Mr. Brendan McDonagh:

When NAMA was established, a very experienced individual who worked with me in it said to me – I did not come from a property background – that the day you buy is the day you sell. He said that means everything, but you cannot sell anything unless you build it in the first place. I totally agree that we need an effective planning system, a national planning framework, etc., but everybody would agree that, by and large, the targets were set as maximums rather than minimums. We had major population growth between 2016 and the last census. We in NAMA could see it happening and commissioned an independent report on it. It stated the targets were out of date and that something needed to be done about them. The Government recently updated the targets and the local authorities have to consider their development plans again. However, the big issue is that if you want 50,000 units per year, it can be achieved only if the majority of them are apartments, not houses. There is a whole structural change regarding people’s expectations as to what will be built and what people will live in. If the average cost of building an apartment, excluding VAT, is about €500,000, €25 billion is needed to build 50,000 apartments per year. The Senator is right in that if the Government puts in €6 billion per year, another €18 billion or €19 billion needs to come from somewhere to fund the development.

The publicly available figures recently published by AIB and Bank of Ireland as part of their year-end results show they are lending about €600 million or €700 million each in development finance. In an economy the size of the one we have, I find that hard to understand. I realise the banks will say they try to lend but can lend only on a risk-adjusted basis and that the Central Bank is very strict on them and so on.

An issue arises over demand in that if the apartments are going to be built and people cannot afford to buy them, someone else will have to buy them and rent them out. I have to be careful not to stray into policy areas, but we cannot just look at these matters in isolation; rather, we must also consider the issue of rents. When NAMA started operating, there was no capital in it. The banks would not lend anymore to allow people to buy the assets. Capital had to be got from outside – we get criticised for this – to get the property market moving again. The same thing is happening now and we have to be realistic about it. I am aware that many officials went to a big property conference, MIPIM, in the south of France this year to talk to foreign capital investors about opportunities to invest in Ireland. Someone has to ask the question about what is occurring. Foreign investors are not coming here banging the door saying they are going to invest their money.

I predicted in 2020 or 2021, when I was invited to present to the Housing for All investment committee, that interest rates were going to start rising. People told me I was wrong, which is fine as it is their prerogative, but I was proven right in the end. People were investing in property in recent years because interest rates pertaining to the normal sales products – Government bonds or whatever the case may be – were zero or sub-zero. I said that when those interest rates started to rise, people would no longer invest in the private residential sector in Ireland at a rate of 3.75% because, as anybody who knows anything about finance would ask, if an investor can buy an Irish Government bond and get a coupon rate of 3% on it, why would they invest in an Irish private rental sector, PRS, property and get a coupon rate of 3.75% on it? This is because an Irish Government bond is freely tradeable on the market and there are no holding costs or issues such as maintenance costs. I said that as interest rates rose, the PRS capital here would evaporate. It has evaporated because investors have alternative opportunities.

With regard to competition for international capital, nobody has to turn up in or invest in Ireland. Investors have to be attracted here and given an investment opportunity on which they can get a return on their capital. Many people might not like that but I believe in being upfront and honest with people in saying an equilibrium has to be struck. The money has to come from somewhere for people to be able to afford to buy a property. The reality is that if a house or apartment costs €500,000 or €600,000, even though the Central Bank has relaxed the mortgage lending rules, a couple must be earning a combined income of in excess of €100,000 to get a mortgage to buy it. That is a big issue. You cannot just look at one thing in isolation; you need to look at these things in the round and piece them altogether. Planning and infrastructure need to be right and there is a need for realistic population targets for where one can build. It makes no sense to zone land that will not have infrastructure for years. To me, it is absolutely silly – I have to be careful here – to dezone land that has infrastructure.

Finance is needed to build on land, and builders. Builders are finding it very hard to get finance to build houses. The big builders will be fine. The likes of Cairn and Glenveagh will get money from international banks all day every day and it will be down to the cost at which they can borrow, but the small builders are very reliant on the local bank and Home Building Finance Ireland if they are to build. I made a recommendation in 2017 to the then Minister, Eoghan Murphy, and wrote a paper for him on setting up Home Building Finance Ireland because I could see at the time that small builders were having difficulty getting finance from the main banks, which did not want to touch them after the crash. The aim was to provide finance to smaller builders because they are the lifeblood of the country. I come from Kerry, where four or five friends I grew up with are in the building industry. They would buy a site, get planning permission for, say, ten houses, build two, sell them and then use the money to build another two. That is the way they operated but they have not been able to do that for years. We have to be very realistic about what is wrong and needs to be solved. As the Senator said, finance is very important, but there is no point solving the finance issue if all the other steps are not solved beforehand.