rental expenses to be set off not just against rental income, but against all income. Letting residential property should be treated like any other trade. If PAYE workers could save in tax some of the costs of maintaining a rental property, that could make the business of providing appropriate rented residential accommodation attractive.

The drawback is that such a strategy would in effect be a tax subsidy for landlords at a cost to the Exchequer. However, so critical is the situation now that the cost has to be evaluated against the cost of rental subsidies

and other state funded accommodation. The strategy could also be time bound, to ensure the Exchequer cost is manageable


The Department of Finance study also reports that of the landlords surveyed, almost one in three intended to leave the market as soon as circumstances permit. That’s a trend we need to halt or the rental market will remain in a dire state.

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland

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