New controls on landlords & rental properties

removal of mortgage interest relief.

"I don't think we want to go down that road again".
Speak for yourself Tommy.
There have been other threads over the last few months where it has been obvious that many of the regular contributors aren't in agreement with you on the matter of mortgage interest relief for investment property so stop using 'we'.

Matter of interpretation

My reading of Tommy's post was "<!--EZCODE BOLD START--> <!--EZCODE ITALIC START--> I<!--EZCODE ITALIC END--><!--EZCODE BOLD END--> don't think we {as a nation} want to go down that road again." In other words he was speaking for himself, and expressing his own opinion of what's good for the country.

Re: 4 yrs to get your property back?

Once again, I (we?? :lol ) have obviously (and innocently ) hit a nerve... I wonder how many times Geoffrey read my post before replying?

I saw the 'I'

You know that people don't agree with you on this so stop thinking on behalf of the nation on this one.

Please and Thanks. : )

Cant have it both ways

Investors either agree that the state should not interfere in workings of the property market, i.e. no mortgage interest relief, no tax incentivised property schemes etc. or accept that the government has a role to play in providing some form of security for tenants, unable to afford to buy a property, and in return investors continuing to receive lucrative tax benefits from the state. So which is it to be?

Re: I saw the 'I'

Hi GeoffreyOD,"You know that people don't agree with you on this so stop thinking on behalf of the nation on this one."

Actually quite an amount of people agree that the bacon report was one of those ideas that should have beeen left at that - an idea.This includes a large amount of contributors to AAM.

The actual was in many cases that landlords upped the rent to counter the reduction in their net situation, therefore as rent went up the net amount that leesees had to save went down so in actual fact it was harder in most cases for them to buy their own house.
In addition to this the building industry suffered and had the ledg. not been repealed many jobs would have been lost paticularly the small builders who only have a few employees suffered and would have gone out of business.

Why should the landlord not have the same rights as any other business person in deciding who he wants to do business with and at what rate they should charge?

Bearish

" Investors either agree that the state should not interfere in workings of the property market, i.e. no mortgage interest relief, no tax incentivised property schemes etc. or accept that the government has a role to play in providing some form of security for tenants, unable to afford to buy a property, and in return investors continuing to receive lucrative tax benefits from the state. So which is it to be? "

If you invest in your business should u not get interest relief on the loan that you had to take out. ???
The reason for the tax incentivised property schemes was that there were areas that were so run down that no-one wanted to invest in them. The govt. decided to try and rebuild these areas and the easest/cheepest /most practical way was to give extra tax relief for those who were prepared to spend their money in these areas.

tax relief

Okay, if we want the govt to abolish interest relief for landlords, should they not go the whole hog and abolish the other tax reliefs and deductions they receive, e.g. deductions for refuse charges, letting and management fees, capital allowances etc - to effectively tax all rental income (without deduction) at the recipient's marginal tax rate?

The effect of this would be to reduce (by up to 42%) the landlord's rate of return on their investment, in the absence of a rent increase. As many landlords have purchased their rental properties using hefty borrowings, surely they would, in that scenario, have no option but to increase rents to make up the shortfall and to keep the bank manager happy? In that scenario, who's going to suffer? - yes, once again, the hapless tenant.

Tommy
www.mcgibney.com

ps Geoffrey, lay off the satire, please... It really wasn't that funny in the first place.

regarding opinions on mortgage interest relief.

Many people agree and many people disagree and that is the point I made. Tommy, who said I was trying to be humourous. You are not speaking for me and many other contributors to these forums on this point. That was the point I made and would have left it at that if the point had been taken rather than getting all defensive.

I remember not participating in a contentious thread on this many months back.
I think it was in the general election area.

I think Bearish was one of the ones most strongly opposed to mortgage interest relief but I do remember him being backed up by a number of others.

Abolition of mortgage interest relief wasn't given enough time to work as sellers and estate agents held out rather than reducing asking prices but they could only hold out so long. Just before the re-introduction of mortgage interest relief newspapers were reporting that Estate agents were laying off staff due to a drop in sales but selling prices weren't dropping.

