Mr. Paul Lemass:

On behalf of the Department of Housing, Planning and Local Government, I thank the Chairman and members for inviting us to attend today's discussion on the topic of the reclassification and future outputs of approved housing bodies. I am the assistant secretary for the housing policy, legislation and governance division of the Department. I am joined by Rory O’Leary and Stella McKervey from the approved housing body, AHB, policy and regulation unit within this division.

It might be helpful for the committee if I set out briefly the background to the classification process. Traditionally, AHBs have been classified as non-profit institutions serving households. Following a meeting on social housing initiatives in October 2016, EUROSTAT requested that the Central Statistics Office, CSO, review the sectoral classification of AHBs. EUROSTAT expressed the view that under the European System of Accounting 2010, the role of government financing should be given greater weight in the sectoral classification. Over the course of 2017, the CSO conducted this review, focusing on the larger Tier 3 AHBs. A particular emphasis was placed by the CSO and EUROSTAT on the levels of State funding provided to AHBs.

During this process, the Department strongly put forward the view that AHBs are independent private bodies and emphasised that factors other than the level of State funding need to be considered in testing whether the Government exercises effective control over the operations of AHBs, namely: that AHBs decide their own strategic and management priorities; that the boards of the bodies make the decisions on entering contracts and taking out loans and bear the risk of developing new projects; that, by definition, to be approved as an AHB a body must be a limited company registered under the Companies Acts 1963–2001 or a society registered under the Industrial and Provident Societies Acts 1893– 978 or a trust incorporated under the Charities Acts; that AHBs register their tenancies with the Residential Tenancies Board in the same way as private for-profit landlords, which is unlike the situation applying to local authority tenancies; and that AHBs are responsible for all matters of management and maintenance, which do not fall to the State to address, and any action taken by the tenant for redress is taken against the AHB. Ultimately, the CSO published its decision in December 2017, concluding that there was sufficient evidence to indicate control by Government and, accordingly, that 14 AHBs should be classified as part of the local government sector and within the general Government sector.

The effect of reclassification means that any funding privately sourced by these AHBs to acquire social housing units will be added to the general Government debt, unless it has separately already been classified as such. It also means that the cost of purchasing or building units will have to be accounted for in general Government expenditure in the year of purchase or completion. In addition, all expenditure by AHBs, including staff costs, will count as Government expenditure and all revenue accruing to the AHBs will count as Government revenue. AHBs currently secure the majority of their financing through the Housing Finance Agency, HFA. The HFA reports strong growth in direct lending to AHBs in 2018 and indicates that activity remains high in 2019. This suggests that activity in terms of approvals will remain close to 2018 levels, while actual advances should be higher this year than last. This demonstrates that the sector is performing strongly.

It is important to be clear that the reclassification does not preclude AHBs from pursuing private sources of finance. The Department continues to work with AHBs in that regard. Such a collaborative approach will ensure the classification will not become a barrier to delivery or diversification of funding sources. The Department's assessment of the situation, as informed by discussions with the Department of Finance, is that there are no concerns at this time from a fiscal rules compliance perspective about the classification of AHBs as part of general government, but that is not to say there is any complacency in respect of this issue.

I would like to speak about AHB delivery and future output. The Department continues to see a central role for the voluntary housing sector in contributing to the delivery of social housing under Rebuilding Ireland. It is committed to using all mechanisms and schemes, including through the AHB sector, to ensure momentum towards meeting the ambitious 50,000 social housing target under the action plan is maintained. AHBs provide and manage social rented housing. They are independent and private not-for-profit organisations that are formed for the purpose of relieving housing need. They provide housing in response to a range of needs for families on low incomes, households with special needs, older people, people with disabilities and homeless persons. The delivery of social housing is made possible through collaboration between local authorities and AHBs. The AHB sector is committed to delivering one third of homes under Rebuilding Ireland through a blended delivery of build, acquisition and leasing. In 2018 the AHB sector was responsible for 38% of blended delivery of social homes. Last week the Minister, Deputy Eoghan Murphy, updated the committee on Rebuilding Ireland and published the social housing construction status report, which demonstrates the positive progress being made in advancing national local authority and AHB new build construction projects.

I wish to make clear to the committee, the AHB sector and local authorities that this classification will not affect the ambitious plans under Rebuilding Ireland. We are continuing to engage with the AHB sector. Constructive discussions have taken place with representative bodies in the sector on the issue. An important part of this exercise involves examining the measures that could be taken in the medium to long term to develop the AHB sector and lead to a reclassification. It has to be accepted that it is most likely to be a longer term objective. As the proposals may cut across a wide range of housing policy issues, they will require in-depth analysis. As part of this process, we are continually engaging with the Department of Finance and the CSO to fully understand the implications of the classification. The Government's policy is to support the AHB sector as it endeavours to provide and manage social rented housing and to continue to fulfil its full potential in the delivery of the targets set out in the Rebuilding Ireland action plan. The Government continues to see a central role for the voluntary housing sector in contributing to the delivery of social housing under Rebuilding Ireland. It is committed to using all mechanisms and schemes, including through the AHB sector, to ensure we maintain the momentum towards meeting the ambitious 50,000 social housing target under the action plan. The sector has engaged its own research and sought legal advice on classification. The Department is evaluating that research as part of its ongoing wider consideration of the issue. The options available to create the necessary conditions to allow this classification decision to be revisited in the future need to be developed and analysed to determine their implications and possible impacts.

I reiterate that AHBs are delivering. The Department remains committed to working with colleagues in the Department of Finance, the CSO and the AHB sector to ensure the capacity for AHBs to deliver is sustained. I hope I have provided a helpful summary of the issue. We are happy to take questions and provide any additional clarification sought.