This morning, Ireland’s Central Statistics Office (CSO) has released its inflation figures for September 2012. The monthly headline Consumer Price Index (CPI) fell in September by 0.1% compared to August 2012, and is up 1.6% year-on-year (which continues a subdued trend seen in recent months compared with the 2%+ that pertained before January 2011). Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 17.3% in the past year, as ECB rate cuts and greater scrutiny of variable mortgage interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for nearly 6% of the basket which measures inflation, the impact on inflation was substantial.
Energy costs in homes on the other hand, which account for 5% of the total basket examined by the CSO, have risen by 10.4% in the past 12 months, mostly driven by the 22.5% price hike in October 2011 at Bord Gais. The Commission for Energy Regulation has recently approved an 8.5% hike in prices at Bord Gais Energy to take effect in October 2012.
Elsewhere, private rents rose by 0.9% in the month of September 2012 – this after flat month in August and three months of declines in April-June followed by a small increase in July – and over the past year, such rents are up by 2.1% according to the CSO – there is some small rounding in the figures above which show 2.3%.
It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 4.8% increase (mostly recorded in February and October 2011 and February and September 2012).
At the start of January 2012, the Department of Social Protection reduced its rent assistance payments by up to 29% (an average of 13%) and the Department says that some 40% of the rented market in the State is affected by rent assistance payments, which at the end of 2011, was paid to 98,603 households. The Department’s 40% is derived from information provided to it by the Private Residential Tenancies Board, but the Department seems to have conceded recently that the figure may be lower in the order of 30%.
The Department is projecting it will save €55m in 2012 from its €500m budget for rent assistance, the saving comprising €33m to changes to the minimum contribution and €22m in relation to the new maximum limits. The prospect of further cuts to rent assistance in the forthcoming Budget 2013 to be announced in December 2012, is very real.
In the past, private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The September 2012 increase is surprising against pressures from socially assisted reductions. Property commentators including those in NAMA have pointed to a buoyant rental market as one of the bright spots in an otherwise dismal property market, but that buoyancy may deflate in coming months as the artificial supports of State-aided rent assistance dissipates.
NAMA Wine Lake 
Looking back at Sep ’11 there was also a spike in rents – curious as to whether this results from college students returning/starting new academic year.
“The September 2012 increase is surprising against pressures from socially assisted reductions. ”
Can’t say I agree with you there NWL. There is nothing surprising about rising rents, considering the below facts,
1) Apart from trackers, most banks are increasing the variable mortgage rate.
2) Extra costs such as BER, PRTB, Household Charge, NPPR charge, insurance costs, are all extra burdens which Landlords must shoulder.
3) Drop in social standards, some tennents are very destructive, again the landlord has to shoulder the costs,
4) 25% of the mortgage interest is not allowed to be deducted from profit for taxation purposes.
5) Landlords cannot claim for their own time put into maintaining a property.
When the hostility of the Dept of Finance against property investors fully sinks in, the shortage of rental properties will increase, those that stay in the rental business will have to increase rents to just break even.
The lift in Sept is due to the students. They are the one group that is mobile in any numbers at that time of the year. Plus they tend to be dependent on the vicinity of the institution since their car insurance which would allow them to drift further out is rapacious. Such a pity really that there isn’t a policy that would allow students to drive between 6am-9pm.
Lot of debate in England about the effect housing benefit has on the private rental sector.
The system is administered by local authorities, using the bizzare practice of canvassing selected letting agents to discover going rates in the private sector, whereby the benefit rate is adjusted.
The real cuts in housing benefit haven’t been brought in yet, so Interesting to follow the results in a a comparable market.
Quote from Business Post.. 14th October 2012
Revenue warns Farmers over poor quality tax returns.
by Ian Kehoe and Emma Kennedy.
However the article digresses into a section on Self Assessment tax payers, notably landlords.
