Michael McCarthy (Cork South West, Labour)
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The purpose of the meeting is to consider the management and operation of housing associations with our witnesses. Before doing so, I welcome back to our committee Deputy Gerard Nash who got married since the break and our resumption. On behalf of the committee, I extend warm and sincere congratulations to him.

Gerald Nash (Louth, Labour)
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Thank you.

Michael McCarthy (Cork South West, Labour)
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I welcome Dr. Michelle Norris, chairperson, and Mr. Barry O'Leary, chief executive officer from the Housing Finance Agency; Mr. Simon Brooke, head of policy, Mr. Cathal Callan, director of finance, and Ms Kathleen Cottier, regional director, of Clúid Housing Association; and Mr. Cian Ó Lionáin Uasal, principal officer, housing division, and Ms Sheila Power, assistant principal officer, housing division, from the Department of the Environment, Community and Local Government.

By virtue of section 17(2)(l ) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If witnesses are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I propose to take the witnesses in the following order - the Housing Finance Agency, Clúid Housing Association and the Department of the Environment, Community and Local Government. Is that agreed? Agreed.

The Government housing statement of 2011 has placed the voluntary housing sector at the centre of a vision in terms of the provision of housing. Today, there are 700 bodies with approved status managing 27,000 houses in Ireland. These are large numbers and, accordingly, the Minister of State at the Department of the Environment, Community and Local Government, Deputy Jan O'Sullivan, intends to put a regulatory framework in place that will include governance and management structures. A consultation process is currently under way on the voluntary code and the committee would like to make an input. This is one of the reasons all the witnesses were invited to appear before the committee.

I hope we can identify issues and elaborate on policy matters as our deliberations proceed. I invite Dr. Michelle Norris to address the committee.

Dr. Michelle Norris:

I thank the chairman and members of the committee. I am chair of the Housing Finance Agency plc and I am accompanied by my colleague, Mr. Barry O'Leary, the chief executive officer of the agency.

I have circulated a detailed statement to members outlining the function of the agency and our main areas of operation. As I have addressed the committee on a couple of previous occasions, I do not plan to go into all our areas of operation in detail, rather I will focus on our work in financing housing associations. To give some background about the agency, the Housing Finance Agency was set up in 1981. Its function is to advance loan finance to local authorities and the voluntary housing sector, in other words, housing associations, to be used for any purposes authorised under the Housing Acts and to borrow and raise funds for this purpose. In terms of functions under the Housing Acts, in the past we have funded some aspects of local authority social housing development. Currently, we fund housing associations, social housing development and supports for low-income home purchasers, such as local authority mortgages, the shared ownership scheme and other schemes along those lines which had existed in the past. We finance these schemes by loan finance. Our mission is to source and structure the loan finance in a cost-effective manner to the requirements of our customers.

We do not have a role in the formulation of housing policy. That is the function of the Minister and the Government. Rather our role is to provide appropriate funding for the housing schemes devised by the Minister and projects established by the Minister.

The agency does not receive any Exchequer grant or subvention. We do not lend directly to individuals or households. In respect of local authorities, we are effectively a centralised borrower on their behalf. We borrow money and loan it on to local authorities. It is then disbursed by them to individual mortgage borrowers. For our housing business, the Government guarantee on our borrowings enables us to raise funds at very competitive rates. The total outstanding loan book of the Housing Finance Agency at 31 December was €4.4 billion.

My written statement to the committee outlines all our various functions. I am happy to take any questions on those.

In my comments today I wish to outline to the committee our functions in relation to housing associations or approved housing bodies as they are called in this statement. The Housing Finance Agency has only recently commenced lending to housing associations. In the past we lent directly to local authorities and they passed on the money to housing associations via the capital loan and subsidy scheme. Powers for direct lending to housing associations are enshrined in section 17 of the Housing Act 2002. Our role in this regard in very important because the supply of housing finance for housing associations from commercial institutions, commercial lenders, is currently very low and also Government grant aid for this sector which was previously the main source of funding for the sector has been radically reduced since 2008. Therefore, the Housing Finance Agency loans are currently the main form of loan finance for the sector. However, direct lending to housing associations brings with it a different level of risk for the Housing Finance Agency compared to our traditional role of lending to State institutions such as local authorities. We endeavour to minimise this risk by devoting considerable resources to comprehensively assessing the suitability of lending to housing associations and putting in place controls to protect the agency's assets, which by extension are the assets of the State.

In order to be considered for loan finance from the Housing Finance Agency, housing associations must first apply for certified body status. A set of criteria are used to determine suitability and they span three broad areas - past financial performances, current corporate governance and future developmental and financial plans. To date, we have received 20 applications from housing associations for certified body status, that is, eligibility to borrow from the agency. Of these six have been approved and ten rejected, one withdrawn and three are pending decision by the Housing Finance Agency's credit committee. Where an application is rejected we advise the housing association in question what reforms are required to attain certified body status and we are committed to supporting them to make a successful reapplication in the future. Several of the housing associations who failed to get certified body status from the agency in the past have been approved subsequently on reapplication.

However, we see no justification for amending our criteria for granting certified body status to facilitate a larger number of approvals. In view of the fact that housing associations are currently unregulated by Government, we consider that the criteria we apply are the minimum necessary to ensure the loan to the Housing Finance Agency is repaid and the State's investment in the housing association sector is thereby protected. Once housing associations gain certified body status from the Housing Finance Agency, they can apply to us for finance for individual housing developments. Currently, we have approximately €500 million available for lending to the sector. To date, finance for individual housing developments to the value of €36 million has been approved, of which €13.12 million has been drawn down and €22.6 million still remains to be issued.

After housing associations gain certified body status, the subsequent loan approval rate is very high and 100% of loan applications to date have received an offer of loan finance from us. Our arrangements for assessing loan finance are that we lend up to 80% of existing use-value social housing for a period to the length of the payment and availability of payment agreement paid to the housing association by the local authority.

A payment and availability agreement is an ongoing subsidy to the housing association for letting dwellings for social housing which they effectively us to pay down the loan to us. Existing use value social housing means that we assess the cost of the development, not in relation to its market value, although we do take account of market value. Primarily we examine the cost to the State of accommodating people in alternative accommodation when we conduct an assessment of the project on which we are providing a loan.

To date all loans issued to housing associations have been charged at a variable rate and are used to purchase existing dwellings. Recently, we have made available a fixed rate loan product and a product for new housing developments in response to feedback from borrowers.

In return for a loan we seek a charge over the project's assets. In other words, the assets we are lending against. We do not seek a floating charge on all of the assets of the housing association, such as other dwellings they own. I raise the issue because in a statement made to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on 11 September there was an implication that the agency sought a charge of all assets owned by the housing association. That is not correct and I have written to the Chairman of that committee to clarify the matter.

I shall refer to the organisation's views on regulation of the housing association sector. The sector is very diverse. It includes a wide variety of some very large organisations and some very small organisations which provides valuable services to low income and vulnerable households. In view of the fact that the State's capacity to fund large-scale capital grants for social housing is likely to be limited for some time and local authorities borrowings for social housing provision constitute part of the national debt, it is likely that housing associations will play a much larger role in the provision of social housing in the future.

However, our experience of lending to housing associations indicates that if the sector is to meet these challenges a number of issues need to be addressed. They are as follows. First, the establishment of a system of independent regulation on a statutory basis. Second, the upskilling of housing associations' financial and development planning resources. Third, the sourcing of private finance for housing associations on a sustainable long-term basis. All of these issues are critical because the Housing Finance Agency's loans to housing associations also constitute not being part of the national debt. That limits the State's capacity to finance the sector using Housing Finance Agency loans over the long-term in order to move funding for the social housing sector out of the national debt or off-balance sheet. In other words, housing associations will have to generate loan finance for the private sector via loans, bond issues, etc.

The experience of raising private finance for social housing in the UK and other European countries indicates that it is possible. Most social housing finance in Europe is generated in the private sector. The use of large scale capital grants, like what we had in Ireland, is very unusual. However, experience abroad indicates that private finance will be forthcoming in two circumstances. If housing associations have the requisite skills to raise and manage the finance and a suitable independent regulatory regime is in place to protect investors' money.

