The Government seems intent on pushing ahead with some kind of incentive in the budget to lower the tax burden on landlords. The goal is to encourage more of them to stay in the market. While we await full details, it does seem unlikely that the measure would have a significant impact in slowing the drift of smaller landlords away from the market.
A small amount of additional cash each year via a reduction in the tax due on rental income is unlikely to change decisions which appear to be based more on current high property prices and the ageing of this cohort of small landlords, many of whom got involved during the Celtic Tiger years. Meanwhile, it could be costly, depending on the detail.
Some tweaks to the tax treatment or regulation of landlords can always be justified on fairness or efficiency grounds. Many complain of the burden of regulation and their financial impact with significant new rules introduced in recent years, including rent pressure zones. With new rent levels reaching record highs, however, a financial incentives is there for many to remain in the market. And the precise reasons why landlords are leaving – and even the balance between those selling up and entering the sector – remain unclear. Lack of full information is, in itself, a problem in terms of constructing a policy response.
Nonetheless, under pressure to act, the Government looks set to introduce some kind of tax measure, possibly via a special credit for renters, perhaps tied to some rules in terms of them staying in the market. Like many of the tax and subsidy-based interventions in the market in recent years, it is of questionable value. There is also talk of new measures to underwrite apartment development in some form, through the extension of current schemes. Again, we await details.
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Housing policy is incredibly complex and challenging and the trade-offs are difficult for policymakers. The political pressure to “do something” can be hard to resist. But a tax break is unlikely to be an effective way of achieving the key goal of increasing rental supply.