GENERATION RENT A New Deal for Renters and Landlords

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1 AUGUST 2015 GENERATION RENT A New Deal for Renters and Landlords Fianna Fáil Policy Document BARRY COWEN TD FIANNA FÁIL SPOKESPERSON ON ENVIRONMENT & LOCAL GOVERNMENT

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3 GENERATION RENT A New Deal for Renters and Landlords Executive Summary Fianna Fáil proposes a bold 3 step new deal for renters and landlords based on Tenants Rights and Rent Certainty, Quality of Accommodation and Encouraging Investment: These plans will help create a stable, viable rental market for over 457,000 tenants and some 200,000 landlords. 1. Tenants Rights and Affordable Rent: Family Tenure to strengthen security for families and long term tenants renting their homes Delivering Affordable Rent A new Deposit Retention Scheme 2. Quality of Accommodation: Overhauling the PRTB Stronger local authority role in landlord certification to ensure quality accommodation Strengthening Landlords Rights 3. Adequate Supply Encouraging Investment: A new tax regime for landlords to encourage investment Tax changes to help negative equity involuntary landlords 150,000 new homes by

4 Introduction The massive growth in the size of the rental market in Ireland with over 300,000 households renting privately, some 20% of all households, calls for a new deal for renters and landlords. Rising rents, poor quality homes, the blight of homelessness and a lack of security of tenure are major issues that need to be addressed. From a landlord s perspective the government must recognise the need to encourage greater investment in the area through tax incentives to invest combined with measures helping involuntary landlords who are in negative equity and need to rent their homes. New, quality housing stock and substantial investment in renewing existing homes is vital in helping to create a vibrant, modern rental market. The New Deal for Renters and Landlords aims to boost renters rights and help create a modern, professional rental market that will accommodate a variety of households, stabilising the overall housing market. This means striking a balance between firming up landlord and tenants duties and a creating a system that encourages investment in new and current housing stock. This policy document complements Fianna Fáil s primary housing document Supporting Home Ownership A National Housing Roadmap which was launched in April It forms part of a holistic approach to housing supply and a stable rent market. Rather than relying on one crude instrument such as rent control our policy approach adapts a broader view of increasing supply, securing occupancy, providing rent certainty and enhancing landlord s rights. Fianna Fáil is committed to supporting people who want to own their own home while strengthening protection for renters and encouraging greater investment. Fianna Fáil is committed to helping a generation of renters and landlords forgotten about by the current government. The New Deal for Renters and Landlords marks a serious commitment to improving quality of life for a forgotten section of society while enhancing Ireland s attractiveness in which to live, work and raise children. 4

5 Tenants Rights and Affordable Rent Fianna Fáil is committed to: Family Tenure to strengthen security for families and long term tenants renting their homes A new Deposit Retention Scheme Delivering Affordable Rent Family Tenure to strengthen security for families and long term tenants renting their homes The lack of security of tenure is a major issue inhibiting the development of a strong reliable rental market in Ireland. Unlike the European norm, Irish leases are primarily short term one year leases. This generates great uncertainty for families and other long term renters, limiting the appeal of renting for those for whom home ownership is not a preferred option. In particular families with children require stability and certainty rather than the current situation where tenancy can be brought to an abrupt end. Fianna Fáil will introduce legislation that will enshrine a long term family tenure lease to reform Part 4 of the Residential Tenancies Bill Revamping Part 4 tenancies will help provide greater security to tenants such as families, stabilise the rental and housing market as well as allow landlords the assurance of long term financial planning. Specifically, this involves replacing the 4 year tenancy cycle with a move towards indefinite leases which will enhance security of tenure. Indefinite leases would be voluntary for landlords and tenants to engage in to their mutual benefit. Tax incentives such as full mortgage interest relief against rental income will be put in place for landlords that engage in family and long term leases. The full restoration of mortgage interest relief against rental income would cost 95m. Based on the DKM rental survey some 65% of tenants renting for over 4 years there is potential for up to 65% take up of long term tenures. Total cost to the exchequer would be 62m. The notice to quit criteria will be tightened up by Fianna Fáil. Currently the broad range of allowable reasons that can be given for removing renters weakens tenants rights and reduces their stability. Notices to quit that are contested by tenants will be subjected to PRTB review. Landlords will have to provide proof of intention to sell. Additionally, expanding the notice to quit duration to 6 months for leases beyond 3 years will strengthen stability. Tenants notice to quit will also be extended to two months for leases beyond one year in order to improve stability for landlords. A New Deposit Retention Scheme Deposit disputes remain the single biggest source of cases before the PRTB. Disputes over refusals to pay back deposits or only partly refunded deposits are a serious bugbear for renters and an ongoing source of conflict for landlords. The government has consistently delayed its own legislation in the area, resulting in continuing disputes and general stress on the rental sector. Failure to re-pay deposits has a serious financial impact on tenants, particularly those in low income groups looking for alternative accommodation. For many tenants the deposit is simply transferred onto their next property, delays or failure to re-pay it jeopardises their future accommodation options. In a number of cases the breakdown of trust between landlord and tenant results in the final month s rent being unilaterally withheld damaging the financial planning of the landlord and future references 5