Finally, the Housing Finance Agency is happy to apply its resources, financial and otherwise, in order to assist the housing association sector in its progress towards financial independence. It also wants to ensure that an adequate number of social housing units will be delivered in line with Government policy.

Michael McCarthy (Cork South West, Labour)
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I thank Dr. Norris and invite Mr. Brian O'Gorman, representing Clúid Housing Association, to address the meeting.

Mr. Brian O'Gorman:

I thank the Members of the Oireachtas joint committee for the invitation to address them today.

Clúid Housing Association began as St. Pancras Housing Ireland, was registered as a company in 1994 and our first scheme was completed and tenanted in December 1995, almost 18 years ago. St. Pancras Housing became Clúid in 1995 and Clúid has grown rapidly throughout its life. It now owns a stock of 3,700 dwellings and manages another 1,300 dwellings on behalf of other social housing providers.

I am sometimes asked what are the benefits of housing associations when local authorities have successfully provided social housing for many years. I can give a number of answers to such an important question. First, it is right to have a number of different providers of social housing because competition and choice serves to improve the quality of services provided to tenants.

Second, housing associations are able to attract loan finance from the Housing Finance Agency as well as commercial lenders. This, combined with a Government loan means that the social housing budget can deliver increased supply. This is a particularly important point in current economic circumstances.

Third, housing associations benefit from voluntary input which brings additional benefits to social housing provision. In Clúid's case this includes our board members, all of whom work without remuneration and bring a large range of skills and experiences.

Finally, being non-governmental bodies means that housing associations are in a unique position to develop innovative responses to housing needs in Ireland. An example is Clúid's pioneering work in progressing the mortgage-to-rent scheme. After two years of very frustrating work the scheme is beginning to produce tangible results.

As Dr. Norris has noted, in many countries most social housing is provided by NGOs and monitored by the State rather than directed by the State. The role of the local authority remains central to the provision of housing association social housing. They decide where our housing is built, what form the building takes and all of our residents are approved by the local authority before occupation.

We have worked very closely with successive governments. We are committed to establishing and maintaining effective relationships with staff in the Department of the Environment, Community and Local Government and the Housing Agency.

Clúid aims to provide professional quality housing services to residents. Customers, from whatever source, deserve the best service possible. All of our property management staff are licensed to manage property through the Property Services Regulatory Authority. Our properties are built or acquired to the highest standards available within budget. Our quality services help to counter the stigma often associated with social housing.

Clúid is a strong supporter of the Irish Council for Social Housing which is the Federation of Housing Associations. We contribute positively to the growth of the housing association movement. We believe that the housing association model is an important component in meeting housing needs now and in the future.

We are very conscious of the State's large investment in the social housing that we have provided. We take this responsibility seriously and are a strong advocate of greater regulation. We work to high standards of governance. In particular, we are committed to maintaining our property to a high standard in order to continue to use these dwellings for social housing far into the future. So far this year we have spent €2.1 million on maintaining our housing stock.

Clúid is a strong supporter of regulation and views regulation as having three distinct components. First, is the protection of residents, which is being accomplished through the extension of the Residential Tenancies Act to housing association tenancies. The legislation is going through the Oireachtas at present.

Second, is the governance of organisations, including the board. That is the main objective of the Department's publication entitled Building for the Future.

Third, is the monitoring of housing association performance. At present this is organised amongst the housing associations through the Irish Council for Social Housing through the housing association performance management system, HAPM, in which quarterly returns are provided. Progress has been made but we seek stronger regulation. Above all we seek independent, verifiable regulation and governance, the absence of which acts as an obstacle to investors who wish to enter the market, as Dr. Norris has pointed out. Without independence a regulatory process that involves financial and performance data lacks credibility.

I am accompanied by three colleagues from Clúid. Mr. Cathal Callan is director of finance. He has spent many years working in the UK where he was exposed to the mixed funding regime that is being introduced here. Ms Kath Cottier is the regional director in Dublin and is currently a member of the strategic policy committee of the Dublin City Council. Mr. Simon Brooke is head of policy. He is a well known independent research and housing consultant. I thank the members of the committee for their attention and I am happy to answer questions.

Michael McCarthy (Cork South West, Labour)
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I thank Mr. O'Gorman and invite Mr. Cian Ó Lionáin, principal officer, Department of the Environment, Community and Local Government to address the committee.

Mr. Cian Ó Lionáin:

I am a principal officer in the Department with responsibility for developing the regulation of the approved housing body or the housing associations sector. I am accompanied by Ms Sheila Power. I thank the committee for the opportunity to discuss the topic.

As previously mentioned, the past five years has seen a radical change in the social housing sector. Wider economic circumstances have forced a major reduction in direct Exchequer support to social housing.

In 2008, for instance, €480 million was made available to the approved housing body, AHB, sector. This year, the equivalent figure is €55 million. To maximise the impact of the limited amount of money available, the Department has led a shift in the AHB sector from capital-funded programmes of construction and acquisition to more revenue-funded options. Common to all these options is the necessity for approved housing bodies to direct their own resources to projects and, in addition, to raise non-Exchequer finance. The statement I submitted to the committee last week outlines these options, namely, leasing, purchasing and-or construction, and the acquisition of properties using the Department's capital advance leasing facility. It is in this context that the Government's housing policy statement, published in 2011, clearly places approved housing bodies at the heart of social housing provision.

The Government is committed to working with the AHB sector to create the conditions that will protect the Exchequer investment to date in the sector, create conditions that will encourage financial institutions to invest, and provide a framework to protect the tenant while allowing the AHBs to engage with new models of funding and housing provision. In all of this, today's topic, regulation of the approved housing body sector and the driving of ever-better standards and performance are key planks of the Department's strategy. If the sector is to expand its housing delivery capacity, it will also need to increase significantly external investment in the sector. This will happen when investors are reassured that the sector is well-monitored and regulated. A low risk sector is one in which people want to invest. Regulation is also right for boards and for tenants as it provides them with a way of measuring and improving performance. I must point out that while housing outcomes-based regulation has not been in place for the sector until now, the sector has been subject to a wide range of other regulatory regimes, including those in the Companies Registration Office, the Revenue Commissioners and the Health Service Executive.

My colleagues referred to this document, Building for the Future, published by the Department in July 2013, which sets out a voluntary regulation code for approved housing bodies in Ireland. The code is the precursor to a statutory regulatory framework. It outlines the minimum standards applying to all approved housing bodies as well as additional requirements for large bodies. The code provides a real-world opportunity to design the best regulatory structure for Irish housing associations that builds on existing regulatory strands and engages with the approved housing bodies.

In developing the code, the Department has been very up-front that we expect to see this code evolve over the next two years. It is a living document which should be influenced by the participation of as many approved housing bodies as possible. As such, we are open to further submissions on the code and we look forward to feedback from this committee.

The code is underpinned by four key guiding principles, namely, a tenant focus, proportionality, accountability and transparency. In the longer term, we would like to have a statutory regulatory framework in place by 2016 and over the lifetime of the code. In the meantime, we recognise that it is important to have a credible autonomous system in place that will give all stakeholders confidence that we are taking the right approach. With that in mind, the Minister of State with responsibility for housing and planning, Deputy O'Sullivan, is looking at appointing an interim regulatory board to oversee the roll-out of interim regulation and to advise her on the development of statutory regulation. The Department is also considering the resources that will be necessary to support this entire process, and I would hope the Department would be able to make an announcement on these issues before the year is out.

As part of the evolution of the code, the Department has also established an approved housing body sector financial capacity group to identify the further detailed financial requirements that could be included in an extra chapter to be added to the code specifically targeted at the largest approved housing bodies, or tier 3 bodies, as the code calls them.

Regulation is but one very important aspect of the wider plan for developing the sector. The Department is also committed to working with the sector to build its capacity to pool skills and deepen expertise to best equip the sector to meet the social housing supply challenges in the years ahead. It is also imperative that local authorities are embedded in this entire process, with a key strategic and facilitative role. Now that local authorities are no longer direct providers of new social housing to any major extent, how can the skills and expertise in the local authority sector be put to use to help approved housing bodies provide new social housing?