Re: tax relief

Geoffrey, for the nth time, I did not intend to speak for you, or indeed for any other contributor, in my earlier comment. If you bothered to read my post correctly (and as Liam helpfully pointed out) you will see that I said "<!--EZCODE BOLD START--> <!--EZCODE ITALIC START--> I<!--EZCODE ITALIC END--> don't think...<!--EZCODE BOLD END-->, not "We don't think". Far be it from me to get overly "defensive" about your comments but you did seem to (i) misquote me and (ii) call into question my right to make the comments I made. Because of the way you laboured the point, I did wonder were you trying to be ironic or satirical but I'll take your word on it.

I think you're under some sort of misapprehension that the purpose of the Bacon measures was to reduce house prices. This wasn't the case. The purpose of Bacon was to reduce or eliminate the involvement of new investors in the housing market, in order to leave the market open solely to first-time owner-occupiers. Oddly enough, they did succeed in this objective but Bacon and the policymakers failed to recognise that these measures would have such an inflationary effect on rents that they worsened, rather than improved, the plight of those in the rented sector trying to gain a foothold in the property purchase ladder.

Tommy
www.mcgibney.com

Re: Tommy's I and Geoffrey's we

Quote from Geoffrey

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> "You know that people don't agree with you on this so stop thinking on behalf of the nation on this one."<hr></blockquote><!--EZCODE QUOTE END-->

Geoffery, do you not think this order from you (which is not set out as a personal opinion) to Tommy is as imperious as you consider his statement to be?

Keep 'the nation's good' out of the disc. and I'm happy.

No Swizzle I don't. I acknowledged that Mortgage interest relief is a contentious issue. Tommy's post was so condescending and then he tries to lecture me on being satirical.

Tommy, back at ya - lay off the condescension, please...
and if you don't consider 'I don't think we want to go down that road again....' as it appeared in a previous reply to this thread is condescending then I don't know what to say.

I'm outta here. All I'm going to see from here on is people trying to save face.

Swizzle, you confuse me. Your posts sometimes seem to be hints on how to reply more than replies in their own respect.

sorry to confuse you Geoffrey

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> "Swizzle, you confuse me. Your posts sometimes seem to be hints on how to reply more than replies in their own respect. "<hr></blockquote><!--EZCODE QUOTE END-->

Sorry to confuse you Geoffery. Do you have some examples please?

I don't agree that my posts are hints on how to reply - they're not exactly 'swizzle's guide to posting etiquette' are they?

I do agree that my posts tend to be reactive to posts which make assertions without the author thinking or checking facts first. I usually agree with one side or the other in most of the debates (Tommy and others here for example) so I usually only dive in if something I would like to see challenged goes unchallenged (okay so I'm lazy). If you look back through some of my posts (and you're making me feel cyber-stalked lemme tell ya) , you'll see that some of the debates stop when I bring a touch of reality to them.

My opinions for the record:

A landlord should have the right to sell his house whenever he wants to.
The rent payable should be the market rent not a rent-controlled figure.
A lower-than-market-rate rent-controlled amount will make the landlord resent the tenant and want to get them out so he can get market rate for his property.
Any abuse of the property should allow the landlord get his property back straight away.
All expenses of buying and running the property (including mortgage interest relief) should be allowable against tax - property investment is a business and to many people it is their livelihood and should be respected as such.
Geoffrey gets grumpy and threatens to leave the discussion when he's not winning.
I don't find Tommy's comments condescending.

Re: Tommy's I and Geoffrey's we

For God's sake Geoffrey, lighten up! So an innocent throwaway remark such as 'I don't think we want to go down that road again....' is (1) "thinking on behalf of the nation" and, now (2) condescending?

In case you're getting paranoid again, I can remind you that I could hardly be accused of trying to be "condescending" to you, as you hadn't contributed to this thread before I made my point. On that basis, I really don't know what your problem is. Perhaps you're reading far too much into what was, let's face it, a rather innocuous statement.

