Want tackle to the rent crisis? Then stop crushing landlords!
In every other walk of life, we lower prices by attracting new entrants. But, as our writer sets out today, when it comes to property, landlords are taxed, levied and squeezed to the hilt... and then we wonder why housing costs aren’t falling
ACOUPLE of weeks ago, while boarding a longhaul flight, I received the sort of text message that makes my stomach lurch. ‘The storage heaters have packed in,’ it read, making me mentally tot up how much replacements might cost while the cabin crew did their safety demonstration.
A couple of months prior to that, the management company reported that the underground car park was flooding, and that my apartment was likely the culprit. I recalled with a shudder how a couple of years ago, a dodgy plumber had fleeced me of several thousand euro for an ostensibly straightforward job.
These are the sort of hazards that are part and parcel of owning a property. But when you’re a landlord, they are joined by a whole host of headaches… and inevitably a sizeable tax bill every November.
The current climate has made renters defensive and combative: a sort of ‘Us vs Them’ situation.
To be fair, and perhaps owing to our feudal, landless past, the relationship between landlord and tenant in Ireland has long been adversarial, mired in mistrust, hostility and take-and-take. As an accidental landlord and a renter, I’m in a unique position where I’m experiencing first-hand both sides of the situation. I’m in a landlord daisy chain – I rent my starter home to a homeowner, and then rent a property across town.
In one apartment I lived in, the landlords in turn rented their family home. Once I started looking, I found dozens of people like me: folks who bought a modest place during the boom, and wanted out, but not out-out.
ILIVE in constant fear of my own landlord selling up or deciding to move in a ‘niece recently returned from Australia’. (Quite a lot of these in landlords’ families these days. But anyway.)
Yet while acres and acres of newsprint have been dedicated to the plight of Irish renters – and in most cases, it really is a pitiful situation, with many tenants left vulnerable and disenfranchised – there has been less focus on the challenges that landlords, especially circumstantial ones like me, face. It is not a popular opinion right now, the idea that landlords have it bad: the very definition of first-world problems.
But allow me to mount a case for the defence.
Ask most people their opinion of landlords, and it will emerge that all landlords are exactly the same to them. From the single-property renter right up to the vulturefund CEOs, they are greedy, lazy, opportunistic, crafty. They will take your eyes and come back for the lashes. And they ignore your call about the leaky shower while they’re at it.
That the renting market is spiralling out of control is hardly up for debate. That there are coffer-grabbing land- lords with dollar signs dancing in their eye sockets is a given.
Yet the bigger picture is a little more nuanced than that.
As landlords remain Public Enemy Number One, blamed for recent rent increases and the general sorry state of the housing crisis, it should be pointed out that a great deal of them are living hand to mouth.
It certainly is a property owners’ market, with rents in Dublin now 65% higher than when the market bottomed out in 2011. Yet many landlords still find themselves on a treadmill, trying to make up the shortfall between the rent they receive (minus tax and management costs) and the mortgage owed on the property.
Rents are soaring, yes, but it can still be hard to make the sums stack up. The costs associated with being a landlord have been rising steadily since the crash. Back in 2014, for example, DKM Consultants reported that the cost to a landlord of providing private rental accommodation had increased up to 24%, due to the burden of extra taxation, complying with new regulations and local property tax.
And while some landlords might not bother declaring their rental income as tax, a great many of us do. That can often mean sending 40% (or 85% if you enter another, higher tax bracket) of that rental income straight across to the Revenue. So if your boom-time mortgage is €2,000 a month, and you charge your tenants €2,000 a month in rent, as a tax-paying landlord you’re still coming up almost €1,000 a month short.
If you were a business, though, and your business
costs every month were €2,000, but your revenue was also €2,000, you wouldn’t pay a cent in tax. Even if you started making a profit, you’d pay tax on that profit at 12.5%. So when we want businesses to enter the market, thereby lowering prices, we make the tax system attractive to them: but when it comes to landlords, we squeeze them till the pips squeak… and then wonder why so many property owners are leaving the rental market altogether!
The introduction of USC on rental income, the fact that local property tax is not a legitimate deductible expense, and a reduction in allowable mortgage interest relief (currently being reversed) all exacerbate the tax obligations.
