Landlord levy has unforeseen consequences

Landlords in the public rental sector were recently faced with a substantial increase in their tax bill in the form of a new landlord levy. This levy is having a negative effect on the availability of public-sector rented housing, and negative implications for households on lower incomes. These are the results of research carried out by Jacob Veenstra, Maarten Allers and Harry Garretsen from the University of Groningen on behalf of the alliance of Housing Associations Aedes, the Netherlands Union of Tenants and the VNG (Association of Netherlands Municipalities). The researchers have come up with an alternative method for collecting the required taxes. They suggest widening the scope of the levy to include private-sector rented housing and owner-occupied homes.

Since 2013, owners of public-sector rented accommodation (particularly housing associations) have been paying landlord levies. More expensive rented housing (in the private sector) is not subject to this tax. In 2013, the levy raised a paltry € 48 million, but in 2014, this figure rose to € 1.2 billion and in 2017, it is expected to rise even further to € 1.7 billion. In comparison: the operating expenses of the housing associations in 2014 were € 4 billion, including the landlord levies. So a lot of money is involved. This is hardly a surprise: the whole point of this levy was to line the Treasury’s coffers.

Implications for the availability of public-sector rented housing

The landlord levy discourages prospective landlords from building new public-sector rented housing or renovating existing stock. After all, they would only have to pay more tax. It is cheaper to raise the rent to just above the landlord levy threshold, sell public-sector rented homes to tenants or build private-sector housing, which is not subject to the landlord levy. This is exactly what is happening. The proportion of private-sector housing owned by housing associations more than doubled between 2010 and 2014, while the proportion of public-sector rented housing fell during the same period. This is despite a rise in the number of households relying on subsidized rented accommodation.

Tax passed on to tenants

The research showed that housing associations recoup much of the landlord levies by increasing their rents. In this way, the landlord levy actually becomes a tenant levy. Higher rents are forcing up the amount claimed in housing benefits. But the Cabinet has stated that this increase must be compensated by increasing the landlord levy. Landlords increase the rents to compensate and tenants claim even more housing benefits: a vicious circle. The landlord levy continues to rise, and tenants pay an even greater percentage of their own housing benefit.

Low incomes hit hardest

In an ideal world, all inhabitants should pay any taxes designed to help the state finances, with people in high income brackets paying more than those in lower income brackets. The landlord levy seems to work the other way round. Owner-occupiers pay nothing, and tenants renting from housing associations are the worst hit. But the burden even within this group is unevenly spread. This is probably not the income effect that the Cabinet had in mind.

Alternative

The researchers from Groningen have come up with an alternative that would still raise the desired amount of tax money. They suggest widening the scope of the levy to include all housing (i.e. also private-sector rented and owner-occupier accommodation). This would spread the burden more evenly and prevent the negative effects on the housing market. This tax could be levied by the municipalities as part of the existing property tax, combined with a reduction in their payments from the Municipalities Fund.

More information

• Contact: Jacob Veenstra, COELO researcher
• Full publication: Veenstra, J., M.A. Allers and J.H. Garretsen, 2016, Evaluatie verhuurderheffing , Local Government Economics Research Centre (COELO): Groningen. See also: www.coelo.nl