Oireachtas Joint and Select Committees
Tuesday, 8 December 2015
Joint Oireachtas Committee on Environment, Culture and the Gaeltacht
General Scheme of the Housing (Regulation of Approved Housing Bodies) Bill 2015: Discussion
We have a quorum. I remind members to turn off their mobile phones as they interfere with the broadcasting of proceedings. This meeting has been convened for the purpose of pre-legislative scrutiny of the Housing (Regulation of Approved Housing Bodies) Bill 2015 and related matters. The heads of the Bill and other documents are available on the committee website and members of the public are welcome to comment on them. The committee will meet stakeholders today and next week on 15 December. It is proposed that if not previously concluded, this session will conclude at 3.30 p.m.
I welcome Ms Rosalind Carroll, head of regulation and Ms Sophie Geraghty, financial regulation manager from the Housing Agency. From the Housing Finance Agency, I welcome Mr. Barry O'Leary, chief executive officer and Mr. Seán Cremin, head of treasury. I draw witnesses' attention to the fact that 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. However, if 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. They are directed that only evidence connected with the subject matter of these proceedings is to be given and 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.
It is proposed that the opening statements and any further documentation supplied may be published on the committee website after the meeting.
Is that agreed? Agreed.
Ms Rosalind Carroll:
I thank the Chairman and committee members for the opportunity to speak to them regarding the housing (regulation of approved housing bodies) Bill 2015. I am joined by my colleague, Ms Sophie Geraghty, financial regulation manager in the regulation office of the Housing Agency.
The regulation office was established as the interim regulator for approved housing bodies, AHBs, in February 2014. Our purpose is to implement the voluntary regulatory code for AHBs and to introduce a system of regulation pending legislation and a statutory framework. The regulation office reports to an interim regulatory committee of non-executive members. The committee, appointed by the Minister of State with responsibility for housing and planning, is a committee under the board of the Housing Agency but has independent decision-making powers.
Our specific brief is to implement the voluntary regulation code for approved housing bodies; to assess AHBs in respect of their financial viability, governance, performance management and overall compliance with the code; to develop the regulatory framework further; and to advise on and support the development of the statutory regulatory framework. There are more than 500 AHBs, also referred to as housing associations or co-operatives, providing in excess of 30,000 homes throughout the country. The sector is very diverse in terms of activity and size, ranging from small, voluntary, community-based organisations to large-scale national organisations, although most of the stock is held by a small number of large AHBs. The sector has developed steadily over the past 20 to 30 years in what was, until recently, a low-risk environment. However, the financing and delivery of social housing has been changing over recent years. The sector is becoming less reliant on capital grants from the Government and increasingly is borrowing finance to support the development of social housing. AHBs are now a central part of the Government’s vision for social housing provision, and regulation is vital to ensure the enhanced role of AHBs is managed effectively, that existing assets are safeguarded, and that the tenants of existing and future social homes are protected at all times.
The AHB sector has made a significant contribution to the development of social housing in Ireland. Regulation of the sector should enable, rather than impede, the further delivery of homes and is important for the following reasons: to ensure the investment made by the State is managed and that homes provided are available for tenants into the future; to build the capacity of the sector to deliver more and better quality homes; and to build the confidence of public and private funders to invest in the sector through the presence of regulatory oversight. Experience elsewhere has shown that well-designed regulation of AHBs can foster stakeholders’ confidence in the sector and create an environment that encourages growth and innovation. The presence of regulatory oversight is critical in building the confidence of lenders to invest in the sector and in building the capacity of the sector to take on new risk. At a practical level, good regulation can also lead to lower lending costs for the sector, when lenders are reassured as to the long-term stability and growth potential of the sector. Regulation is also very important in protecting the interests of tenants and ensuring social landlords provide good quality services.
Since the regulation office in the Housing Agency was established, the office has sought to promote regulation in the sector and develop a framework which allows for robust oversight of the sector and for a smooth transition to a statutorily based framework. At this point, 210 AHBs have signed up to regulation, representing 24,682 homes or 82% of the overall AHB stock. The office is confident that all larger AHBs, that is, those with a stock of more than 300 homes, are signed up and the numbers of AHBs signing up continues to grow by the week. We have completed the first cycle of assessments, based on an annual regulatory return of 142 AHBs, and have commenced the second cycle of annual assessments in respect of 2014. The office has been able to engage positively with a number of AHBs where issues have been identified or referred to the office. An annual report with aggregate data on the sector as a whole was published in July 2015, which gives an overview of what the sector looks like as well as how it is performing against certain criteria, and thus further supports the transparency and accountability of the sector.
