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Tax exemptions for Property Owners Who Adhere to Affordable Housing Program

4 October 2017

Affordable rents for long-term housing, homes for the needy, including in response to catastrophes. Urban renewal is the last of the three pillars of the new housing policy approved this Wednesday.

An exemption from income tax on property rents, and a decrease in IMI taxes by at least 50%, with a total exemption possible, are both measures that are expected to be enacted to benefit property owners who join the affordable rental program and sign long-term contracts with tenants, Público reported. The income tax rate on rental income is currently 28%.

The measures, primarily directed at the middle class, is part of the new affordable rental program that will become an integral part of the New Generation of Housing Policies, expected to be approved this Wednesday by the Council of Ministers.  Público had access to a preliminary version of the document. The Council will also adopt a series of laws targeting the sector, with additional legislation foreseen for the first quarter of 2018, namely the decree that will create the framework of the affordable rental program. The Portuguese prime minister, António Costa, will present the new housing policies during the biweekly debate in Parliament.

The accessible rental scheme will be managed by municipal councils in such a way that complements any existing, or planned, programs of the same, in line with other sectorial housing policies that were designed to be implemented by municipalities, following a policy of decentralisation. The Porta 65 Jovem Program, directed at Portuguese citizens between the ages of 18 and 35, will also be adapted to the affordable housing regime.

The Portuguese government intends to establish a value for affordable rents that is roughly 20% below current market value. But, as explained to Público a member of the Government, in the regions with highly inflated rental cost, such as Lisbon, any reduction adopted by the municipality may be higher.

Town councils may exempt owners from other municipal fees if they are enrolled in the program. The municipalities can also build and put housing on the market, impose affordable rental quotas on new developments and promote the refurbishment of vacant properties for rental under this scheme.

The establishment of targets for rents will have, as well as a reduction in rates in relation to market value, the principle that each tenant only pay up to 30% of their income. The operation of the program will be monitored by the Portuguese state, through the local authorities. There is also a planned price index.

The government will approve Wednesday the creation of a financial fund targeting renovations, as well as another fund that will protect tenants in the event of a loss of income, to fund the affordable rental scheme. But it will also enable insurance systems that protect homeowners in case of damage to homes and failure to pay rent. In the case where the houses are already rented, property owners may only put transfer the assets to the program after three years, to protect any current tenants.

Medium-term goals

According to the resolution, in the medium-term, the government aims to increase subsidies for 5% of the total housing stock, up from 2%, an increase of around 170,000 homes. It also as well as “lower the weight of housing costs on Portuguese families from 35% to 27%,” which will be accomplished through increased tax deductions.

The government bases its housing strategy on three pillars. In addition to the affordable rental program, the State intends to focus on housing for the needy, and additionally, to focus on urban renovations.

The resolution states that the Government intends “to create more flexible and adaptable instruments suitable for different needs, target audiences and territories” and “an implementation based on strong horizontal cooperation” that will be structured “between sectoral policies and public bodies”. Such cooperation will also be “vertical” between “levels of government” and “between” the public and private sectors, including cooperatives, as well as proximity to citizens.

The objectives of the Government are “to guarantee access to adequate housing for all” and “create conditions so that both the renovations of buildings and urban renewal are treated under exceptional regimes,” the resolution reads.

The other two pillars

  1. Housing for the needy and emergency housing

The Urgent Housing Support Program is designed to respond to “urgent housing needs” of households who are homeless “as a result of unforeseeable or exceptional events,” among which the Government’s resolution points to “natural disasters (floods, earthquakes, fires) or phenomena based on collective migration.” This program includes reconstruction and temporary accommodation.

The new program thus appears in part as a response to events such as the tragedy of the July fires in Pedrógão, Góis and Castanheira de Pêra. The implementation of this program will be coordinated by the municipalities, by the local Community Social Assistance councils.

The program provides for “temporary accommodation in tourist developments”, long-term rental of public or private housing, reconstruction or refurbishment of destroyed houses and construction of new housing.

The new government policy for the sector also includes measures in social housing for “households in a situation of severe housing shortage”. This will be done through “financial support to local public and assistance actors (municipalities, municipal companies, IPSS) to provide a diverse range of housing solutions”, which will have “rental costs that are accessible to the intended recipients.” And it will allow the renewal of the “degraded housing stock” of these entities, as well as the construction of new homes.

  1. Urban renewal

There are eight programs for urban renewal. The Rehabilitate as a Rule Project has the aim of legally framing construction regulations to “specificities of [urban] renewal.” The National Building Renovation Fund seeks the “refurbishment of real estate for subsequent allocation to the rental market and, in particular, the affordable rental program.”

The resolution also points to the Financial Instrument for Urban Renovation and Renewal (IFRRU 2020), which supports the full refurbishment of buildings, public or private, within areas of “urban renewal.” The 2020 Efficient Housing Program is directed towards improving the energy efficiency of buildings and housing units.

The Strategic Urban Development Plans and Urban Renovation Action Plans and the Urban Renewal Program (Housing Districts – Energy Efficiency) also program with a similar focus. The Renovation for Lease Program will be reviewed and made compatible with the new affordable rental scheme.

Original Story: Público – São José Almeida

Translation: Richard Turner