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“The firm said that self-assessed taxpayers were increasingly frustrated at not being able to offset property losses against other income. Christine Keily of Taxback.com said that anecdotal evidence suggested a possible growing level of non-compliance on tax, with the upcoming deadline set to be “a real test for the system”.
She said that ongoing losses and reduced allowances on property investments might cause those facing a massive tax bill “to bury their heads”.”
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More evidence (as if it was needed) of the hostile approach taken by the dept of Finance against landlords by implementing “taxation on a loss”.
@Sporthog, but isn’t this because there have traditionally been two tax headings for landlords – capital gains and trading income. Capital gains arises when they dispose of a property and you are generally entitled to deduct capital losses from that heading. And trading income would be rent less costs including interest on loans. You can’t offset one against the other.
NWL,
I would agree with you, normally one would only be subject to CGT on disposal of a asset, i.e. shares or property etc etc.
However with respect to Rental income, take the simplified example below.
Rental income = 1000 euro / month.
Mortgage interest payment = 1000 euro / month.
Ignoring all other costs i.e. NPPR, capital repayments on the mortgage PRTB etc, what is the profit in the example above.
12000 comes in, 12000 goes out, profit = zero.
But since 2008 only 75% of the Interest repayment is allowed to be offset against income.
12000 comes in, 9000 goes out, profit (for taxation purposes) = 3000 euro.
So in fact despite you have made ZERO profit, you have to pay 52% of 3000 euro.
(52% depending on your marginal tax rate of course)
This is my understanding about “reduced allowances” on property investments for those who will have to make tax returns by Oct 31st for 2011.
In relation to offsetting a loss on one property against another property for CGT purposes for a PAYE worker as distinct from a company one would have to get advice from a proper tax adviser.
Interest relief is a cost against income in any business – and residential buy to let is a business. When it is disallowed and a business is taxed on a loss , it is time to abandon the business and the economy that believes in this type of punitive taxation. Holding on any further is a fool’s game, and not least because the taxation level in the residential buy to let sector is about to get even worse.
One of the recommendations from the “off the wall” sandal-wearing sparks in TASC, an independent economic agency, for Budget 2012 is to further reduce the amount of mortgage interest allowed from 75% to 40%.
It is already proposed in Budget 2012 to introduce PRSI on rental income. Putting these charges on landlords is going to kill this particular golden goose for the taxman and drive residential apartments on to the market thus reducing prices even further.
Just some more bright thinking from our schoolteachers turned politicians who brought you “pay the bondholders” and austerity.
After two and a half decades of encouraging private investment in areas where the government could not afford to invest, hospitals, hotels, residential, it rewards these people by penalising them with an unreasonable tax burden. Not only is it becoming unviable to invest in property but anyone who has is deamonised. Why would anyone trust government policy in the future?
@WSTT,
In relation to the subject of rental property / landlords etc, what these left wing groups are campaigning for is a HUMANITARIAN DISASTER in Ireland.
For many reasons Ireland requires a rental sector. Just one example, people who are mildly mentally handicapped, but who are able to live on their own in private rented accommodation. They may never be able to hold down a high paying job, obtain a mortgage etc, but they are able to function as a human being and make their contribution to society.
But with Landlords now suffering from “taxation on a loss”, a form of financial sadism, three things will happen in varying degrees.
1) Private landlords will have to go out of business, cut their losses and run.
2) Landlords will have to go “underground”, everything off the books / under the counter etc. Make false tax returns, as mentioned in the article, this carries big risks, fines and maybe including imprisonment.
3) Landlords will have to dramatically increase rental rates.
Vulnerable people (mentioned above) will have to be evicted, thrown onto the scrap heap because the landlord cannot afford to house them as a tenant, this is going to be a humanitarian disaster in our time.
I don’t understand the logic of these left leaning groups, they must want to bring Ireland back to the stone age, an Irish version of Cuba or Albania.
Why demand penal taxation on people who provide a service?
Their motivation can only be ignorant begrudging hatred.