6 for the tenant. With the housing market making a tentative recovery, particularly in the Dublin area where renting as a choice of tenure is highest, it is vital that a new structure is put in place to protect tenants deposits. Fianna Fáil advocates a custodial deposit scheme under the remit of the PRTB and will bring in legislation to develop this model. The scheme would involve ramping up measures for noncompliance and reducing administrative costs to ensure the system was self-financing. Under this model, all tenants would benefit from increased financial security while low income and marginal households would require less exceptional social welfare payments to compensate for lost deposits. Delivering Affordable Rent Creating Affordable Rent Units for key workers in Dublin Rent increases for new tenancies capped by median benchmark for similar properties in the same area Rent increases within tenancies capped by average increase in area bands subjected to on going review Increasing Rent Supplement Ceiling Ending Rent Supplement Discrimination Spiralling rent levels in Dublin and other cities is hammering disposable income levels, forcing many marginal families into unsuitable accommodation and exacerbating the blight of homelessness. Creating a rental market where quality accommodation is affordable for a social mix of households involves striking a balance between encouraging investment and protecting tenants. Calls for outright rent controls are disingenuous and will ultimately harm the low income households such measures aim to protect, by reducing the amount of homes available for rent. Instead we need third generation rent certainty measures that allow landlords to make a fair profit while ensuring genuine affordability for renters. A healthy rental market must create a stable environment for investors and renters alike to plan financially. Fianna Fáil proposes drawing on experience from the continent to help create a more stable long term environment for both landlords and tenants. Fianna Fáil is committed to achieving a genuine social mix in developments moving away from welfare only housing. Our commitment in our primary housing document Supporting Home Ownership A National Housing Roadmap to restore Part V to 20% and remove exemptions reflects this. Creating a new affordable rent sector earmarked for low income households and key workers with limited income will help to build vibrant new developments. This will involve attracting investment into building projects which will then be run by Voluntary Housing Associations. 25% of these units will be earmarked for social housing and 75% for key workers with limited income such as Gardai, Nurses, construction workers etc. Rents will be set at 70-80% of the market rate. In order to secure this investment we will enable local authorities to establish step in guarantee agreements if the Voluntary Housing Association fails to meet its obligations. In addition the Minister for Social Protection will make adjustments to pension reserved asset rules to allow pension funds to invest in this new sector. A new affordable rent sector will help to keep key workers in the city and tackle social housing waiting lists. 6

7 Establishing rent certainty is important to a functioning rental system particularly in the short term given the delay in increasing supply. Fianna Fáil proposes specific legislation to establish a median benchmark per sqm set annually by the PRTB per geographic area to set initial rent levels for new leases. Newly built and renovated units will be exempted from this measure in order to encourage investment. Rents will be indexed to a four year historical area average (from 2011 to 2015) and rent increases both within and between tenancy agreements will be restricted to within10% (+ / -) of the historical area rent index. For existing leases, we will extend the rent review notice from 28 days to three months and require landlords to present clear evidence of rent hikes in similar adjacent properties to justify the increase. Rent increases will be based on the average rent rise for comparable properties in the same area bands set out by the PRTB based on local data collection with changes restricted to within 10% of the average over a four year period. These rent certainty measures will be subjected to a 5 year sunset clause whereby the Oireachtas would have to pass another set of measures to renew the law. This will ensure that the operation of the measures are thoroughly reviewed and measured in light of other housing supply steps which will have a medium to long term impact. The rent certainty measures are designed to alleviate the short term burden of increases. The homelessness crisis is in the short term being driven by unaffordable accommodation. Raising the cap on the rent supplement will help address the spiralling levels of families struggling to get accommodation. In the medium to long term boosting supply is key to tackling the blight of homelessness scarring our cities. Fianna Fáil is committed to raising the rent supplement ceiling in Dublin, Cork and Galway by 11m. Under the counter payments such as has been evident in Rent Supplement tenancies would be subjected to sanctions by the PRTB. Using rent supplement recipient as criteria for refusing tenancies would also be made illegal. This would put to an end the phenomena of No Rent Supplement advertisements on vacant properties. 7

