Rapid Evidence Assessment of Changes to Mortgage Interest Relief in Ireland 1998 to 2016
As in England and Wales, the private rented sector in Ireland plays a fundamental role in the functioning of housing provision. Whilst owner occupation remains the largest tenure, the Irish government has recently made significant and frequent changes to the administration and taxation of the private rented sector, including changes to the taxation subsidy Mortgage Interest Relief (MIR). In 1998, acting to reduce inflationary pressures, MIR was removed as part of a raft of changes to housing taxation and subsidisation. By 2002 that decision was reversed, with the reintroduction of MIR at 100%. In 2009 as a response to the financial crisis the government reduced the level of MIR from 100% to 75%. In 2015 this change was reversed for properties with tenants receiving social support, and in 2016 it was announced that there would be an incremental change annually to 100% for all landlords by 2021.
This assessment included a desk based review of the academic and public literature on MIR in Ireland between 1998 and 2016, and nine telephone interviews with landlords, their representatives, academics and private practice analysts in November 2017.
The widespread changes to policy, subsidy and taxation that have taken place in Ireland have occurred at a turbulent time for the economy, house prices and rental income. Disaggregating, with a high degree of certainty, the impact that changes to MIR have had upon landlords and the private rented sector collectively is challenging. The direct impact of altering the level of subsidy through MIR appears to have had very little impact upon landlords collectively and the private rented sector as a whole. This may be explained through three key findings:
- Fluctuations in rents and house prices have relativised the changes to MIR;
- Accidental landlords are a significant proportion of all landlords, many of whom are ‘locked in’ and not able to react to minor financial incentives; and
- Recent trends suggest that new landlords are frequently cash buyers and therefore MIR is not supporting significant numbers of leveraged landlords to enter the market.
These findings suggest that small scale changes to MIR are unlikely to act as a significant incentive or disincentive in markets that are not stable or where large proportions of landlords are not significantly affected by the changes. However, the level of MIR may act as an indicator of the government’s attitude towards landlords and therefore its function as a social signal may also act as a (dis)incentive beyond the direct impact upon landlord’s finances.