Brendan Griffin (Kerry, Fine Gael)
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99. To ask the Minister for Finance if he will examine ways of reducing the tax component of residential rental prices to ease the burden on renters; if an emergency finance Bill will be considered to implement such a measure to allow these reductions to be passed on to renters immediately; and if he will make a statement on the matter. [7410/16]

Michael Noonan (Limerick City, Fine Gael)
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According to the Private Residential Tenancies Board, rents increased 9.8 per cent on an annual basis in Q4 2015. At a regional level annual growth in the Dublin market was 9 per cent in Q4 2015. Similar rental inflation was experienced outside of Dublin with rents increasing by 9.9 per cent compared with Q4 2014.

The indications are that this increase is being driven by an excess of demand over the available supply in the market. For example, the Daft Rental Report for Q4 2015 noted that rental inflation has been driven by a shortage of rental properties. This lack of availability is primarily attributed to the current housing output falling short of the demand for housing. Forecasts for housing demand suggest that an average of around 25,000 units are required annually over the medium to longer term. At present, the sector is falling well short of this target with completions in 2015 of just over 12,500 units.

In such market conditions, it is likely that a reduction in the tax payable by landlords, such as that proposed by the Deputy, could lead to increased profit for landlords rather than a reduction in rent paid by tenants.

It must also be noted that the level of income tax payable by a landlord in respect of a given amount of rental income can vary significantly, depending on the level of deductible expenses incurred by the landlord.  For example, in the case of rental investment properties which have been purchased using loan financing, it could be expected that the net taxable rental income from a newly-purchased property would be much lower than the net income from an equivalent property owned for a longer term by the landlord, as the deductible interest expense incurred would be higher.

With regard to rented residential premises, a landlord may, in general, deduct 75% of the interest paid on borrowed money used to purchase, improve or repair rented premises when calculating rental income.  The cost to the landlord of any goods provided or services rendered to a tenant and the cost of maintenance, repairs, insurance and management of the property are deductible. Wear and tear allowances are also available in respect of expenditure incurred on fixtures and fittings provided by a landlord for the purposes of furnishing rented residential accommodation.

The Deputy will also be aware that I introduced in Finance Act 2015 a new tax relief which allows a full 100% mortgage interest deduction where a landlord undertakes, for a period of at least three years, to provide accommodation to tenants in receipt of social housing supports.  The relief is designed to incentivise landlords to commit to letting their property to tenants in receipt of social housing supports over the longer term, thereby improving the stability of supply of property to such tenants.

This relief was one element of an overall package of measures designed by the Government aimed at stabilising rent and boosting supply in the housing market which, in my view, was the most appropriate and effective route to addressing rental price increases driven by supply constraints.