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MIchael McGrath and Paschal Donohoe on RTÉ Radio the day after the Budget Alamy Stock Photo
budget 2024

Analysis: The government's three Budget policies which could throw €500m into a housing money pit

Voters are entitled to an explanation on how the three policies will help deal with the state’s many housing issues, writes Paul O’Donoghue.

IRELAND’S HOUSING POLICY has never exactly been coherent, but until recently, most of the decisions seemed grounded in some kind of reality.

But three Budget measures announced during the week seem to have lost that connection.

Mortgage interest relief (MIR) and landlord tax relief have been widely derided by economists, while a slew of reports have flagged serious problems with the Help to Buy (HTB) scheme.

A flavour of the criticisms include:

“It would be hard to devise a more anti-poor way of giving money out than by giving it to people who have mortgages,” – Ciarán Casey, economic historian with the University of Limerick, on mortgage interest relief. 

“The scheme is poorly targeted with respect to incomes, location and house prices. It has socially regressive impacts,” – consultancy firm Mazars on HTB.

“Maybe the stupidest tax relief of recent times, against stiff competition,” – Barra Roantree, assistant professor of economics at Trinity College Dublin, on landlord tax relief.

Despite this, the government is ploughing ahead with all three. Combined, the measures will likely cost the guts of €500m a year.

To get more into the issues with the three schemes, let’s first look at landlord tax relief.

Landlord tax relief

The government is introducing tax relief for landlords – which it named ‘Rented Residential Relief’ (RRR) – in response to widespread reports that landlords are ‘fleeing the market’.

Typically, industry figures say this is due to increased costs, such as higher interest rates.

However, a point of contention has emerged in recent weeks. The strongest evidence of landlords leaving the market has long been figures from the Residential Tenancies Board.

The number of tenancies registered with the rent regulator dropped from 320,000 in 2016 to 276,000 tenancies at the end of 2021.

Seemingly, strong evidence. Only, the most recent census recorded almost 331,000 private rented homes across the country – a slight rise compared to 2016.

While it has been suggested this could be due to many landlords choosing not to register with the RTB, it’s not clear what is behind the discrepancy and officials at the likes of the Central Statistics Office are set to investigate.

But the important thing is – because of this, no one is really sure whether the rental market is growing or shrinking.

As in, we don’t know if significant numbers of landlords are actually leaving the market.

So we don’t know if there’s any need to spend an estimated €160m on RRR.

Help to Buy

Then there’s Help to Buy. While the initiative’s problems are well-documented, here’s a brief reminder.

The principle of Help to Buy is sound: give a leg up to those struggling to pull a deposit together. Except that often isn’t how it’s worked in practise – a large chunk of those who received HTB already had enough money for a deposit.

This has been referred to on multiple occasions as a ‘deadweight loss’: taxpayer money being spent to achieve little.

At least a third, and possibly as many as half, of HTB users fall into this ‘deadweight loss’ category.

While the government has been repeatedly advised to target HTB at those who need it more, such as lower earners, it has shown little interest in changing how the scheme works.

HTB has almost certainly done some good and given help to people who need it.

But the same result could likely have been achieved for a lot less than the €200m or so spent on the scheme annually.

Mortgage interest relief

Last comes mortgage interest relief (MIR). Again, the issues have been thoroughly covered, but a brief summary.

Homeowners are almost all better off than those who rent. Just how much better off is hard to do justice solely with words, so here’s a graph from the Central Statistics Office to illustrate the scale of the difference.

figure-53-median-net-wea CSO CSO

The net wealth of homeowners is on the left. For those whose eyesight can’t make it out, the tiny slivers on the right hand side are the net wealth of renters.

In 2020, this was €303,900 for homeowners compared to €5,300 for rented households.

What this shows is measures like MIR tend to benefit people who tend to be relatively well off.

There is a legitimate argument that some aid should be given to so-called ‘mortgage prisoners’.

These are people who had mortgage loans which were sold to investment funds and are now unable to switch mortgage providers.

However, MIR will also apply to people on tracker mortgages once they had over €80,000 outstanding on their loan as of December 2022.

Many of these homeowners already enjoyed record low interest rates in recent years and have much of their mortgage paid off.

Money advice site ­MoneySherpa.ie has said the average outstanding balance on a tracker is around €133,000, meaning many homeowners with these loans are in a relatively stable position.

However, a significant chunk will still receive MIR, which is expected to go to 165,000 mortgage holders at a cost of €125m a year.

While the government has said it will be a once-off measure, it would hardly take a brave gambler to bet the scheme could be extended in next year’s budget, which potentially falls shortly before an election.

The Journal asked the Department of Finance for the evidence used to decide on implementing the three policies.

The Department’s response did not cite studies. Instead, much of the response explained how the schemes work or gave assertions without providing supporting evidence.

For example, regarding the landlord tax relief, the Department said: “It has been well-documented that there has been a number of small landlords exiting the private rental sector.

“These landlords provide for the majority of the private rental supply in this country and it is very important for landlords and tenants alike that they stay in the market.”

As discussed, the data from the CSO and RTB is not clear on what is happening in the rental market. Asked for evidence regarding its statements, the Department had not responded to this request at the time of publication.

Combined, the three policies will likely cost taxpayers €450m – €500m per year. While it can be easy to become numb to figures at budget time, this is an enormous amount of money which could do significant good if spent well.

Voters, particularly those on lower incomes unlikely to benefit from any of the three measures, are entitled to an explanation on how any of this will help deal with the state’s many housing issues.

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