STATE TO BUY BUILD-TO-RENT DEVELOPMENTS
Major policy shift is attempt to reach housing targets
THE Government plans to buy tens of thousands of build-to-rent apartments earmarked for ‘cuckoo’ funds to boost its flagging social and affordable housing targets, the Irish Mail on Sunday can reveal.
The significant shift in the Coalition’s housing approach comes amid growing concerns over rapidly changing economic
forecasts and housing completion projects. Ministers this weekend admitted external economic factors are seriously threatening the Government’s promise to build 30,000 homes a year over the next decade.
Market trends indicate growing bank conservatism, and the economic and political chaos in the UK allied to the threat of recession are dissuading investment funds from investing in apartment blocks.
In a memo brought to Cabinet last month, Housing Minister Darragh O’Brien called for the Government to step in and purchase planned apartment blocks that were to be built for financial institutions to invest in.
A Cabinet source said last night between ‘50,000 and 70,000 apartments or duplexes are not moving now because of stalled finance’.
Mr O’Brien has come under growing criticism over his failure to meet social and affordable housing targets in his Housing for All plan to combat the unprecedented accommodation crisis.
Ministers believe a rapid intervention by the Land Development Agency
(LDA) to buy apartments previously earmarked for buy-to-let investment funds will help get the Government’s housing targets back on track.
A Cabinet source told the MoS: ‘The Government has agreed to mandate the Land Development Agency, which is the State, to activate some of these big apartment developments that have no finance, now that the funds are pulling back. It would be for a mix of cost rental, affordable-purchase and social homes.
‘It’s got to be done or we’ll never get to 30,000 units next year.
‘Basically, it means the State, through the LDA, financing the development by committing to buy all the units, or half of them for example. There were between 50,000 and 70,000 permitted apartments or duplexes that aren’t moving as they have no finance now. Banks are not what they used to be. Funds are looking elsewhere.’
Government sources said they believe much of the costs can be met by existing funds allocated to Housing for All.
However, the €6.5bn ‘rainy day fund’ set aside after last month’s budget is expected to be significantly boosted again in December by soaring corporation tax receipts. Fine Gael ministers said this weekend Tánaiste Leo Varadkar intends to ‘enthusiastically back’ the purchase of build-to-let apartments when he becomes Taoiseach again on December 15. A Cabinet source told the MoS: ‘If we need to allocate billions more to housing, it will be done. Leo Varadkar is a nakedly political leader, but that won’t stop him doing some good. Whatever the motives behind it we all believe that Leo will bring new vigour to housing, working with Darragh [O’Brien].
‘So if money is needed to fund the purchase of apartment blocks or to renovate more homes, then so be it. Leo will do that in conjunction with a Fianna Fáil Finance Minister [current Public Expenditure Minister Michael McGrath].’
A senior Department of Housing official conceded the ‘landscape’ had changed since Housing for All was launched in September 2021.
The source told the MoS: ‘We do have to intervene. Construction price inflation, delays in supply chains and major rises in the cost of energy have delayed – and in some cases stalled – projects.
‘Given the prevailing interest rate environment, rising energy costs and the continuing war in Ukraine, the challenges will persist.
‘However, decreased activity reported in the build-to-rent sector presents us with some near-term opportunities.
‘The LDA is being mandated to work with the major urban local authorities to activate stalled buildto-rent planning permissions for both cost-rental, affordable-purchase and social homes.
‘The department and the LDA will establish a process of engagement with relevant developers to identify projects which may be suitable for cost-rental, affordable housing or social housing. This will require a new viability and affordability measure to subsidise a portion of the capital cost of building a unit through open book assessment.’
The Department of Housing’s own figures show that, at the end of last year, there were 42,725 uncommenced planning permissions for apartments – and a further 5,307 houses – in the four Dublin local authorities alone.
A Government source said: ‘While there has been a decrease of almost 24% in the total number of houses “permitted but not commenced” there has been an increase of over 20% in the number of apartment units permitted but not commenced – from 35,505 units in Q4 2020 to 42,725 units in Q4 2021.
‘This presents the State with a potential opportunity for addressing both affordability and viability if the State can step in to stimulate development.’
A Cabinet source added: ‘I don’t think they [investment funds] will pull out completely, but they are less likely to do new investments for sure. Pension and investment funds look for safe investments with a good yield.
‘When inflation and interest rates were low, residential property was a good investment. Now there are plenty of other options, like Government bonds for instance.
‘The financialisation of housing is an international phenomenon. With house prices and rents having risen all over the developed world. I think we’ll now see house prices flatline or fall a bit.’
According to Junior Minister Niall Collins, the chronic shortage of housing is exacerbated by growing population trends, which he said have rendered the National Planning Framework (NPF) ‘totally out of date’.
The influential Fianna Fáil TD told the MoS: ‘The recent census has shown a much larger than expected population growth has occurred in every community across Ireland. The current NPF is dictating that councils across the country dezone large amounts of available lands, which will deprive us of building opportunities for much-needed homes in the midst of a housing crisis. The NPF introduced by Fine Gael in the previous government needs to be scrapped and replaced with a proper policy reflective of our needs.’
‘Banks are not what they used to be any more’
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