State quango ignored own warning over ‘cuckoo’ loans
A GOVERNMENT quango set up to help fund small builders providing family homes used taxpayer money to finance hundreds of apartments being built for international investors, despite warnings it could cause ‘reputational damage’.
Some €242m was loaned for build-to-rent developments for so-called cuckoo funds.
THE Government was warned about the ‘reputational impact’ of using taxpayers’ money to finance buy-to-let homes owned by ‘cuckoo funds’ – but still went with the controversial scheme, an Irish Mail on Sunday investigation reveals.
The establishment of Home Building Finance Ireland – a quango announced by Finance Minister Paschal Donohoe in his 2018 budget speech – was aimed at helping small builders to provide family homes throughout the country.
With a taxpayer fund of €750m and an additional startup cost of €20m, HBFI’s assigned role was to lend to small builders who could not
‘Most homes will be out of reach for renters’
get finance elsewhere.
A cap of €35m was placed on any loans to small builders.
But in a surprise change of policy in 2020, a €300m slice of the HBFI’s available finance was temporarily diverted into a sub fund called the Momentum Fund.
Instead of being offered to small home builders, the Momentum Fund made finance available for large apartment developments being built for cuckoo funds or institutional owners.
Most of these homes will not be available to the general public to buy once they come on stream and will be out of reach for many renters.
In order to facilitate larger developers, the original €35m cap was lifted and Momentum Fund applicants were ultimately able to borrow as much as €90m to complete apartment projects for cuckoo funds.
The Government agreed this move, despite a Department of Finance report in 2019 that warned cuckoo funds were unlikely to increase the supply of affordable housing and could instead develop ‘monopolistic power’.
Further warnings in a KPMG report commissioned by HBFI into the proposed Momentum Fund were also set aside.
‘There may be a perception that HBFI is supporting larger developers at the expense of smaller developers,’ reads the 2020 KPMG report, obtained by the MoS.
It also warned of the ‘reputational impact’ HBFI may suffer in funding cuckoo funds.
In June 2020 the board of HBFI considered this risk but ultimately accepted the KPMG recommendation that the Momentum Fund proceed to be made available to PRS (Private Rented Sector) schemes.
‘From HBFI’s perspective the PRS model makes a large number of units available in a relatively short period and therefore is in keeping with HBFI’s remit,’ the board minutes read.
‘Furthermore, most apartment schemes being built are PRS given that the construction of apartments for private sale is generally not commercially viable.’
In order to minimise the risk of reputational damage, the HBFI board agreed it ‘must ensure that it can continue to fund its core products so that funding continues to be available for all viable schemes’.
Planning rules allowing ‘build-to-rent’ apartments are to be abolished. Housing Minister Darragh O’Brien told the Fianna Fáil Árd Fheis yesterday that from the end of the year, every apartment application ‘will be a single, build-tobuy standard and allowed to be sold, not restricted for rental’.
HBFI loans outside of the Momentum Fund have so far resulted in 715 homes being completed and sold, with a further 1,783 contracted for sale or sale agreed. In addition, finance for over 5,000 homes not yet built has been agreed.
Ultimately, the Momentum Fund only financed five developments before it was closed in 2021 having provided €274m.
Most of this went to fund apartments for cuckoo funds and institutional landlords.
Today, three of the Momentum Fund’s five loans are funding the ongoing construction of 841 Dublin apartments in three large developments. The other two loans financed an owneroccupied housing estate of 85 houses and a social housing development of 92 units.
These loans ranged from €20m to €90m with the largest being for developments owned by cuckoo funds and institutional landlords. One such HBFI-funded project is a 211apartment complex being built for cuckoo fund Urbeo in Clonsilla. HBFI chief Dara Deering said rents will be €3,100 for a three-bed home, €2,100 for a two-bed and €1,800 for a one-bed flat.