Maybe everything won't appear as gloomy tomorrow, Geoffrey. At least il will be Tuesday...

handbags at dawn

>swizzle said:
>A landlord should have the right to sell his house whenever he wants to.

The legislation doesn't say any different. (Did you read it?)
Personally I think a reasonable period of notice should be required. What that period is could be hammered out.

>The rent payable should be the market rent not a rent-controlled figure.

The 'market' rental costs in certain parts of this country are artificially high. I'd argue that there is a nice cozy cartel in operation, and that's never a good thing. The present 'throw up substandard rental boxes and charge through the nose for them' attitude is going to harm everyone in the longer term.

>A lower-than-market-rate rent-controlled amount will make the landlord resent the tenant and want to get them out so he can get market rate for his property.

If security of tenure were introduced then tenant B would have the same rights as tenant A, so resentment shouldn't be a factor. Obviously some landlords would be unable to make the excessive profits that are attainable at the moment (not that I'm suggesting ALL landlords do so).

>Any abuse of the property should allow the landlord get his property back straight away.

Any breach of lease contract removes security of tenure. I take it your concern lies in the 'straight away' comment?

>All expenses of buying and running the property (including mortgage interest relief) should be allowable against tax - property investment is a business and to many people it is their livelihood and should be respected as such.

Don't see any problem with this, other than convincing Charlie.

>Geoffrey gets grumpy and threatens to leave the discussion when he's not winning.
>I don't find Tommy's comments condescending.

I think they need to get a room.

re: handbags at dawn

Hmmm - Tommy and Geoffrey alone in a room - I don't see it as the start of a beautiful relationship somehow.

Alastair, you seem to think my comments were a 'wish-list' of things that aren't in place at the moment. It was just a list of where I stand on the issue of the respective rights of landlords and tenants (as Geoffrey implied that I make comments about comments rather than stand-alone comments).

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> "If security of tenure were introduced then tenant B would have the same rights as tenant A, so resentment shouldn't be a factor."<hr></blockquote><!--EZCODE QUOTE END-->

Not true - in countries where security of tenure is a feature, it is usually only given after a certain period of residency e.g. 12 months. I think landlords would be more likely to get new tenants every year rather than risk seeing their real income erode over time.

My brother has got a property in the UK where the rent is about 50% of the market rate and, by law, this cannot be substantially increased. He cannot sell the property with vacant possession - the guy is now a sitting tenant. He wants to sell to buy a bigger house in Dublin but with a sitting tenant, the market value of the property is about 25% lower than it would otherwise be. I don't think this is fair.

BTW he regularly gets letters from companies which specialise in buying up properties with sitting tenants (at a big discount of course) and then somehow 'persuading' them to leave. Anybody want to see that happen here (and don't think it wouldn't)?

Removing the reliefs

Possible effect of mortgage interest relief and other relieves, aimed at property investors, being removed:

Tommy states that this will cause an increase in rents as investors who recently bought properties at high valuations seek to cover their mortgage payments via increased rents. Economics 101 - if you put prices up, demand tends to fall assuming the good has some price elasticity. In my opinion, based on being a renter myself and most of my friends being renters, rental levels in Dublin have reached an affordability ceiling and therefore tenants are increasingly sensitive to rent hikes. If mortgage interest relief were removed, landlords would find it extremely difficult to increase rents to compensate. Landlords would either have to make up the difference themselves or sell their property. As I suspect most new buy-to-let landlords would be hard pressed to make up the difference themselves, many would be forced to sell thereby increasing the housing supply and reducing house prices. FTBs are happy, tenants are happy as there is less demand for rental accommodation due to previous renters buying affordable their own place, the tax man is happy as he increases the total tax take. The hard pressed property investors, accountants, tax advisers and estate agents (whom I assume the majority of people are on his tread) are none too happy.


Jem Quote:
“If you invest in your business should u not get interest relief on the loan that you had to take out. ???”

