What can agents learn from the rental crisis in Ireland?
Ireland is facing a rental stock shortage, leading its government to assess the different routes it could take to help boost stock and incentivise landlords.
The Republic of Ireland is in the midst of a "rental crisis". With increased legislative obligations on landlords, figures released by Daft.ie in October 2022 found that there were only 716 homes listed for rent across Ireland in August 2022 - a fifth of the numbers available between 2015 and 2019.
The current rental landscape in Ireland
Reports reveal a 45% increase in landlords deciding to sell up between the first two quarters of 2022. The number of buy to let mortgages drawn between 2005 and 2020 also dropped 96%, from 25,800 to only 800 - meaning that, not only are landlords leaving the market, new ones aren't joining.
“Over the years the Irish Property Owners’ Association has outlined the causes of these much-needed investors leaving the market, taxation over 50%, needless compliance, rent control, the abolition of the affordable bed-sit, and complicated legislation," says Chair of the Irish Property Owners Association, Mary Conway.
“All this has caused and will continue to cause homelessness and a shortage of affordable accommodation.”
In line with this disconnect between supply and demand, rents stood 12.6% higher year on year in August - the biggest jump since their records began 2005 - up to €1,618 on average for the month.
The Irish government is therefore having to consider - and implement - different ways to help boost stock and incentivise landlords.
Helping tenants pay their rent
A €500 rent tax credit was introduced in Ireland's Budget 2023, to help balance this increased cost, with each tax-paying tenant not on housing support eligible. The credit will also extend to certain parents paying for their child's rent while studying and is expected to help support around 400,000 renters.
However, some say this measure does not do enough. "As if plucked from thin air, a €500 tax credit for renters is unlikely to make much of an impact for the hundreds of thousands of people paying an average of €20,000 in their rented home," says Irish Labour Leader, Ivana Bacik.
A "Housing for all" strategy
The government is attempting to address this affordability issue in housing - including rental properties - through its "Housing for all" strategy, launched in 2021.
This plan outlines proposals to deliver more housing and improve the housing system, backed by a pot of €4 billion in funding in 2022 and 2023, and with a target of 33,000 new homes provided each year on average between 2021-2030. It recently announced that it's on track with its 2022 target of 24,600 new homes.
Although boosting housing supply will of course help to make rents more affordable as demand becomes less intense for each property, the strategy's measure to introduce a rent cap and an eviction moratorium over the winter may push even more landlords out of the market.
The Irish housing and homeless charity, Peter McVerry Trust, has said that it welcomes the evictions ban yet recognises “the vital role that landlords play" and wants to "highlight the importance of addressing tax reforms to ensure that private landlords do not continue to exit the market."
Previous measures to incentivise landlords
Alongside the Peter McVerry Trust, different groups across Ireland have expressed the need to incentivise landlords to stay or move into the sector, to relieve some of the pressure on the rental market.
In 2017, the Working Group on Tax and Fiscal Treatment of Rental Accommodation Providers researched the various tax incentives that could provide a solution across the short, mid, and long term for the rental sector.
Many focussed on retaining the existing rental stock by "improving the net cash position" for existing landlords - and some of the measures have already been taken on board.
Full mortgage interest deductibility was restored in 2019 meaning that landlords can deduct the interest they pay on mortgages that were used to buy, improve or repair a private rented property.
A tax deduction for pre-letting expenses up to €5,000 incurred on a property that's been vacant for 12 months or more was also introduced in the Finance Act 2017.
New measures under the Budget 2023
The Irish government has since introduced further measures to entice landlords back into the fold in its Budget 2023, which extended some of these preexisting tax incentives for landlords and introduced new initiatives.
The maximum tax deduction cap for pre-letting expenses will be upped to €10,000, and properties will also be able to be vacant for six months instead of 12 to qualify, from 1 January 2023.
The budget also included an extension until 31 December 2025 for the residential stamp duty refund scheme, which refunds a portion of the stamp duty paid - dropping the tax to 2%, rather than 7.5% - when buying non-residential land to develop on it for residential purposes.
Boosting the use of empty homes
As well as incentivising landlords to stay in or rejoin the sector, the government is also looking into how to make better use of Ireland's existing housing stock.
The Vacant Homes Tax will affect homes in Ireland that are occupied for under 30 days a year, while ensuring that property owners aren't “unfairly charged for temporary periods of vacancy with genuine reasons”. Although not directly encouraging more landlords, it aims to encourage some properties back into the rental market.
"Addressing vacancy and dereliction, and maximising the use of the existing housing stock, is a priority objective of the government," says the Irish Minister for Finance, Paschal Donohoe.
"While both Revenue data and the preliminary Census 2022 data show that vacancy is within a normal range, it is important that the government acts to ensure all viable housing stock is being used."
However, a statement from estate agents Sherry Fitzgerald says that the impact it has will be limited: "This tax, which will be charged at three times the current rate of LPT [Local Property Tax] due on a property, is laudable in its intent, however, it is unlikely to return a substantial amount of stock back to the market."
Helping tenants become buyers
Help-To-Buy has helped 35,000 first-time buyers to get on the housing ladder since 2017 too, putting a dent in some of the demand from tenants. This scheme was extended until 2024 in the Budget 2023.
There is some speculation on whether this initiative has been a success, with conflicting reports on whether it in fact boosted property inflation.
A Oireachtas Parliamentary Budget Office report found that a third of the scheme's applicants didn't need the financial support and 63% of the claims were for properties that cost more than the national average.
An independent government report found that this wasn't the case - but the Irish Finance Minister will "keep the scheme under review".
Other potential tax incentives proposed
Other measures proposed in the 2017 working group's consultation paper have yet to be introduced, such as making Local Property Tax deductible for landlords.
The paper also proposed "a deduction against rental income for the capital cost of the property" in the first year of owning the rental property and Capital Gains Tax relief of 4% a year - but only when a property is bought with a sitting tenant and is let for at least five years, encouraging landlords to sell to landlords and to keep that property in the PRS.
Looking even further ahead, the report outlines the possibility of developing a separate way to tax rental income, i.e. a flat tax or a separate rate of tax for different sections of the market.
There are therefore many options on the table for incentivising landlords in Ireland and lessons to be learned on their effectiveness.
UK based agents should therefore keep a close eye on the outcome of Ireland's measures as, in the face of rising mortgage interest rates and increased legislative obligations, the UK government may need to consider to similar initiatives in the future.