As the regulatory process gathers pace and the expectation is increased on approved housing bodies to expand further their delivery of social housing, strategic issues arise for all segments of the approved housing body sector. For instance, what is the long-term strategy for smaller approved housing bodies? Having commenced, survived and usually thrived as entirely voluntary organisations, where do they see themselves in five, ten or 20 years time? Can more be done in terms of the pooling of skills and resources to enable smaller approved housing bodies operate in this new, more challenging environment? These are questions the Department wants to explore fully with the sector, but for now I take this opportunity to thank the committee and to urge all approved housing bodies to sign up to the code and work with the Department in shaping the future of the sector.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank Dr. Michelle Norris, Mr. Brian O'Gorman from Clúid and Mr. Cian Ó Lionáin from the Department for attending. Regarding the Housing Finance Agency, HFA, Dr. Norris or Mr. O'Leary might outline the process for handling loans for individuals through the local authorities because how it works can be a bit of a mystery. A person applies for a loan, having been refused by a financial institution, and the application goes to the local authority, but where does it go from there? How is it processed? What happens to it at the HFA level and back at local authority level? I would like to know also about the lending guidelines for individuals because while I welcome that we are no longer throwing money around like confetti, the pendulum seems to have swung in the opposite direction in that getting money is like trying to get blood out of a stone. I am not necessarily saying that about the witnesses' organisation because some people have been helped by it and have got loans through the local authorities recently, which certainly has made a difference to them, but as a State we do not seem to do anything by half. We were throwing out to people multiples of what they were earning six, seven or eight years ago, and now the pendulum has swung in the opposite direction in that there is a stranglehold on money.

In terms of funding, have any approaches been made to the European Investment Bank because it has shown a willingness to lend money, particularly for projects that can generate a stream of revenue, such as housing? We have raised this issue with the EIB in the past and I wonder if the witnesses have had discussions with it on that.

There is a group of people who are not entitled to apply for local housing. If someone in the county in which I live has a gross income in excess of €25,5000 - if they have children there is a small amount after that - they are not entitled to apply for a local authority house. There are many people in the €25,5000 to €40,000 income bracket who are paying €700 or €800 a month in rent, one of whom I dealt with last Friday who, believe it or not, could get a loan to buy a perfectly good house for €42,000 or €48,000 the repayments on which would be only a fraction of what they are paying in rent. However, they cannot get the loan despite the fact they are in full-time employment. In the case of which I am aware, the two people are in full-time employment. Has the Housing Finance Agency discussed that with local authorities or is there a plan to try to do anything for that group because the prospects for those people are such that they will remain renting from now until kingdom come? The banks are even tighter than the witnesses' organisation when it comes to the money they give out. There is a cohort of people in the €25,000 to €50,000 income bracket who are caught in that they cannot access money from banks or from the HFA. Can I ask the question on Clúid now, Chairman?

Michael McCarthy (Cork South West, Labour)
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Yes.

Brian Stanley (Laois-Offaly, Sinn Fein)
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If the PRTB takes over the regulatory role of the witnesses' sector, are they concerned about its ability to be able to do that? I am aware that complaints to the PRTB currently are being processed at a snail's pace. It is not its fault entirely because, if I am correct, its staff number has decreased to below 40.

I am again open to correction but, according to an answer given last year, it used to have more than 70 staff when the sector was much smaller.

Currently, tenants cannot purchase their houses. Where will this situation go? How many units have been built since 2008? A major issue is arising in respect of allocations. The feeling is that there is cherry-picking, in that people on the local authority list who may be viewed as potentially difficult tenants are not taken on by the housing associations. Will the witnesses confirm this? On a related note, do all of the witnesses' clients and tenants come from the local authority waiting list?

I have many other questions. There is a problem with housing trusts, as anything that local authorities do affects the State's balance sheet. Have the witnesses or the people who direct them politically considered raising money independently through housing trusts or, where there is a revenue stream, pension funds and so on?

I listened to Mr. Ó Lionáin's reply. The major shift has been towards renting or leasing. It is a large financial time bomb.

Michael McCarthy (Cork South West, Labour)
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Time, Deputy.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I will be brief. To rent over a ten-year period will cost the State and the tenant a great deal of money. Houses are cheap now. We built thousands of houses during the recessions of the 1930s and 1950s. A tenant will not have a permanent home. Building or buying would provide that home. The local authority would have a valuable asset to rent for years, after which it could sell the house to the tenant. This is another pot of money for the State.

In my local authority area, the amount spent on housing maintenance is €700,000. The rent accruing - this will increase substantially within the next month and on 1 January 2015 - is €3.5 million, some five times the maintenance. The capital cost of the loans must be paid but, despite the low rents in County Laois, this is a substantial revenue stream as well as a means of housing people.

Michael McCarthy (Cork South West, Labour)
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I will take two further members in that group of three - Deputies Barry Cowen and Catherine Murphy.

Barry Cowen (Laois-Offaly, Fianna Fail)
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I thank the three witnesses for their contributions. I welcome their agreement on the code of practice and the regulatory framework, allowing the private sector to play a wider role in the provision of housing. How far down that road are we? The housing area has stagnated in recent years in terms of the provision of housing to those who need it most, a list of people that is growing at great pace. It is the predominant issue that we meet in our constituencies. While I welcome the movement in that direction, at what pace is that movement occurring? When will the private sector play an active role in the funding of housing associations to meet needs?

I wish to ask all three witnesses about the direction being given by the Department. Once NAMA was put in place, we were promised a social dividend that would meet prevailing housing needs. What leadership has been given and from what source? As far as we can see, there has been no social dividend for the public at large. Has the Department sought to bring the funding agency, housing associations and local authorities together to address this issue with NAMA? I did not read the full context behind what a NAMA staff member stated at a committee meeting some weeks ago, namely, that NAMA was educating the Department and local authorities about its role and how a synergy could work to the benefit of the public.

There has been no social dividend worth talking about for those who I represent. It is high time that there was. NAMA has moved into a profit-making situation. This cannot be at the expense of those who are in need of housing when housing is in such demand.

Catherine Murphy (Kildare North, Independent)
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We would all agree that regulation is necessary not just from the point of view of securing private funding, but from the point of view of tenant rights. I have encountered informal arrangements that worked for neither side. It is important that there be certainty. This is what regulation would bring.

We have a crisis on our hands, given the extent of the housing waiting list. It is difficult to know what the system's capacity is, as we do not know how much private funding can be leveraged. However, are there indications of that capacity?

I will go all over the place with my questions, so the witnesses might pick the ones that are appropriate to them. I will not take too long.

Obviously, only a fraction of the €500 million in available lending has been drawn down. One always questions why this is the case. From where does the 20% on the other side come? Is the general government deficit part of the problem? Is there an impediment to providing the other 20%?

A proportion of the loan books comprises borrowings on the basis of shared ownership. One need not be a genius to figure out that there are problems with getting the agreement of the other parties. Will it present a particular difficulty? Are there risks, given the potential number of distressed borrowers?

I presume that the witnesses count rent assistance when calculating State assistance. Some €3 out of every €10 in private rent is funded by the State. Are the fictional costs that the Department claims exist counted? I know no one who does not top up on rent assistance. The difficulty lies in the fact that market rents are often much higher. This causes problems for people, as they must make additional payments out of their social welfare payments, etc.

There is a perception of cherry-picking. I am aware of people who have been taken off the waiting list out of sequence. The perception is that the most difficult or least well managed housing estates are local authority estates, in that they have a disproportionate number of people who, to use a certain language, have been rejected by a number of housing associations. How can this situation be better managed?

My final question is on the housing associations' social mix. Such a mix is beneficial and can be useful, in that it provides an income stream that can make housing viable as well as social dividends.

The witnesses might tell us how they see that in terms of the scale of people who would not be on the waiting list.

Michael McCarthy (Cork South West, Labour)
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I will ask our visitors to reply in the order in which they first spoke.

Dr. Michelle Norris:

Can I clarify that Deputy Stanley's questions related to the local authority mortgages we fund rather than housing associations?

Brian Stanley (Laois-Offaly, Sinn Fein)
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Yes.