Regulation has a key role to play, not just in protecting tenants and safeguarding the public investment in social housing but also in enabling further delivery of social housing. A significant number of AHBs have voluntarily signed up and have welcomed regulation. Many AHBs consider it a necessary element of them growing and providing social housing in the new funding environment and in the context of them being more transparent and accountable to tenants, the public and the State. There are a number of parallels between the current voluntary regulatory framework and what is proposed in the Bill. The experience gained in implementing the voluntary regulatory framework over recent years has informed the design and structure of the Bill. The Bill underpins many of the principles established under the voluntary structure in that it is a structure that is proportionate, risk-based and focused on the financial health, governance and performance of AHBs. The Bill also provides the necessary legislative powers for a regulator to be able to assess, investigate and intervene where necessary. It enables the regulator to set standards for the sector, which mirrors practice already occurring. Under the interim structure in place, a financial standard has been developed for the sector which establishes specific financial requirements for AHBs. The power to transfer assets is also provided for. This is a significant power and one that has rarely, if ever, been used in other jurisdictions, but it is necessary to protect assets and ultimately protect tenants where serious issues arise.
In an increasingly complex funding and delivery environment and with a growing need for organisations to be more accountable and transparent to their tenants, Government and investors, statutorily based regulation is to be welcomed. Good regulation supports what AHBs should already be doing from a business perspective and voluntary regulation is operating very successfully.
Mr. Barry O'Leary:
I am pleased to be here today with my colleague, Mr Sean Cremen, head of treasury, to give a brief outline of what the Housing Finance Agency, HFA, does and our views on the upcoming legislation. I do not propose to read through all the opening statement we have submitted, but I will give some brief background information on the HFA. The HFA’s function is to advance loan finance to local authorities and approved housing bodies to be used by them for any purpose authorised by the Housing Acts. Our role is to supply appropriate funding for schemes and projects decided upon and established by the Government. Our total outstanding loan book on 31 December 2012 was €4.3 billion.
Most of the lending we do is to local authorities. I do not propose to speak about that but rather to concentrate on our lending to AHBs. We began this side of our business in 2011. Until then, Government largely grant funded housing bodies for social housing. Through tighter budgetary constraints, however, it has introduced a system of loan finance. The HFA has had to adapt its processes and has quickly become the largest provider of loan finance for the sector. Direct AHB lending creates a different level of risk for the HFA compared with lending to local authorities. We manage this risk through its credit assessment process.
To be considered for loan finance from the HFA, AHBs must first apply to us for certified body status using our standard three-page application form. The suitability criteria we use are similar to those used by other financial providers and broadly span three areas: past financial performance, current corporate governance structure, and future development and financial plans. To date, the HFA has received applications from 25 AHBs for so-called certified body status. Of these, 12 have been approved, 11 rejected, one withdrawn, and one is pending a decision by the HFA’s credit committee. In the event that an application is rejected, we have a process whereby we talk to the entity's representatives and explain to them the various steps required to attain certified body status. Several of the AHBs which have failed to get certified body status from the HFA have been approved on reapplication.
Once certified body status is attained, AHBs can apply to the HFA for finance for individual housing developments. To date, we have offered loan finance to 100% of loan applications received. We have about €500 million available for lending to AHBs. To date, finance for individual housing developments to the value of approximately €180 million has been approved. This will cover the acquisition or development of more than 1,600 homes and the energy upgrading of another 550 units. To date, about €60 million has been advanced, with the balance due to be advanced as the projects progress.
The HFA's credit assessment procedures have been vetted by the European Investment Bank, EIB, which subsequently approached us seeking to use us as a conduit into the sector. Last January, it provided us with €150 million in loan finance for the housing sector. This finance is valuable because it offers certainty of interest rates, in that we can provide 25-year fixed-rate loans to approved housing bodies, AHBs, at approximately 3.25%. The HFA is authorised to finance loans up to a total of €10 billion. Our current reserves amount to €128 million and we expect a surplus in our activities this year of €22 million.
Our main role is to supply suitable finance at the right time and price to fund the social housing strategy that is being operated by the Department of the Environment, Community and Local Government. We welcome the intent of the legislation. The establishment of an independent regulator is important and will lead to significant benefits for the sector and assist in building capacity therein, creating certainty and improving investor confidence in the creditworthiness of AHBs. Regulation will provide additional evidence to lenders that the sector is well governed and well managed and that its financially viable organisations are capable of dealing with loan finance. It will also deliver benefits to tenants, in that they will enjoy the security of having financially sound landlords with well managed and maintained properties. The development of sectoral standards on issues such as sinking fund provision, risk management and good corporate governance is an important element in the regulator's work.
I trust that I have briefly provided details on the HFA's background and interaction with AHBs and would welcome whatever questions members might have.
I welcome our guests. Will they outline the advantages and disadvantages of AHBs? My suspicion is that tenants will not be able to purchase, which would be a disadvantage, but I would be interested in our guests' views. How will the housing assistance payment, HAP, operate in respect of AHBs? Will our guests say something more about their organisations' sources of finance? The main one is the Government, but to what extent do they believe that they will be able to get finance from other sources?
This may not be a fair question, in which case our guests can ignore it, but I am concerned as a public representative that housing be delivered as rapidly as possible. To what extent will AHBs be able to assist with this urgent problem?
I welcome our guests. Housing is at the top of the agenda. I acknowledge the role that our guests' organisations play in ensuring the provision of housing, particularly in terms of social housing alongside local authorities. Over 25 years, funding at 3.25% is a good rate that one would not get anywhere else.