The rationale behind the tax man allowing businesses to write off interest on loans used to finance capital investment, is that it is hoped such a measure will encourage businesses to increase productivity, increase employment and thereby increase the welfare of the entire economy. Such a measure may reduce the initial tax take in the short term, but businesses are expected to give something back to society in the long-run. Mortgage interest relief on the other hand appears to only benefit the investor under current legislation. I’d hardly call the provision of 12month leases a service to the economy. Why should a tenant’s taxes go to effectively subsidise the cost to his landlord of buying the property in which the tenant resides, when that same tenant has little security other than some 12month lease. I’m not normally in favour of state intervention to either support producers (landlords) or customers (tenants) but when the market is not supplying what the customer wants – in this case long-term leases, something is wrong with the market mechanism.

Just in case anyone missed it, I have an interest to declare – I am a renter. Anyone else any interests to declare???

Re: Removing the reliefs

Hi Bearish,
My point is not solely that removing interest relief for landlords will cause rent hikes for tenants, but more a general observation that this is what happened when the govt (on Bacon's say-so) did so in 1998, and a prediction that this experience would be likely to be repeated if the measure was re-introduced.

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> If mortgage interest relief were removed, landlords would find it extremely difficult to increase rents to compensate. <hr></blockquote><!--EZCODE QUOTE END-->

In the post-Spring 1998 period, many commentators and politicians scoffed at claims that rents would go through the roof as a result of Bacon, using the logic that rents had already reached a ceiling at that stage, that tenants could not at that stage afford to pay any more rent, and on that basis rents could not increase again. We found out pretty quickly that this was not the case and that many tenants literally had to beggar themselves by paying excessive rents with the only alternative being to sleep on the streets. As the State chose not to provide social housing by building houses of its own to cater for these people, many unfortunates did end up homeless.

Who is to say that the same won't happen again? To go back to economics, housing is not an optional purchase, it is a basic human necessity, like food or clothing. When Communism collapsed in Russia a decade ago, the people of Moscow found themselves impoverished. That did not stop them having to pay ridiculous amounts for food when the "robber capitalists" took over the main arteries of food supply in the city and began overcharging for basic foodstuffs like bread, meat, and vegetables.

There is little, if any, price elasticity in the housing market in Ireland because there are chronic shortages of accomodation in almost every sector of the market. These shortages have now existed for the better part of a decade. Which is precisely why any policy move to further worsen these shortages would be catastrophic.

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> Landlords would either have to make up the difference themselves or sell their property. As I suspect most new buy-to-let landlords would be hard pressed to make up the difference themselves, many would be forced to sell thereby increasing the housing supply and reducing house prices. <hr></blockquote><!--EZCODE QUOTE END-->

The problem in that scenario is that much of the existing rented housing stock would invariably be sold to first-time buyer owner-occupiers. Fine and dandy in theory, but the problem with this scenario is many existing tenants (esp. those not in a position to buy a house themselves) would find themselves homeless as their homes are sold from under them.

This scenario is worsened by the fact that the average numbers of people living in the average "owner-occupier"-owned property is a lot less than in the average landlord-owned property.

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> The hard pressed property investors, accountants, tax advisers and estate agents (whom I assume the majority of people are on his tread) are none too happy.<hr></blockquote><!--EZCODE QUOTE END-->

Remember, nobody did better out of the Bacon restrictions than existing rental property owners who saw their rental incomes rocket while others were effectively barred from entering the market to compete with them, leaving them with an effective monopoly.

I'm puzzled by how you think that accountants and tax advisors would lose out as a result of landlords having to pay more tax. Isn't it true that tax increases (such as the effective tax increase you're proposing) fuel increases in demand for accountancy and tax advisory services in order for individuals to legally mitigate the amount of tax which they owe?