Dr. Michelle Norris:

Mr. O'Leary said he would deal with the mortgages so I will deal with questions about the regulation and funding of housing associations. Deputy Cowen asked a question about the capacity for private sector investment in funding social housing via the housing association sector. Obviously, it is very difficult to assess that capacity before we go out and seek it. It is the case that in everywhere else in Europe, social housing is funded primarily by private sector borrowing. Until the 1980s, social housing in Ireland was funded by local authorities borrowing, so borrowing is the norm and borrowing from the private sector is the norm elsewhere in Europe. There is no doubt there is significant capacity to fund the sector. The issue is about the capacity of the sector to make use of that. As an aside, we have been approached by the European Investment Bank, so that offer of funding has been made to us. As I mentioned in my opening comments, relatively little of the available funding we have even before we go to the European Investment Bank has been drawn by housing associations.

The key issue is not necessarily the availability of funding if the structures are right. It is the capacity of the housing association sector to avail of it. The State has been funding the housing association sector since 1982 in a formal way with a formal grants scheme. Since then, the sector's output has grown substantially. Even when the State was providing full capital grant funding for the sector, the output reached a high of about 2,500 units per year, which is still significantly below the social housing needs at the moment based on the waiting list. In respect of the agency, our issue is that we would be very keen for more housing associations to come to us to apply for approved body status, borrow from us and build dwellings.

Certainly, to draw on finance from the private sector, international evidence indicates it is necessary to have a formal independent regulatory system and not a voluntary system as is being proposed now in order for housing associations to avail of that finance. We secure loans on assets we loan against, so in theory they are security, but in practice no security can be realised because these houses are occupied by families in need of housing. We cannot secure a loan in the way a commercial bank or anyone investing in social housing can. Regulation is necessary to ensure, for example, that an alternative manager could be brought in the case of the worst scenario or housing associations could be given help if there were concerns about their performance to protect the rent roll and, therefore, protect the investors' investment. That is why there is the need for private finance. My view is that there is much potential there but the key problem is the capacity of the housing association sector to take advantage of that potential, apply for loan finance and develop the housing that needs to be developed, including taking existing units from NAMA and building new developments.

Mr. Barry O'Leary:

In respect of individuals applying to local authorities, I will not give Deputy Stanley a short answer but I will deny any responsibility in respect of the Housing Finance Agency. As Dr. Norris outlined in her statement, we are basically a shared service for local authorities. We borrow the money cheaply and lend it cheaply. We only lend to local authorities. We do not lend to individuals so I cannot go through the system of how individuals apply to local authorities or how that is underwritten because it is not a function we look after.

The lending guidelines are given to the local authorities by the Department. In terms of dealing with any changes in policy, we do not formulate policy. We just fund the policies the Department has put together in schemes. If the Department was to change a scheme and move it out from a threshold of €25,000 to €40,000, we would fund that, but it would be for the Department to change the policy and implement the scheme. We would then fund it.

As Dr. Norris alluded, we have some dealings with the European Investment Bank and already have some borrowings from it. It has approached us to see if we would be interested in getting more funds. Funding is not a particular difficulty for us at the moment in terms of having funds available. The difficulty with the European Investment Bank is that it only likes to lend for new build situations. It will not re-finance existing borrowings. Our book at the moment is about €4.4 billion and is declining at a rate of about €100 million per year because there is very little housing activity. The natural annuitisation of books allows our book to decline. We are not making many new loans so we have no particular need to draw down from the European Investment Bank as a consequence. It will only give us new money if we carry out new lending. That pretty much addresses the areas about which Deputy Stanley was talking.

In respect of Deputy Murphy's questions about the extent of the funding and the balance between 80% and 20%, there is a provision where approved housing bodies can approach the Department which offers a capital loan facility which will typically lend somewhere between 10% and 30% of a project to the approved housing body. This is completely separate from us. They effectively use that borrowing, which is on a long-term basis with the interest rolled up until the end of the project, for the equity to cover the other 20%.

In terms of shared ownership and whether we feel there is any difficulty for the Housing Finance Agency, I would say "No" at this stage. This is not to ignore any of the difficulties that exist with shared ownership. It goes back to the relationship the Housing Finance Agency has. It lends to local authorities and local authorities are in a position where they will always pay us back. The very real problem exists at the local authority to individual borrower level. My understanding is that a review group in the Department is looking at shared ownership and is hoping to bring some recommendations to the Minister before Christmas. We are satisfied that the Housing Finance Agency's book is quite secure.

Michael McCarthy (Cork South West, Labour)
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Does anybody else want to respond to those issues? If not, I will move on to my second batch of speakers.

Mr. Brian O'Gorman:

I have a few points to make with regard to the Private Residential Tenancies Board, PRTB, the amount of work it has and our expectation of it. Before our tenancies came under the PRTB, it was almost unregulated so we see it as a very important protection for tenants and landlords. If a tenant had a complaint against us, we were the judge and jury in the matter, so we see the PRTB as very welcome move. It will also create much more equality between our tenants and private rental tenants, many of whom are social housing tenants because they are getting rent subsidy and are in housing need in the same way as our tenants. We see the PRTB move as very positive. We also see the orientation of the PRTB towards mediation and dispute resolution as something that fits very well with our ethos. We have some concerns about the staff embargo. The PRTB is addressing this by contracting out as many of its services as it can and making IT improvements. It is a huge improvement from where we have been.

In the statement we submitted, we gave figures from 2008 to 2012 relating to the output of Clúid. I can repeat them. Between owned and managed new units, we delivered 572 in 2008, going down to 304 this year.

Each year, we have delivered more than 300 units. This year, we expect that figure to be 340. We can see an upward trajectory in delivery that will continue over the next couple of years.

Cherry-picked allocations is a regular allegation. We do not recognise it. I do not know how to respond. Last week, I attended a housing conference at which Wexford's local authority housing officer categorically denied that the housing associations cherry-picked in his experience of dealing with them. All of our tenants are approved by local authorities. They come from the waiting list.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Some 100%.

Mr. Brian O'Gorman:

Yes. The only slight variation is the Safe-Home programme. It encompasses people who were born in Ireland, worked in the UK, for example, fell on hard times and returned to Ireland. They constitute some of our tenancies, particularly in our elderly schemes. Apart from them, tenants are 100% local authority approved. We do not make an allocation without a local authority approving it.

Mr. Cian Ó Lionáin:

In terms of the overall approach to regulation, there are two focuses. First, the regulation of the approved housing bodies, AHBs, gives them the capacity to grow and meet future needs. Second, the landlord-tenant relationship is regulated. Mr. O'Gorman referred to the future role of the Private Residential Tenancies Board, PRTB, in that regard. Deputy Stanley asked whether the PRTB had the capacity to do this. It has approximately 265,000 tenancies. We estimate that approximately 20,000 additional tenancies will initially fall under what will be known as the RTB. While this will present an additional challenge for the PRTB, the Department is of the opinion that the PRTB can meet it by boxing clever, which is what the PRTB has been doing in recent years. It has lost all of its contract staff and its core numbers have declined. It has engaged in an extensive process of outsourcing and of focusing on its core business. For example, its telephony is no longer handled in-house and has been contracted out.

Tenancies within the AHB sector are typically much more stable than those in the private rented sector. The AHB and the tenant want the relationship to work in the long term. In the private sector, tenancies are typically of shorter duration. Figures from the PRTB show an average of one and a quarter years. It is a different cohort.

As to regulation, governance and giving bodies the capacity to develop and access private finance, Ireland is trying to do in three to five years what other jurisdictions did in 20 years. In England, for instance, funding to housing associations went from approximately 90% to 20% in 15 years. In Ireland, we have gone from 100% to less than 30% in two or three years. This is a dramatic change. We are trying to put in place the building blocks that will give external potential lenders to the sector the confidence that individual organisations will not fail, that there will be a long-term plan to remedy any weakness and that the sector is a good long-term investment opportunity. Given the way in which the Irish housing association system is structured, it is a sound investment opportunity. Mortgage agreements go into decades. This is the type of low-risk investment that private finance will find attractive. Initially, we must put the system in place.

We will have a voluntary system for the next two years because we do not want to leap into fully fledged statutory regulation without knowing exactly what we are getting into. For this reason, the AHB sector has engaged in a process lasting one and a half years to define the key areas for regulation and the key metrics. The Minister of State, Deputy Jan O'Sullivan, has given a commitment in this regard. In her view, this needs to be a credible, autonomous and independent process. Resourcing must be addressed. In the short term, phasing in the voluntary code allows the Department and the sector to work hand in glove to define the best regulatory approach for the next few decades.

