Neil McDonnell: Reviewing tax policy must be a priority in tackling the housing crisis

The housing issue is no longer affecting just the SME sector

Sun, 07 Jul, 2024 - 16:28

Neil McDonnell

The inflation dragon appears to have been slayed in Europe, and the European Central Bank (ECB) is promising further interest rate decreases.

While ISME has been lobbying on the housing shortage since 2017, it is only in the last year or so that we have seen public intervention in the housing debate by large enterprises, and representative groups such as the American Chamber.

While the rate of consumer inflation is tapering, that is not the case in the price of new and second-hand houses, or in the cost of monthly rent, now at a record national monthly average of €1,836 according to Daft.

By the end of the first three months, the average industrial wage was €969.12, this means that the average rent in Ireland will absorb around 44% of annual earnings for a worker on the average industrial wage.

The Daft Rental report for the first quarter is stark in its outlook. The report suggested improved availability of rental homes from late 2022 to late 2023 led to falling inflation. The report also indicated that those improvements in availability now look to have finished, signalling that further pressure on open-market rents this year is likely to be upward.

Various social commentators have suggested recently that the rental market remains buoyant for buy to let. They appear to be relying on the Central Statistic Office (CSO) figures from the census in forming this belief, as census figures suggest an increase of 25,000 in rental units between 2016 and 2022.

Market figures suggest otherwise, units available to rent continue to fall in number, and private landlords continue to exit the market.

The difference between the census and the Daft report figures is almost certainly the grey rental market being created by employers. Large numbers of employers in the services industry are now providing accommodation for employees, and for those businesses bringing in workers from abroad on employment permits, there is an expectation that accommodation, free or subsidised, is part of the package.

The housing issue is no longer affecting just the SME sector. As a member of a school board in Dublin, I can report our school lost a newly recruited teacher after one day because he got a job in Westmeath, and cited the lower rental cost as his reason for leaving.

In its quarterly foreign direct investment Insights Survey this month, 40% of AmCham members said housing is the most important challenge for Ireland to overcome for their company to invest and expand here.

Students from the Republic are actively seeking places in Ulster University Coleraine and Queen’s University Belfast as a result of far lower accommodation costs north of the border.

Housing is becoming a divisive social issue here, with at least some of the “Ireland is full” venom originating from the perception that asylum seekers and those seeking international protection are to blame for the accommodation shortage.

International migrants are not responsible for our housing shortage. The main contributors to Ireland’s housing problem include effective outlawing of bedsit accommodation, the ever-increasing regulatory burden on landlords, the reduction of deductibles for private landlords, and the application of social charges to rental income but not for institutional landlords.

Rent pressure zones and a flawed planning and legal system have also contributed to this issues.

The Commission on Taxation and Welfare stated bluntly “the Commission does not recommend the use of tax incentives in order to stimulate the supply of housing.”

Yet Government policy post the great financial crash bet the ranch on institutional landlords, who have cooled to the Irish market because of tax and regulatory changes.

When institutional and private landlords are exiting the housing market while rents are at record highs, we have a systemic market problem. Misguided tax policy got Ireland into this mess and fixing that is the only way out. Jack Chambers, please take note in Budget 2025.