Tommy
www.mcgibney.com

I disagree

Tommy, you are obviously not a renter if you think rents are capable of increasing significantly in 2002. 1998 is a lot different to 2002. In 1998 rents started from a much lower base, the economy was booming and most people were experiencing significant increases in real disposable income, especially the young professionals that make up a significant portion of the Dublin rental market. Fast forward to 2002 – real disposable income is stagnating or will likely fall due to high inflation and increased taxes, many of this year’s graduate class cant get a well paid job in Ireland, particularly in the IT and financial services sectors and many existing professionals are losing their jobs or at least getting little or nothing in the way of pay increases. Many young Europeans who moved to Dublin in the late 1990s are moving back home as costs in Dublin have surpassed most other European capitals. Housing may be a necessity, but where you choose to live is not set in stone - the Irish have never been afraid to move abroad when times got tough. You’ll also find many people, particularly those looking to buy, moving back in with their parents or relatives rather than pay another €50-€100 of “dead money” a month to a landlord. Rents in my view have reached a ceiling and I for one certainly wouldn’t pay any more. I therefore have to disagree with you that removing mortgage interest relief would hurt the majority of tenants via rent hikes.

Irish people seem to prefer owning their homes than renting. Giving very generous tax breaks to investors to encourage them to buy more property is naturally reducing the ability of FTBs to buying those same properties as FTBs tend to be in a weaker financial position than someone who already owns a property, i.e. an investor can outbid a FTB. It seems strange that the government should on one hand recognise the that most Irish people want to own their own home, while at the same time encourage investors to buy properties. Investors would likely not buy Irish property without tax breaks, i.e. tax reliefs are an effective subsidy to property investment.. Eliminating them would result in most property investments being unattractive to the Investor. . If a property investment doesn’t make sense on its own merits ( i.e. excluding tax breaks) then property valuations are obvisously too high! Eliminating tax breaks will therefore likely reduce property prices as taking the investor out naturally reduces demand, and as we saw late last year before Charlie came to the rescue, causes property prices to fall.

I take your point regarding a higher number of people in a rented accommodation than a PPR, however the rent-a-room scheme might help alleviate in the short term. Affordable housing schemes, increased supply of property from investors selling plus new developments and falling prices would solve this problem in the medium to long term.

Quote:
“Remember, nobody did better out of the Bacon restrictions than existing rental property owners who saw their rental incomes rocket while others were effectively barred from entering the market to compete with them, leaving them with an effective monopoly.”

Isn’t that because the existing investors were still able to claim relief so long as it had been bought pre- Bacon? Getting rid of tax relief for all investors, both existing and future would surely create a level playing field.

Having investment properties usually increase the complexities of a persons tax affairs for which accountants and tax advisors get paid to help sort out. More investment properties therefore tend to mean more fees for these professions. I fail to see how people could legitimately reduce the tax they owe on rental income if all relief were removed. So why would this give accountants and tax advisors more business.

Re: Removing the reliefs

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> So why would this give accountants and tax advisors more business.<hr></blockquote><!--EZCODE QUOTE END-->

Well for a start high-taxpaying taxpayers tend to spend more on tax shelters such as BES, pension schemes etc (which are generally formulated and promoted by financial and tax advisors) than those who pay comparitively less tax.

Remember, there was no shortage of demand for accountancy and tax consultancy services (both legitimate and otherwise) back in the grim days of '80s when we had very high tax rates, even though the wider economy was in a mess at the time.

BTW, I find it odd that you seem to imply that I have some sort of vested interest in the housing market that somehow invalidates my opinion when I don't agree with you. If I were a dentist or a teacher, rather than an accountant, would my opinion count for more? Certainly, as a would-be first time buyer, you may well have a vested interest in wrecking the private rental housing market (no matter how many people’s lives are affected as a result) but you will notice that I haven’t questioned your right to speak on this topic.

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> Tommy, you are obviously not a renter if you think rents are capable of increasing significantly in 2002...Rents in my view have reached a ceiling and I for one certainly wouldn’t pay any more. I therefore have to disagree with you that removing mortgage interest relief would hurt the majority of tenants via rent hikes.
<hr></blockquote><!--EZCODE QUOTE END-->

Rents have increased exponentially in Dublin in the past 5 years not because everyone's wages were rising (tell that to the teachers, nurses and low-paid civil servants) but because the laws of supply and demand meant that a large pool of tenants effectively outbid each other paying higher and higher rents to secure a place to live from a declining and stagnant pool of rental properties.

