Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 48:

In page 77, after line 32, to insert the following: “Report on the tax treatment and economic impact of institutional investment in the housing market

31.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the tax treatment and economic impact of institutional investors and corporate landlords in the housing market, including their impact on tenure, affordability, property price and rental price dynamics.”.

We have had this discussion numerous times. There is a serious issue in how we are treating the taxation of institutional investors and corporate landlords in the housing market, including in the context of their impact on tenure, affordability, property prices and rental price dynamics. For that reason, we are seeking that a report be provided by the Minister. This is concerned with tax treatment and the broader economic impact that institutional investment in the housing market has had.

I will begin with the tax treatment of real estate investment trusts, REITs, and Irish real estate funds, IREFs. As the Minister knows, because we have discussed this on numerous occasions, these entities do not pay any corporation tax on their rental profits and they pay no CGT on the disposal of their assets. These are tax advantages that domestic landlords or other companies in the State do not enjoy, and that is not fair. The Minister made claims earlier that I completely and utterly refute. We need a proper, active and well-functioning rental sector, but our system is unfair. Small landlords or landlords with a number of properties they are renting out have to pay corporation tax on their rental income and CGT on the disposal of their assets if they so do at a future point in time. Yet these REITs and IREFs are exempt from that, which is unfair. In a reply to a parliamentary question I tabled last year, the Minister indicated that it was reported that institutional property investors or IREFs paid an effective tax rate of 17.9% in 2020 based on taxable events of the previous year. However, we know the reporting of that was not accurate because the figure of 17.9% is on taxable events. If the taxable events do not happen, you do not have to pay tax on them. This, therefore, was only on the distribution to shareholders; it was not relative to rental profits, which is the issue. Tax is applied when there is a distribution to shareholders but there is no tax on rental profits. In 2019, tax paid by IREFs, relative to pre-tax profits, was 9.1%, less than the 25% that is paid by any other landlord in the State and less than the 12.5% paid by other companies. Furthermore, they are completely exempt from CGT, as I said.

We have disagreed on this policy issue over the years. The tax advantages enjoyed by these funds are pricing struggling home buyers out of the market and driving up rents. That is clear to be seen. In the vast majority of cases, we know that, despite the commentary on this matter, these funds are buying up properties subject to forward purchasing agreements and not forward funding agreements. We also see that there is a downward trend in tax paid through the dividend withholding tax, which fell from €65.8 million in 2020 to €36.8 million in 2021. We have seen the report, Institutional Investment in the Housing Market, that was commissioned and published by the Department back in February of 2019. That report states:

There is a risk that, should BTR [buy-to-rent] investment continue at current growth rates, market forces would over the long-term create socio-economic polarisation in some urban areas. Under such a scenario average income earners would be priced-out of purchasing or renting from the private market

It goes on to state, "there is a risk that at sufficient scale an institutional investor or group of investors could, over time, develop monopolistic or oligopolistic pricing power". I would argue that both of those things have come to pass. .The Minister will talk about the percentage of properties that are held by these institutions but when we look at where they are concentrated in terms of geographic location, they are a large percentage of a small geographic area. In that scenario, they are developing into a scale where they are able to deal with pricing power.

I would also argue - and it is plain to everyone to see - that average income earners are priced out of the market. It is not a risk anymore; that was identified three years ago by the officials in the Department and it has come to pass, certainly in this city. If you go out to Harold’s Cross or Portobello, you have to pay €750 per month to sleep on the top bunk. That is shameful. In the Minister's constituency up the road in Dublin 7, it is €2,000 for a one-bedroom apartment. You would not want to be stretching in the morning because you would hit both walls if you got out of bed. That is the type of pricing that is happening here, and we see the tax advantages that the Minister has provided year after year to these institutional investors. The Government has pursued this policy over the past decade. It has had drastic consequences for ordinary people, including renters, and has been of huge benefit to investment funds within the market. We need to address this matter.

This threat does not just exist in Ireland; it has also been recognised in other jurisdictions. The Liberal Party of Canada has committed to measures to clamp down on the financialisation of the housing market in Canada. In 2019, the Canadian Parliament passed legislation that, among other things, established a Federal Housing Advocate. This advocate is an independent and non-partisan watchdog that makes recommendations to improve Canada's housing laws, policies and programme. It issued a report in August of this year entitled The Financialization of Housing in Canada. Among its recommendations to the federal Government was the elimination of federal tax incentives to REITS. It noted:

REITs currently benefit from tax advantages. There is no social justification for allowing these firms and their investors to have a tax benefit. Former UN Special Rapporteur Leilani Farha’s Directives note that "governments must repeal tax exemptions or preferential tax status for existing profit-driven REITs and commence taxing them in a manner that is consistent with corporations. Taxes raised should be targeted toward housing that is affordable for those in need."

It further found that the financialisation of housing reduced affordability and was "associated with rising rent levels, displacement pressure ... higher rates of eviction, and gentrification". All of this is similar to what we have here, and these policies are being pursued in both jurisdictions. Thankfully, the authorities in Canada are starting to realise this and take action.

We have raised this year after year. The Minister has decided to continue this situation where there are these sweetheart deals for investors, which are pricing people out of the market and which have buying power that no other landlord has, and as a result, that is driving up rents.

I asked him this question last Thursday. What point does it need to get to before he says he must have done something wrong and will think about this again? How bad does the scenario have to get? How high do rents have to go? How high do house prices have to go? How many more children do we need to see in emergency accommodation? How desperate do people have to be before the Minister recognises that, maybe, just maybe, his policies have contributed to this? I put it to him that he has contributed to it. He was the architect of the taxation on this and it is driving up house prices, causing rents to go sky high and causing serious distress for ordinary families and individuals, and it is time to call an end to it. It is time to roll up the red carpet and treat these institutional investors the same way any other landlord would be treated, whereby they pay tax on their rent roll and pay CGT if they dispose of their asset, with no more special deals for them because Ireland will not do that for them any more. That is the message the Minister should be sending out to them.