Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

I will read my departmental note first and then I will comment on the Deputies' concerns. I understand that amendments Nos. 2, 4 and 6 have been ruled out of order so I will focus on amendment No. 3 which seeks to require HBFI to prioritise certain borrowers. I am required to reject this amendment on the grounds that it would hinder the efficient delivery of funding by HBFI and may have state aid implications, potentially leaving the State open to challenge. Section 7 provides HBFI with the functions necessary to provide funding on market terms to any commercially viable residential development project in the State which meets its eligibility criteria. This captures development proposals that include social and affordable housing, cost rental and others set out in the amendments that were originally proposed. It is important to note that HBFI is designed to avoid displacing funding that exists in the State. As such it is expected that HBFI will focus its activities on segments of the market that are not well provided for by funders in the market, that is, precisely the type of builders that this amendment seeks to address.

It is well understood that many of the main banks and funds are focused on providing funding only for large developments or those located in key urban centres. HBFI will be open to smaller projects of more than ten units and will accept applications for viable residential projects throughout the State. As larger developers are being catered for by the main banks, HBFI’s lending will be comparatively more attractive for small and medium-sized builders who are having greater difficulty accessing finance. This strategic focus should go some way to alleviating some of the Deputies' concerns.

Taking into account HBFI’s strategic focus, this amendment would have no practical effect in ensuring that builders who have struggled to receive sufficient finance will be granted access to HBFI funding as HBFI will fund any viable project that meets its eligibility criteria. Placing an obligation on HBFI to assess whether an applicant has been unable to access sufficient funding from elsewhere for commercially viable residential projects will place a needless administrative burden on HBFI. This will impede the fast and effective delivery of funding to support much-needed new residential developments. In crafting the legislation we have been careful to ensure that HBFI is established in compliance with state aid rules and that there would be no element of selectivity in HBFI’s lending activities. Attempting to restrict or prioritise the type of lending HBFI will conduct could give rise to complaints from other prospective borrowers also wishing to access this funding.

The real benefit here is that HBFI can give up to 80% of funding. As I understand it, the banks will provide 60% of funding to builders to build, after the site is paid for, which means that there is 40% to be bridged. Deputy Ó Broin touched on the fact that this 40% is hugely expensive. I have heard of up to 15% mezzanine finance for that 40%, which reduces significantly the margin for building, and the margin for building is what is doing damage to the supply chain. The smaller builders building ten or more units are not getting a hearing from the banks because they are too small. The banks would have to do due diligence on someone building ten or 20 houses in the same way as they would for someone building 100 or 200. The same amount of work goes into that process.

The benefit of HBFI is that the 40% mezzanine finance can be reduced and be as low as 20%. Deputy Ó Broin agrees that this is the real benefit of HBFI. This is not designed for a site of six to 12 acres in Dublin city with between 30 to 50 units per acre. Such projects are being funded already. The market is sufficiently strong for those projects to be funded directly by the banks and the projects are sufficiently profitable to enable the developers to pay between 12% and 15% for mezzanine finance. However, projects in my constituency in County Wexford or in Deputy Cowen's constituency in County Offaly are not being funded. Developers are not even getting a hearing and that is where HBFI will come in.

We can have an ideological debate like the one we had earlier but this is a good thing. This reduces the level of mezzanine finance that will be required by those smaller, mid-level builders who might have a small site and who can have an impact in the country. We can disagree about it on a fundamental basis but this is a good thing and it will help. It might not do an awful lot for Dublin because it is too small, but it is not aimed at developers of large, high-density schemes in the middle of Dublin.