8 Quality of Accommodation Fianna Fáil is committed to: A national inspection regime Local Authority Quality Accommodation Certificate Reforming the PRTB Strengthening Landlords rights Stronger local authority role in ensuring quality homes - National Inspection Regime - Local Authority Quality Accommodation Certification The 2004 Private Residential Tenancies Act introduced by Fianna Fáil significantly transformed the rental accommodation market in terms of quality and security. Over a decade on from that act further work must be done to continue to improve the overall quality of homes available. Warm, comfortable homes are a right for all citizens regardless of their choice of tenure. Local authorities have a major role to play in maintaining and improving private rented accommodation standards. Best practice exchange between local authorities for inspections is a useful mechanism to ensure that local authorities can highlight and prioritise high risk properties. A national inspections regime should be established by the Department of the Environment, Community and Local Government outlining the need for a clear regularity of inspections. A Local Authority Quality Accommodation Certificate to be issued once every three years will help to build up a strong level of quality homes. The certificate should be based on a points system across a range of criteria such as insulation, water supply, quality of household s conveniences etc. The new certificate system will be similar to BER system and will help ensure the highest standards are maintained in rental accommodation. Renters can use the certificate and rating to assess the quality of the house. 8

9 Reforming the PRTB - Rent Data Collation - Information Campaigns - Reduced complaint waiting times In order to re-balance rights and responsibilities between landlords and tenants the PRTB must have a ramped up role with additional resources. The government has whittled away its staff over the past four years leaving it unable to deal effectively with complaints and broader issues. Tenants and landlords are suffering with long waiting times and inadequate support as a result. A reformed PRTB will have additional duties and an increase in resources to ensure it can carry out its work effectively. Reducing complaint waiting times will be a priority for a reformed PRTB. Expanding the data collection remit and capacity of the PRTB in terms of rent comparison and assisting Local Authorities in quality assurance inspections will be vital in transforming the private rental market. Linked with this expansion is the need for the PRTB to promote greater awareness of tenants rights and responsibilities. Utilising traditional and social media to create a greater knowledge around renters rights is important in ensuring all households have access to the legal entitlements. This will help ensure the vast majority of properties are registered and subjected to the full remit of rules and regulations necessary to create a healthy private rental market where tenants and landlords alike have stability and security. The expansion in the role and resources of the PRTB will be financed via an increase in registration charges ensuring the agency remains self-financed. Strengthening Landlord s Rights - Fast-tracked Rogue Tenants Eviction A strong rental market means a balance between rights and responsibilities for both tenants and landlords. A small number of tenants consistently engage in anti-social behaviour, refuse to pay due rent and inflict serious damage on property. Landlords deserve to have their property and investment protected. Fianna Fáil will tighten up rules for rogue tenants who refuse to pay rent, engage in consistent anti-social behaviour and damage property. Fianna Fáil will amend the Residential Tenancies Act to create a new fast tracked Rogue Tenants section in the PRTB to handle cases from tenants who have a serial record of such instances. 9