The example of the impoverished Russian pensioners and widows who found themselves paying a fiver for an apple or a tenner for a loaf of bread in the early 1990's would seem to indicate that people would indeed pay even more ridiculous amounts in rent if the only alternative was the park bench.

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> Affordable housing schemes, increased supply of property from investors selling plus new developments and falling prices would solve this problem in the medium to long term.<hr></blockquote><!--EZCODE QUOTE END-->

Yes, but homelessness, by its nature, is a short-term problem. If you haven't a place to sleep tonight, it matters little what policy moves are afoot to solve the problem in a few months time. Are you really comfortable advocating a situation where large numbers of tenants would be turfed out onto the streets because their landlords could not afford to keep renting their properties?

Remember, in the past few years, the State has housed (and paid the rent for) many, many thousands of social welfare recipients in private rented accomodation under the "rent allowance" scheme. It is no exaggeration to say that most of these people would be homeless if they lost their accomodation as a result of their landlords going out of business. The existence of this sector within the private rented accommodation sector is the one reason why, thankfully, your proposal will never be adopted by any government, no matter who gets in.

Being up front

Tommy I think you are getting slightly sensitive on this topic. Nowhere in my posts have I questioned your right to speak on this or any other topic. However, just as you have to look carefully at the institution that issues a recommendation on a quoted company or promotes a particular investment product, so to is it important to understand the motivation behind a person’s argument. I take it, that’s why Brendan asks people to declare their interests. Lets be clear on this: I have declared my interest as a renter and therefore have an interest in seeing falling rents and/or better protection of my tenant rights. You, as an accountant and I presume home-owner, have an interest in seeing the continuation of property reliefs and rising house prices. There is nothing wrong with either of our positions, but I think it is important for people to understand our motivations in any debate.

By the way, I do not classify myself as a potential FTB as I have no intention of living in Ireland for any serious length of time. Therefore I’m not out to “wreck the private rental housing market” so that I might get a cheaper house.

Getting back to my overall point. I fail see why the Irish tax payer should subsidise the activities of property investors, when those same investors are unwilling to be subjected to regulation that would improve their customers rights. Property tax reliefs represent a transfer of wealth, via the taxation system, from tax payers (many of which are tenants) to property investors. I can think of better ways of spending tax payers money. With the government finances deteriorating, I think it might be better to cut these types of reliefs that tend to benefit wealthier members of society, and more importantly distort the free workings of a market, than cutting the aid we provide to third world countries. I hope Im not sounding like some “left wing pinko” but I’d prefer that my taxes are spent on projects that will provide some benefit to society than to someone else’s Bank account.

If the government in its wisdom (and Im not casting any dispersions on possible FF ties to the construction industry) believes that property tax reliefs should remain in place, then I don’t think it is too much to ask investors to provide an improved service to tenants in return. At present there are many students desperately searching Dublin for accommodation. There process seems to repeats itself every year with the same horror stories of students having to take some dingy flat and paying some outrageous rent. Students are hard pressed enough with recent hike in fees and the general increased cost of going to college, without having to spend a month trying to find accommodation. Surely legislation that would allow tenants a 4 year lease (same length as the average degree) would help these students greatly. It would also help many other working tenants to be able to plan ahead over a longer time horizon than a year. I think the proposed legislation is a small price to pay for the benefit that property investors currently receive from the tax payer. Perhaps someone would like to explain why property investors should get the best of both worlds????

Qoute:
“Rents have increased exponentially in Dublin in the past 5 years not because everyone's wages were rising (tell that to the teachers, nurses and low-paid civil servants) but because the laws of supply and demand meant that a large pool of tenants effectively outbid each other paying higher and higher rents to secure a place to live from a declining and stagnant pool of rental properties.”

The only way people can outbid others, is if they have more disposable income with which to bid with.

Qoute
“Are you really comfortable advocating a situation where large numbers of tenants would be turfed out onto the streets because their landlords could not afford to keep renting their properties?”

This is just plain scare mongering. The removal of property reliefs would result in a process of change happening over time, not over night.