Michael McCarthy (Cork South West, Labour)
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I invite Mr. Callan, followed by Mr. Brooke.

Mr. Cathal Callan:

I will touch on two questions, one of which was on the future capacity of the sector and whether there was a ceiling and the other of which was on how far down the road we have come. Clúid has a turnover of €12 million to €13 million, assets worth €570 million or €580 million and loans to match that amount. As an entity, we have quite a small turnover. How far we have moved in recent years has been significant. We went from being an agency that was 100% grant funded to one that has actively sought financing.

Our capacity to grow and develop is premised on our stakeholders and the support we are provided. One of the key elements is the one under discussion, namely, regulation. In any model that works within Europe, the key element to its growth and development has been regulation. The Housing Finance Agency, HFA, has put a regulatory element in place for Clúid and other AHBs. We have hurdles to jump before we can access finance. This gives the HFA security as to our ability to perform and meet the loan commitments that we are undertaking. Without regulation, the commercial sector would not have the confidence to invest in us.

We have come a significant distance from where we started. However, we are still financially some way from where we have been asked to be, that is, being capable of meeting a significant amount of general needs housing. What can help us achieve that is regulation, the release of charges on properties and the realisation that the sector is not all the same, in that it contains some entities that have the capacity to grow and develop and others that will remain as they are, namely, small housing associations.

Mr. Simon Brooke:

I wish to address the questions asked by Deputies Stanley and Catherine Murphy on tenant purchase and social mix, respectively. They are important questions for the future of the social housing sector. Clúid has been in favour of the principle of tenant purchase for a number of years. A great deal of evidence shows that mixed tenure communities have higher outcomes for all of their residents than estates with large residualised housing do. Indeed, the Beacon South Quarter project with which we are involved is a mixed tenure development that includes social housing as well as market rented housing.

As a broader policy, we are considering how to ensure a range of tenures in future housing developments as far as possible. We are also trying to determine how a range of tenures can be introduced into existing developments. Tenant purchase will form part of this.

One of our issues with tenant purchase is that, while we are a not-for-profit organisation, we are also a not-for-loss organisation. We could not possibly afford to have the type of tenant purchase scheme that used to be in place for local authorities. Our scheme would be different and would need to be financially viable and capable of making a contribution to housing need.

Caít Keane (Fine Gael)
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I welcome the witnesses and congratulate the Minister of State on introducing these regulations. Regardless of the type of housing that is provided, it is important that there be regulation and security for people in housing.

The HFA was set up as a State organisation and is now a self-financing one or, as has been mentioned, a mini-bank. Any bank that has an overall surplus of €23 million when all of the others are going to the wall is to be congratulated. The HFA's submission mentions a reserve of €69 million and that the shareholders gave the Department a dividend of €23 million. Rather than being bailed out, the HFA bailed in. This is welcome. It could be claimed that the €23 million could have been used for housing, but it must be taken into consideration that the HFA's remit also includes water, capital and environmental funding. My comments are meant to remind the HFA that it is in a good financial position.

I understand why one matter has been included in the statement.

Lending in 2013 will be down on lending for 2012, not because the agency does not have money but because money is not being drawn down. The witnesses can correct me on that if I am wrong. Reference was made to the voluntary agencies and their capacity to draw down money. I believe the voluntary agencies, who are doing outstanding work on the ground, need help. There are many voluntary staff and some paid staff in the voluntary housing agencies. The introduction of rules and regulations puts onerous demands on voluntary bodies. Perhaps the witnesses, in particular those from the Department, will say what help will be available to enable staff of the voluntary agencies to upskill to ensure they can meet the demands of these rules and regulations. This is the only way forward. While I compliment the Minister on the introduction of these necessary regulations, having been a member of a local authority for 20 years I am aware that while regulations coming from the top down are great it is equally important those from the bottom up have the wherewithal to implement them.

Public private partnership works well in other sectors and assists in the financing of government, which is to be welcomed. However, voluntary housing agencies are not builders. This is another area in which they also need help. Many of the houses provided down through the years by the voluntary housing agencies were built by construction companies. However, not much construction taking place these days and supply is not meeting the needs of the voluntary housing agencies. Who will provide houses if not the construction companies? This is perhaps an area in which NAMA can assist. Can the expertise of the local authorities in terms of house construction be transferred to the voluntary housing sector? Do current rules and regulations allow for this? It would be a sin to lose all of that expertise while expecting voluntary housing agencies with no expertise or wherewithal to do the job.

I welcome the interim regulations. It is only be trial and error that it is possible to get things right in terms of the implementation of regulations. Unfinished housing estates is another issue that needs to be looked at in conjunction with the voluntary housing agencies, local authorities and NAMA. It will be necessary for all of those bodies to address this issue. On the issue of shared ownership, I was pleased to hear Mr. Ó Lionáin's comments on that scheme. If he can provide us with a date for publication of the report on that matter we can schedule it for discussion by the committee. Those involved in the shared ownership scheme have been dealt a raw deal. They are taking all the bang while the local authorities have got their bucks. They are also unable to engage with personal insolvency practitioners and as such are out in the cold and on their own.

Reference was made to people on the margins who are not entitled to apply for local authority loans. Deputy Stanley gave the example of two people who are working and slightly above the threshold for a local authority loan and unable to obtain a bank or Housing Finance Agency loan. Mr. Ó Lionáin might elaborate further on that issue. I recall that a group in east Galway got around this issue some years ago by setting up their own voluntary housing association which liaised on their behalf in this regard. Perhaps some mechanism could be put in place to advise people who are falling between the stools of the banks, the housing agencies and local authorities of what options are open to them.

Gerald Nash (Louth, Labour)
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I have a couple of questions for the witnesses from the Housing Finance Agency and, in particular, Dr. Norris. Dr. Norris mentioned in his opening remarks that when compared to the UK and European experience, of which I have some experience, housing finance to the approved housing bodies, AHBs, from commercial lenders is very low. I have detected in recent times that some of the approved housing bodies are to some degree accessing finance from commercial lenders, which is positive. I would expect this to become a growing feature into the future, particularly when the new structures have been put in place as this will provide some certainty to commercial lenders.

There is currently approximately €500 million available to the Housing Finance Agency to lend to approved housing bodies, take up of which, according to the figures provided today, is very low. Dr. Norris outlined some of the obstacles in this regard. He also mentioned that there are capacity issues in this sector. I would welcome if when replying he would elaborate on whether this is related to skills, staff or governance issues in the approved housing bodies.

My next question is to the representatives of Clúid Housing Association and the Department. Do they anticipate that when the statutory framework for regulation is introduced there will be an amalgamation of the voluntary housing associations and approved housing bodies? I understand there are currently several hundred bodies-associations in the sector, some of which appear to me to be inactive in terms of their relationships with local authorities, the Department, accessing finance and housing related activities generally. Perhaps the witnesses will take this opportunity to speculate on what would be the optimum number of voluntary housing bodies that might usefully exist in this environment.

James Bannon (Longford-Westmeath, Fine Gael)
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I, too, welcome the witnesses to today's meeting. I welcome also that the regulatory body will provide support and assurances to the sector and its many partners. Mr. Ó Lionáin might elaborate on the voluntary codes which will set out the basic principles in relation to financial management and good governance etc.. He might also outline what problems and disadvantages are associated with social housing. There are problems in this regard. The Grant Thornton review found that this sector is extremely fragmented and that there are more than 700 approved bodies providing some 23,000 dwelling units to persons in need; 128 of which provided 13,894 units, implying that the remaining bodies, of which there are 600, provided fewer than 10,000 dwelling units in total.

Given the complex nature of providing, managing and maintaining dwelling units for social housing, how can this fragmented sector operate effectively and efficiently? I would welcome a response to that question. During the Grant Thornton review a number of county managers were scathing in their attacks on the sector, with one county manager saying the housing association sector is being dominated by a handful of large providers who own approximately half of the stock.

He suggested these were large and bureaucratic and referred to the fact that one bureaucratic organisation was as complicated as any local authority. I call on the witnesses to elaborate on that. I would welcome any comments.