No wonder a seemingly innocent phone call from a tenant about plumbing or electrics – often, a precursor to writing a hefty cheque – freaks us out.
I spoke to a number of friends who, like me, had bought a starter home in an ‘up-and-coming’ neighbourhood. A decade ago, buying a home was almost a national obsession. My parents egged me on, noting that the best place you could put your money (or in my case, the bank’s money) was into ‘bricks and mortar’.
IT was the one investment, they said, that would never let me down. And so I applied for cheap, widely available credit and secured a 100% mortgage, which was available at the time. I joined the queues of mildly panicked first-time buyers at viewings and, with rents rising at a rate of knots, put an offer on the first property I could afford.
People want to move house for all kinds of reasons. In some cases, families have outgrown the original home. Some of us have split from the partners we bought with. Others can’t afford the mortgage alone. Some of us just fancy a change of scenery.
And most of us, with memories of renting all too fresh in our minds, are trying to play fair. I’ve kept my own apartment rental well under the going market rate, in a bid to secure good tenants that will care for the property and stay for years.
‘My tenant calls me when she needs a lightbulb changed,’ said one pal. ‘I was at my granny’s wake when she insisted that I come over and fix the cooker. She is just ridiculously high maintenance, and barely keeps the place right beyond the bare minimum.’
Another pal has been renting out her house in Dublin for six years while she moved to the US for work. In particular, she has taken exception to the Government’s restrictions in Rent Pressure Zones.
‘Let’s just say that it has been a rough and costly ride,’ she says. ‘I cannot rent my property anywhere near the market value because I fell into several Government regulatory traps. Because of the Government interventions, the first chance I get I will up my rent to the absolute maximum to avoid future losses similar to ones I have experienced so far.
‘If the market was left to selfregulate, I would have been totally happy to get rent at the level where I break even, all my costs are covered and the place pays for itself. I don’t think the Government should be meddling in the property market.
‘It has done so over the past few years and what do we have despite the interventions? Highest rents ever. Desperate tenants. Frustrated landlords.’
In a review last year, the Department of Finance spoke to landlords to get their views on renting. Among them were: ‘It currently costs us between €400 and €500 a month to maintain our position as landlord.’
And: ‘Please stop calling my income “unearned”. Just try out property management and see!’
One landlord said: ‘The legislation [on rent controls] penalises good landlords for being fair with good tenants.’
Another stated: ‘I am most sorry that I ever considered the rental market, not due to bad tenants, but due to poor yields and taxation.’
It’s all of this, compared with a lack of incentives offered to landlords, that stops a lot of new entrants to the landlord market. Airbnb or corporate letting (of which there is seemingly no shortage) yields a much better return for professional landlords.
The basic tenet of corporate tax is to encourage more competition in the market, but not so with landlords.
Couple this with the idea that banks are turning their collective backs on the buy-to-let market, and it leads to a situation where most newcomers to the landlord pen are there less by design and more through necessity. That’s why so many landlords are departing the market in large numbers, bringing with them properties that were previously on the rental market, which are now being sold to owner-occupiers.
THE Department of Finance’s review published a number of suggestions made by individual landlords to bolster the market. They put forward a number of ideas that, they believe, could make being a landlord more attractive to more investors. These include: applying a reduced tax rate (for example, a 25% corporation tax rate) to rental income; allowing landlords’ time and travel expenses to be offset against tax liabilities; allowing accidental landlords to pay no tax on rental income; and applying a reduced rate of capital gains tax for longterm residential rental properties.
In among the many public conversations around renting, there is plenty of talk of adopting a continental model to soothe the uneasy relationship between landlords and tenants. It would mean fewer rental increases, prices indexed against a city standard, and a much longer (and more secure) lease. But, on the flipside, this would also mean that every chipped door and broken tile is accounted for in the état des lieux, a very thorough inventory document referred to when tenants enter and leave a place.
It often means renters are free to decorate and do as they please – once the property is eventually returned to the owner in its original state. Certainly, this sort of document, not to mention this sort of practical, adult approach, would save heartache in the long run, for homeowners and tenants.
In the meantime, all I can do is hope the relationship I have with my current renters, which is a nice tango of politesse and mutual respect, stays that way.