SMALL CHANGE FOR TENANTS AND LANDLORDS

And the vacant property tax is good in theory but weak in reality

BUDGET 2023 promised a lot on the housing front, but what it has offered helps neither renters nor landlords – and while the tax on vacant properties is good in theory, the reality of the self-assessed payment is pretty weak, writes housing expert.

NOT many people know that a squib is a small firework, and a damp one is somewhat of a letdown on the excitement front. You can see where this is going already.

In housing terms, Budget 2023 was even less exciting than a damp squib – more like a wet match that didn’t light. Prior to Budget Day, relatively strong cases had been made for better treatment of both tenants and landlords in the rental sector, as well as more equitable treatment of small, local landlords compared to large-scale institutional landlords. Fairness is, after all, one of the key tenets of good taxation policy and practice. But instead of a temporary freeze on rents balanced with a related reduction in landlord taxation (in which rent is treated as personal income), the Budget gave tenants a rent credit of just €500 per annum, per tenant this year and next.

According to the Residential Tenancies Board, the national average rent for a new tenancy is about €1,500 per month (or €2,000 in Dublin). So this credit amounts to just one-third, or less in Dublin, of one month’s rent across the country for a single tenant. It likely won’t make much impact in alleviating rent affordability problems for most.

Politically toxic, small landlords got very little of what they were looking for. The amount of tax relief they can claim on preletting expenditure (essentially readying a place to be rented) has doubled from €5,000 to €10,000. Overall, however, their tax treatment is not changed in any meaningful way.

More could definitely have been done for both tenants and landlords. The Budget announced a review of REITs (real estate investment trusts) and institutional investors, who as landlords often pay close to zero in taxation. This is a feeble initiative that shies away from grasping the nettle of taxing funds fairly. Neither will it win the Government any new friends amongst mom-and-pop landlords, or renters. The cynic in me doubts this will keep very many landlords from deciding to pack it in and buy a pick-up, as Neil Young once sang.

The big-ticket idea seems to be the new tax on vacant properties. There is confusion about just how many empty properties Ireland has, with the Central Statistics Office counting over 166,000 in this year’s census, contradicted by the Minister for Finance saying there were just 57,000 truly vacant homes.

The average sales price of a house is now about €285,000 and the average local property tax is €315, which means any empty house that is liable for the vacant property tax will pay €945 yearly. This is a tax of about 0.33%, or €79 per month.

By comparison, in Paris, an empty property attracts a tax of 60% of its annual rental value. That would equate to a national Irish tax of some €10,500 per year based on average national rents – some €875 per month, or about 3.7% of the property’s value. Being so low, this new tax is unlikely to bring in much money, or have much effect in reducing vacancy levels.

It also looks like it will be based on self-reporting, reducing its chances of any meaningful impact even further. As with the rent credit for tenants, the theory is good – taxing empty properties to bring them back into use – but the reality is weak. For first-time buyers, the Help to Buy scheme has been extended until the end of 2024. Any such measures inflate sales prices as they increase the amount of money buyers can compete against each other with. This is in the context of a rising housing output which is up 43% over the last five years, but a declining number of new houses coming to the market each year – down over 40% in the same period. As prices rise, fewer people can afford them and remain in or get pushed into the rental sector.

To push costs even higher, there will be a new tax on concrete, concrete blocks and similar products in order to recoup some of the cost of schemes such as that for mica redress. Such extra taxes inevitably get passed on to consumers.

Those responsible for the mica and pyrite situations should rightly be brought to book, preferably legally and through better enforcement; however, a tax on the industry will ultimately be a tax on house buyers.

On the surface, the allocation of €4.5billion for social and affordable housing looks generous, but we know from past trends a lot won’t be spent on bricks and mortar, but on long leases at the end of which the State won’t even own the property. We also know the State is buying two new houses for every one it builds, which is more expensive than building them itself. The reliance on others to deliver social accommodation, coupled with poor housing policies, means that over the last decade, successive governments have managed to engineer a situation whereby now the delivery of both private and social housing has become dependent on rising house prices. This is totally unsustainable.

The Department of Finance is the place where a lot of potential housing solutions are to be found – just not this year.

More could be done for both tenants and landlords