Having said that, when my former constituency colleague, Deputy Penrose was involved in housing he initiated the entire process of developing and enabling the regulatory framework. This was something that he had hoped to work on and I am pleased that his successor has followed through with it. It is important that it is up-and-running as soon as possible and in a satisfactory manner.

Michael McCarthy (Cork South West, Labour)
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We will go back in the same order. Will you begin, Mr. Ó Lionáin? Then we will go back to the panellists as they intimate a desire to speak.

Mr. Cian Ó Lionáin:

Deputies Bannon and Nash raised issue of the size of the sector. It is important to be upfront about the great diversity in the sector. At the peak, there were 705 listed approved housing bodies but many of these were inactive. One of the recommendations of the Grant Thornton report, referred to by Deputy Bannon, was that the Department should take a clinical view of who is active and who is not. In the past year or so we have begun a process of de-listing bodies which may have been established for good reason but, for one reason or another, whose projects never got off the ground. As a result, these approved housing bodies have gone nowhere or fallen apart and therefore we de-listed them. At the moment we have boiled that list down from 705 to approximately 570. We estimate that there are fewer than 500 active bodies in the country. They range remarkably in size and capacity, from organisations that may only have five units under management to organisations such as the Clúid Housing Association, which is before the committee today, and Respond, which have 5,000 units each.

In designing the code we have formulated a system of regulation that is proportionate to the size of the organisation. A small approved housing body with fewer than 50 units is placed in tier 1. For these bodies regulation will be relatively light and built on the requirements imposed already under company law and so on. Tier 2 is made up of mid-sized bodies. Tier 3 is made up of larger organisations with more than 300 units which have significant development ability. At the moment in Ireland we reckon there are only approximately ten or perhaps fewer bodies of that size. It is a challenge for the overall sector to generate more bodies of that size and to develop the necessary scale to deliver.

Reference was made to consolidating the sector. The Department and the Minister are fully cognisant of the great work that has been done by the smaller approved housing bodies. I do not believe we will ever be in a position where we will be telling people that they must merge because it would be utterly disrespectful to what they have done on a community and voluntary basis. However, there is considerable benefit in those organisations at the very least collaborating. There is a good model in County Limerick, where a dozen small approved housing bodies have come together and pooled the scarce resources they have to employ a full-time person to do their administration, organise contracts and so on. Many organisations share the same theme, for example, those which work in a special care area, and there is definite potential in collaborating. Over time who is to say that those collaborations could become alliances or mergers? However, we are not prescriptive on that.

Senator Keane asked about how the system can help the sector to grow in size. There are several things we can do in this regard, in particular in terms of the regulation of tenancies. There is a system of charging that the Private Residential Tenancies Board currently imposes on private landlords. We have come up with a suite of tailored prices for the sector such that those who register within the first 12 months will get significant discounts. We have made other adjustments to match the nature of tenancies in the sector. We are working actively with the representative organisations, including the Irish Council for Social Housing, which has been referred to. The council represents the majority of approved housing bodies. There is also NABCO, which represents co-operative housing. It is smaller in scale but no less important. We are working with these organisations to see how they and the Department can help, particularly in the case of smaller approved housing bodies which may be daunted by the scale of the regulatory task.

There is certainly a role for local authorities to help in this process. Senator Keane rightly remarked that it would be a sin to lose all the expertise . We have spoken to several directors of housing in local authorities. They have said that they have in-house housing procurement and other skills which could usefully be offered to approved housing bodies to work collaboratively to meet local needs. The Department is keen to see a blossoming of the relationship between local authorities and approved housing bodies.

James Bannon (Longford-Westmeath, Fine Gael)
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I asked about the problems and disadvantages associated with voluntary housing.

Michael McCarthy (Cork South West, Labour)
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I will go to the rest of the panel first, Deputy Bannon. You can come back in then. Does anyone else wish to respond to the comments?

Dr. Michelle Norris:

I wish to respond to Senator Keane's questions about the €20 million dividend we delivered to the Department of the Environment, Community and Local Government this year. The agency funds itself by raising loan finance on bond markets. That was traditionally how we funded ourselves when the bond markets would have us. In recent years, the agency has been funded by part of the EU-IMF emergency loan to the Government because we were shut out of the bond markets as well as the Sovereign. The IMF-EU emergency loan facility enabled us to re-finance our existing borrowings at much lower rates. This was why we were able to generate a dividend on what, I am loth to say, was a one-off basis - I am unsure whether we ever generated a dividend before.

Mr. Barry O'Leary:

It was over 15 years ago.

Dr. Michelle Norris:

We were able to re-finance our loan book because of one-off relatively unusual circumstances. We had an additional €20 million that we had no need to make provision for in our loan book and we made it available to the Government. We do not set policy and therefore we made it available to the Government for purposes at its discretion.

Deputy Nash raised a question about the capacity of the sector. We need to differentiate between the capacity of the sector to continue to manage existing houses and to develop more housing schemes and draw down loan finance. As other contributors have remarked, the sector is very fragmented. There are 500 organisations and a large proportion, approximately half of the stock, is owned by small properly voluntary organisations with no paid staff. Most of them have had their dwellings funded by Government grants. They provide a valuable service, in particular providing housing for elderly people etc. This saves the State a great deal of money in other areas. Do they have the capacity to negotiate complex loan agreements and carry out future development using that vehicle? Probably not. Perhaps they could have in some cases with additional support from organisations such as the Housing Finance Agency or if local authorities encouraged groups of them to come together to draw loan finance collectively. There is an argument for the State to continue to fund them because the costs to the State are low and the savings to the State that they realise are high. It is a valuable community service.

The second issue relates to the capacity of the housing association sector to use finance from borrowing from ourselves or from commercial lenders. I am more concerned about this issue. Currently, we have €500 million available for lending but relatively little has been drawn down. The vast bulk of the finance we have lent has been drawn down by the Clúid Housing Association, which is by far the most active developer in the sector. We have actively tried to encourage associations to apply to us but only a relatively small number have been forthcoming. This is something I am personally disappointed about. We need to actively try to encourage associations to come forward to us with borrowing proposals and we would be interested to listen to them.

Reference was made to upskilling associations to take advantage of our finance.

That is an issue which should be relatively easily addressed.

There is also an issue about the size of organisations and the type of skills one would expect in larger organisations. There are a couple of large housing associations in Ireland, such as Clúid, but they are relatively few. I would take the view that there may be potential for encouraging new players to come on board in the housing association area and to provide housing association dwellings. There are, for instance, some very large charitable bodies established in Ireland which run very large services but which do not provide housing. They could be encouraged to get involved in the area. In continental Europe, local authorities have separate what are called arm's length organisations which could get involved in the area. At this stage, and in view of the scale of housing need and the fact there is significant opportunity in the market for housing associations to get very good value, there may be a need to think outside the box and to encourage other organisations to get involved in the provision of housing.

I refer to the system of, and arrangements for, regulation. As Mr. Ó Lionáin mentioned, the proposed voluntary code of governance takes into account the different sizes of organisations and whether they have paid staff and expertise. That is appropriate because it is neither fair nor realistic to impose the same level of regulation on a small parish committee that provides one scheme of housing for elderly people as that to which one would expect an organisation like Clúid to adhere. The Housing Finance Agency has made it clear in its submission on the voluntary code of governance to the Department that for very large organisations which have received substantial State funding in the past - the types of organisations we would expect to be able to avail of private sector borrowing - a mandatory independent regulatory system is appropriate.

Mr. Cathal Callan:

In response to the question on the commercial lending sector and the attractiveness of social housing to it at the moment, all our borrowings are with the HFA and the majority of our intended projects, which are at approval stage or have been approved, are with the HFA. We have entered into negotiations with other commercial lenders and have had discussions. I think we need to look beyond the commercial sector, to some extent, and at a bigger picture going forward. If one looks at the commercial sector in the UK, which funded the UK housing sector, it has retracted from that sector significantly in the past number of years. The attractiveness of 30 year financing to the banks is not there. As this sector grows and as the key players in it look to access additional finance, we need to look beyond the HFA and to other slightly more imaginative ways of funding our business moving forward.