10 Adequate Supply Encouraging Investment Fianna Fáil is committed to: Reduce Commercial rates on residential units above commercial premises Allowing Local Property Tax as an Expense against taxable rental income Cheap loans from Strategic Investment Fund to promote rental specific accommodation in Dublin and other cities Tax changes to help negative equity, involuntary landlords A new tax regime for landlords to encourage investment - Reduce Commercial rates on residential units above commercial premises - Allowing Local Property Tax as an Expense against taxable rental income - Cheap loans from Strategic Investment Fund to promote rental specific accommodation in Dublin and other cities A strong rental market needs responsible landlords and tenants. Currently landlords are under severe pressure AND are leaving the rental market in droves without other investors stepping in to provide units. Establishing a taxation framework that incentivises investment in new homes and renewing existing stock is an integral part of revamping the Irish rental market. Landlords must be encouraged to take the risk in capital expenditure on housing stock. The tax regime should create an environment that facilitates greater professionalisation and heightened expenditure levels on homes, old and new. Bringing new stock on line, built and maintained to the highest standards will ensure that renters have access to affordable, comfortable homes into the future. Fianna Fáil proposes the following measures to revitalise private spending on the rental housing stock: Reduce Commercial rates on residential units above commercial premises This will encourage units above commercial premises to be fully occupied in order to reduce the commercial rates burden on the whole area. Allowing Local Property Tax as an Expense against taxable rental income Landlords incur legitimate expenses while investing in accommodation. The Local Property Tax should be allowable as an expense to reduce the tax bill of landlords in order to encourage further investment in the rental sector. This will cost approximately 25m per annum. Cheap loans from Strategic Investment Fund to promote rental specific accommodation in Dublin and other cities Lack of supply is driving the dramatic increase in rent levels that has characterised the rental market for the past number of years. This damages the competiveness of the capital, the attractiveness for new firms to set up here and the life and vibrancy of the area. Promoting increased rental accommodation will help ensure Dublin remains cost competitive and can tackle the increasingly evident social problems of people being excluded from stable accommodation. The Strategic Investment Fund should be directed to invest in private home building including home suitable for rent. These low cost loans for rental accommodation would encourage greater investment and 10

11 building levels to meet demand. Fianna Fáil published Supporting Home Ownership: A National Housing strategy which outlines a series of measures to ramp up overall new build construction across Ireland with the target of 150,000 new units by This will be achieved via Strategic Investment finance, revised density guidelines and shaking up the Irish mortgage market. Many of these homes will be available for investing and renting. Tax changes to help negative equity, involuntary landlords Stabilising the property market will help to alleviate the pressure on homeowners in negative equity. Another immediate measure to help address the issue and open up additional properties to the private rental market involves small changes to the tax code to facilitate renting. In the absence of being able to sell, many families are choosing to rent their home and in turn rent a new property for themselves. Anyone that takes this course of action faces a mind boggling array of charges including income tax, universal social charge, non-principle private residence tax, fees to the Private Residential Tenancies Board and PRSI on rental income. They also face losing their mortgage interest relief and their tracker rate. This means more and more families are trapped in negative equity even when they may wish to move for work. We propose a simple change to the income tax code which would allow people who bought their house between 2000 and 2009, who wish to rent out their home, to offset this payment against the rental income for a period of 3 years. In practical terms this would substantially reduce or eliminate the tax bill on their rental income. This would only be available in respect of a property that was someone s principle private residence. It would not be a subsidy to investors. 11

12 Conclusion A New Deal for Renters for Landlords The rapid changes in tenure in Ireland present a fresh challenge to how we provide affordable, comfortable homes in the right location for people. Our competitiveness and quality of life is reliant upon putting forward strong measures to ensure we have a balanced rental market between landlords and tenants. A range of measures addressing supply, secure occupancy, rent certainty and landlord s rights is vital to establishing a strong framework for a stable rent market. This New Deal for renters and landlords presents a series of steps that will revamp the quality and quantity of stock and bolster renters rights. Strengthening the rental sector will help to stabilise a volatile housing market while promoting Ireland s attractiveness to inward investment and skilled workers, vital in securing Foreign Direct Investment. More importantly the New deal for renters and landlords will significantly enhance the quality of life of over 457, 000 renters and 200,000 landlords across the country. It s time for government to start recognising Generation Rent and putting into place real actions to deliver for a forgotten generation. 12

13 Appendix Costings Costs to the Exchequer Table Rent Supplement Ceiling Increase 11m Allowing Local Property Tax as an Expense against taxable rental income 25m Family Tenure Tax Incentives 62m Local Authority Quality Accommodation Certificate Fund 10m Total 108m 13

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