I concur with Dr. Norris that Clúid, as an entity, has from the start of this process actively backed regulation. We see it as a cornerstone of where we want to be in ten to 15 years time. The reason for that is, as I said earlier, much of the processes and assessments we go through with the HFA would be somewhat similar to what a regulator would put in place. That has given comfort to the HFA to lend us a significant amount. We are looking at borrowings in total from the HFA and the capital advance leasing facility, CALF, of approximately €40 million currently. That is a significant exposure both to the Department and the HFA and they are only comfortable doing that because they have gone through a process with us.

The regulator needs to be in place and we have supported that actively. I am part of the working group Mr. Ó Lionáin has formed to ensure it is in place. It is one of the key elements for this sector going forward financially and it really needs to be in place very quickly because even when the regulator is in place, it will not be a magic wand and resolve the problems overnight. It will be a stepping stone to building confidence and growing this sector and its capacity.

There are positives and negatives to regulators. We need to be careful of the type of regulator we end up with. However, we need a regulator in whom future lenders have confidence.

Mr. Brian O'Gorman:

I would like to say a word in defence of NAMA. We have a reasonably good relationship with NAMA. Its first obligation is to the taxpayer and to get good value. The social dividend is there but it is a second objective. We have found NAMA very good to work with, certainly in terms of unfinished estates where we have acquired the assets and NAMA has been able to provide the funding to enable them to be completed. It only completes them once we are hooked and it knows there is an end purchaser, but it certainly has provided that facility.

Over the years, two associations which got into difficulty have merged with Clúid. I would not like to repeat the experience. I really do not think the future is about consolidation; it is about developing a small number of associations. Consolidation, where it has occurred in other jurisdictions, has been driven by the state. As we heard from the Department, it does not have an agenda of driving consolidation, so it will not happen. Mergers and acquisitions in the private sector are fraught with danger and it is a minefield in fiercely autonomous not-for-profit organisations.

Aideen Hayden (Labour)
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I thank the witnesses for their presentations. It is widely accepted that Clúid represents the gold standard in the voluntary housing association sector. Given the lack of regulation of the sector historically, it is probably a miracle we have not had one or two significant disasters. In terms of the timescale for regulation, Mr. Ó Lionáin mentioned a lead-in time of approximately two years. Given that the lack of regulation has already proved to be a barrier to the voluntary housing association sector in accessing commercial finance and in accessing finance for the Housing Finance Agency, is that lead-in time too long? Would it be preferable to see statutory regulation in a much shorter timescale?

I refer to the UK model, its regulator and its powers, including the power to remove an entire board of directors and other quite wide-reaching powers. Would the witnesses favour an Irish regulator having that level of power in regard to the voluntary housing association sector?

I wish to ask a question about the Housing Finance Agency, and perhaps this is one all the witnesses could answer. Is there capacity in the voluntary housing association sector, as it is currently constituted with a number of large providers and a large number of small providers, to deliver the social housing supply which is necessary given that we are seeing quite a squeeze already in urban Ireland in the private rented sector? We are seeing pressure on social housing provision and we are potentially looking at a scenario where, after many years of lack of delivery on housing supply, we can see greater pressure on housing which will inevitably push poorer people down to the bottom of the pile. Is there capacity in the voluntary housing association sector to fill that gap? What can we do, outside improving regulation and access to finance, to ensure those barriers are removed and that the voluntary housing association sector delivers to the widest possible extent that it can?

In regard to the Housing Finance Agency, I am confused about one thing and perhaps it can be clarified. The presentation stated that the State's capacity to fund large-scale capital grants for social housing provision through the local authorities is likely to be limited for some time and that social housing provision through the local authorities forms part of the national debt. The presentation went on to state that the HFA loans to the approved housing bodies also constitute part of the national debt. Given that it may not be possible for the entire social housing provision to be delivered through the voluntary housing association sector - I am leaving out other measures, such as long-term leasing, and I am focusing entirely on social housing construction or acquisition - is there any reason local authorities should not be able to access loans through the HFA in the same way as the approved housing bodies under the same terms and conditions?

In other words I mean gearing their stock at 80% and accessing a further 20% possibly directly through the Department or through the commercial sector.

I joined the meeting at the end of Mr. Callan's contribution. He mentioned that there may be options outside commercial borrowing for the sector. Is there any scope for real estate investment trusts, for example, which were announced in the last budget, but which at the moment are seen more as a means to fund commercial property enterprises? Is there any reason a public-private partnership arrangement could not be reached between the voluntary housing association sector and the private sector through a REIT structure? It has been said that Ireland is unusual in having social housing provision through the local authorities. What are the options for having large-scale voluntary transfers of stock from the local authorities? Mr. Ó Lionáin said there was no real future for them as social housing providers. Particularly with the land banks held by the local authorities is there any possibility for some transfer of stock out of the local authority sector to the voluntary housing association providers which would make them more commercially viable as housing associations?

Arrears on loans that local authorities have they have given out over the years have been mentioned. I am aware that in the Dublin City Council area there are very significant arrears on local authority loans. There has already been a discussion on shared-ownership loans. I understand that because of the structures of those loans through the HFA, the local authorities can offer a MARP, mortgage arrears resolution process, but they cannot offer a MARS, mortgage arrears resolutions solutions process because they are not in a position to offer the same types of solutions to their borrowers as commercial banks. Does the HFA have any function in that? Mr. O'Leary said that he does not envisage the difficulties local authorities are experiencing having any impact on the HFA loan book. However, without intervention from the Department I believe it would have an impact on the HFA loan book if the local authorities are in significant difficulties with arrears without having the armoury other lenders have in offering solutions to borrowers.

I wish to address the transfer of regulation for the voluntary housing association sector to the PRTB. I wish to state for the record that I am chair of an approved housing body, Threshold. I completely favour regulation which represents the best way forward for the sector. What arrangements have been made for the sector to come under the remit of the PRTB, or RTB as it is to become? I know the registration fee that will need to be paid was of great concern given the volume of stock within the AHB sector. Would it be appropriate for some of that funding to be allocated towards additional staffing in order to facilitate the transfer of the voluntary housing association sector into the PRTB?

Mr. Cian Ó Lionáin:

Senator Hayden asked whether the lead-in time for regulation is too long. She may have been outside the room when I said that Ireland is compressing into three to five years what has taken 15 to 20 years in other jurisdictions. Statutory regulation should be in place by 2016. At a minimum we will need that time to allow for the practical issues of legislative drafting and the preparation of the sector for the regulated future. When we set out on this regulatory path we were very upfront with the sector in stating that we wanted to ensure it was reasonably well prepared for it. Rather than waiting for a big bang in 2016, under the voluntary code we are working with, in particular, larger organisations in the sector to prepare an additional financial chapter to be appended to the code. As I said, the code is very much an evolving document. That would effectively result in a number of approved housing bodies signing up to more rigorous code - it will still be voluntary regulation. If an approved housing body signs up to a code - even if it is voluntary - and then for whatever reason decides to walk away from that, it would not play well with it in terms of financial credibility. We hope that over the duration of the voluntary code external lenders be able to point to a number of organisations which not alone have signed up to the voluntary code but have gone further and publicly committed themselves to standards of excellence and have committed themselves to being monitored or invigilated by the interim regulator.

The Senator mentioned step-in powers that other jurisdictions' regulators have. There seems to be unanimity between the Department, the Minister, the sector and lenders that we need credible step-in powers for a regulator otherwise it will not go anywhere.

The Senator also asked whether local authorities should be able to borrow from the Housing Finance Agency and I am sure my HFA colleagues present will comment on this. In mathematical terms there is no reason but at the moment keeping stuff off the general Government debt picture is critical. In other jurisdictions there are precedents where local authorities can effectively form an organisation to borrow. It may not be an answer at this time, but hopefully as the economy continues to recover, it might emerge as a possibility.

The PRTB will become the RTB from next year. The Minister is very aware that the PRTB has done manfully well to cope with a virtual doubling of its work with a halving of its staffing resources. The PRTB has submitted a staffing application to the Department which we will obviously need to consider along with the Department of Public Expenditure and Reform within the overall context of the employment constraints. As a Department, we are very sympathetic to the PRTB case. Sympathy does not fill jobs, but we recognise the PRTB has done a huge amount - to use that horrible phrase - to sweat its assets as far as it can and we are very supportive of it.

Dr. Michelle Norris:

Senator Hayden asked about the type of regulation that is appropriate. In my view the type of regulation that is appropriate is a risk-based structure. That is viewed as the gold standard in the rest of Europe. That would involve regular reviews of finances, governance and also the standard of services provided to tenants. If the regulator believes there is a risk, there would be more in-depth analysis of what is going on in the organisation, maybe the provision of further support and as a final option what are called step-in powers.

In other words, it is the power to have an external organisation come in and take over the management of the dwellings. That is the situation in the various countries that make up the UK. On two occasions in recent years, the UK regulator has used its step-in powers to transfer stock to another organisation to manage. That means tenant services are protected and from the point of view of private investors, the rent roll is protected and therefore their investment is protected, which is their key issue in investment. The alternative, which has occurred in some European countries such as Germany and the Netherlands, is that housing associations go bust. In Germany, this happened to a very large housing association. This is the model I think is appropriate for the Irish situation.

I recognised that we are trying to implement these arrangements in the context of unprecedented change in the system of funding social housing and an unprecedented shortage of State finance. On the other hand, the State has been funding the sector since 1982. I did a quick calculation in the office this morning and figured out that around €3 billion in State capital has been paid over. In view of that, particularly for large organisations, I believe an external regulator is necessary now rather than a voluntary system.

One of the challenges for regulating the sector is that quite a large number of housing associations in Ireland provide housing and other services. Clúid Housing Association, to my knowledge, provides mainstream social housing, but there are many other organisations that provide housing services, addiction services and so on, especially organisations in the homeless sector. To avoid a situation where they are subject to multiple regulation, perhaps by the Department of the Environment, Community and Local Government, the Department of Health and any other Department that is funding them, discussions are taking place about setting up a charities regulator. Ideally, regulation of the housing association sector would come under that regulator, because that would avoid an excessive regulatory burden. For very small associations without paid staff that carry out a very valuable service at very little cost to the State, any regulatory arrangements must take into account the amount of regulation that is necessary and the amount they can bear, which obviously would be minimal.

The Senator raised the issue of lending to local authorities and to housing associations and where this lies on the national debt. The HFA's lending to both is considered part of the national debt. That was not the case in the past, but EUROSTAT changed its definition of national debt and that changed things, having a huge knock-on impact on the social housing sector. That is the current situation. Who we lend to is a matter for the Department and for Government policy. The other question raised by the Senator was about financing vehicles and real estate investment trusts. To my mind, there is no reason the real estate investment trust could not be used in the housing association sector in Ireland. It has some advantages, considering the structure of our sector and the large amount of smaller organisations. Generally with real estate investment trusts, there is a central body which offers investors an opportunity to invest in the trusts which buy dwellings and sub-let them by leasing them to housing associations. This could get around some of the capacity problems I have highlighted in the sector. It would also move finance off balance sheet. That is certainly something that could be explored.

The Senator also spoke about the possibility of large-scale voluntary transfers of local authority social housing units. This was done in the UK. It was driven by two factors in the UK. First, the Government there was not very keen on local authorities providing social housing. Second, there was a practical reason in that they needed to raise money to do major upgrading of local authority housing by loan finance off balance sheet. The second factor does not apply here at the moment, as most of the stock is well maintained and has been subject to much upgrading expenditure. I am not sure of the answer to the Senator's question as to whether it would actually improve the borrowing capacity of housing associations if they took on the stock.

In response to her question about the land banks, some of the local authorities have relatively large land banks, including some of the local authorities in the Dublin area. It is my view - separate to my role in the HFA I researched the housing sector - that there is currently a shortage of housing in Dublin, particularly a shortage of social housing. We have had practically no development since 2007. There is a big shortage of housing for low income people, as well as a big shortage of semi-sheltered type housing, which is housing with additional supports suitable for people coming out of homelessness. That shortage means we are spending a huge amount of money on homeless services, keeping people in hostels when they could be more appropriately housed for less money in social housing. In my view, there is definitely a need for new social housing development in the Dublin area, and maybe in some of the other cities where there is not an issue of oversupply any more. A transfer of local authority land banks, or looking at how those land banks could be developed by housing associations, is something well worth exploring. Arm's length bodies set up by local authorities would also be worth exploring in my view.

Mr. Barry O'Leary:

In response to the question on local authority borrowers' arrears, we are not completely divorced from the knowledge of the difficulties for the local authorities. I am aware that the Department has encouraged local authorities to put together a mortgage arrears resolution fund, so 0.55% of the interest charged on all these loans is being put into a fund which will allow local authorities develop the very solutions the Senator mentioned and that commercial banks are supposed to be developing for their customers. They are actively working on a mortgage arrears resolution process, MARP, solution for their borrowers. We are not unaware that if they were to run into financial difficulties, they could have cashflow issues in terms of paying us, but happily we have no arrears at the moment. We have indicated to all local authorities that in the event of them having any cashflow issues where the receipts coming in from their borrowers are less than what they would require to borrow from us, we would look at some of our own cashflow mirroring and we would adjust the term and we would give them payment holidays or whatever. No local authority has approached us so far about this, but it is in their armoury if they need it to address the process. The MARP process is particularly important as it will be developed in the next two or three years. As people emerge from the MARP process, solutions such as split mortgages or mortgage-to-rent or any other solutions used in the commercial sector will also be applied to local authority borrowers.

Mr. Cathal Callan:

The initial question asked by the Senator was about the lead-in time for the regulator. The simple answer is that I would like to have a regulator now. We have been talking about regulation for a number of years now. We are tasked with funds to supply general needs housing. A regulator in place will make that cheaper in respect of interest rates and makes the access to it easier. I said earlier that I thought commercial lending for this sector would be limited in the medium term. The world may possibly change in the long term and it may revolve back, but in the short term, commercial lending will be limited in the sector. Why do we need a regulator if we have access to the HFA? I think there is a need for the sector to move on from the HFA. The HFA has a key part to play in this initial stage and in the future, as there is a long-term relationship in respect of 30 year loan facilities. The key advantage of a regulator is that it builds confidence in the sector.

We can then look at alternative forms of funding.

We investigated the potential for real estate investment trusts, REITs, but we have not formed an opinion as to whether we wish to enter into such arrangements. We have also consider the potential for arrangements around the private sector leasing, PSL, model or a variant thereof. A capacity issue arises for the sector overall, however. If one removed all of our limitations in regard to unencumbering assets and appointing a regulator with whom lenders would be comfortable, we would still face limits to the amounts that we could borrow. Even the larger housing associations in the UK are now starting to hit limits in their ability to borrow. If housing associations are going to be the main supplier of social housing, a different methodology will need to be developed. PSL would mean we do not take the amounts on to our balance sheet. The funding requirements would be similar. Long-term issues arise in that one does not own the asset but one gets access to large amounts of stock. That is something we have been exploring and may develop further.

In regard to the regulator, I agree with Dr. Norris that a regulator would need to have a stick and be able to intervene if the basis of assessment for performance in terms of capacity to borrow into the future, planning and financial governance is not up to standard. The intervention could take many forms, such as direct intervention to replace the board and management team, but other jurisdictions have tended not to intervene in such a draconian manner. There have been cases where regulators stepped in to force mergers but others have consisted of a quiet intervention in which the regulator facilitated the relationship with lending elements by giving security to the position and allowing time for the issue arising to be regularised and the entity to return to independence. In order to get to the point where the regulator has powers to intervene I would like provision to be made now. I am realistic in recognising that we are a minimum of two years away from having anything that is credible. We need to work towards that.

Stock transfers have a value to housing associations. They improve our capacity to borrow because they give us a critical mass of units and stock. We heard about some of the models that have worked in the UK, where stock has been transferred from local authorities into their own housing associations, at a recent conference in Wexford organised by the ICSH. These models should be investigated further. It is feasible to develop large housing associations through transfers from local authorities. The result would be a large housing association with critical mass and capacity to borrow. This should run in tandem with the voluntary sector as it currently stands. A large number of issues would have to be addressed but it is a possible option.

Michael McCarthy (Cork South West, Labour)
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I thank the witnesses for their engagement with the committee. I also thank Senator Hayden for her contribution.