Ms Carroll mentioned that 82% of housing agencies had signed up. Why is it not 95%? The Bill provides that a regulator can intervene where it deems it necessary to assess the needs on the ground. Will Ms Carroll elaborate on where intervention is necessary to accelerate the process currently, given the fact that the objective is to provide housing but that is only happening slowly? What role could our guests play in that regard?
Regarding the supply of appropriate funding through local authorities, it was stated that 25 AHBs had applied but only 12 had been approved. If the need is so great and the AHBs have met the conditions, why have only 12 been approved? It is a low rate of approval. According to the submission, 100% of loan approvals have received an offer. Did they refuse or what? Am I looking at two different matters? To date, €180 million for the acquisition or development of 1,600 homes has been approved, but only €60 million has been advanced. Could that happen faster? Speed is of the essence. The HFA's job is to be a loan financing agency and a regulator. Getting the process moving quickly should be one of its priorities. I presume that it is, just as it is the Government's priority.
I join other members in welcoming our guests and thank them for their contributions. I wish to ask two questions, the first of which is on AHBs. We would like to empower people to aspire to own their own homes, where possible. Tenant purchase schemes have been advanced over many years by several Governments, including a welcome one in recent weeks. The same opportunity does not exist for tenants of AHBs and housing associations. Has there been any discussion with or indication from the Government that this possibility will be explored? It is an aspiration of many local councillors that those tenants will have the same opportunity to purchase their homes as local authority tenants do.
My second question is for the HFA. A cohort of people have been left behind in recent years. I have seen this in my local authority area and others. I am referring to the elderly and the means they have to adapt their homes to meet medical and other needs. Local authorities access such funding from the Government based on the amount that they can invest themselves. In recent years, they could invest nothing and, therefore, nothing came from the Government. The waiting lists are spiralling out of control in some counties. In mine, I know of 70 or 80 cases that each need approximately €15,000, amounting to more than €1 million, for house adaptation works to meet elderly people's requirements and allow them to remain in their homes and part of their families and communities. In the absence of that money, they face the possibility of going to nursing homes or long-stay beds in hospitals and so forth. That is, if they survive the five-year wait for funding to be made available. In the meantime, the cost to the State is as much as €15 million when €1 million could have sorted the problem out in the short term.
Has there been any communication from the Government on exploring a means by which the HFA could have a role in addressing this gap? Home ownership and whatnot present legal issues, but a scheme similar to the fair deal scheme, under which the State puts a charge on an elderly person's house, may be appropriate to meet existing demands. While all of the focus is rightly on the dearth of housing and lack of progress in that regard, the elderly have been left behind. We would like to see an exploration of this issue and ideas and suggestions emanating from that for the Government to implement thereafter.
Ms Rosalind Carroll:
Deputy Dowds asked about outlining the advantages and disadvantages. I outlined a number of advantages of regulation in my opening address.
First and foremost it is about complexity in terms of a changing world and how social housing is being delivered. If AHBs are to have an enhanced role, we need to be looking at regulating them in a different way. If they no longer receive 100% capital finance, we need to have regulatory oversight in order that people will invest in them to deliver more housing. Apart from just attracting in lenders, we need also to think about the fact they are changing how they do business and that they are taking on risks. There needs to be regulatory oversight to protect the tenant, so it is not just about the private finance. It is about ensuring there is oversight if they are taking on private finance, that it is not too much finance and that the homes which tenants are in already can be protected. It is also about ensuring tenants are well governed and well managed and it is about performance. There will be a role in terms of regulation. In my role as head of regulation, we look at governance and financial viability but also at the overall performance of an organisation. We could be looking at areas such as maintenance, management, the vacancy rates across the stock and so on to check that the housing performance is at the level we would expect. Where there are individual issues, we would look for an explanation and what is being done to address it. If we were to see very high vacancy rates, that is one of the things we would do.
One of the powers within the Bill is publishing information. In doing that, there should be transparency for lenders but also for tenants to empower them in the future to make choices about their landlords. If tenants see that a certain landlord appears to be doing well, they may want to opt for that accommodation over other accommodation.
The tenant purchase scheme was mentioned. The way the current funding schemes work, and this is obviously not a matter for regulation, is that most of the property funded by the State has a mortgage against it which means the property cannot be sold. It must be available for social rented purposes. Any such decision would have to involve the AHB having regard to the mortgage on the property in the first instance and repaying some of the debt to Government in terms of the legal entity that exists.
The incremental purchase scheme introduced in 2009 under the Housing Act at that time allows for incremental purchase arrangements where AHBs can do incremental purchase. This allows them to build housing for sale for people on the social housing waiting list. While it may not be the same as the present tenant purchase scheme, the new tenant purchase scheme is based on the incremental purchase scheme as well in that it is bought over a period, so there may be options for AHBs to do more of that. I am aware of one approved housing body that has worked in conjunction with the local authority to do that in a particular site in Drogheda. There may be further examples of that that could be looked at in the future but, as I have said, it is not specific to my role in terms of regulation.
The HFA was raised. The difference between HFA and how it impacts on approved housing bodies is that some approved housing body tenants receive a capped amount of rent supplement and in time they will receive a HFA payment rather than rent supplement when they are in accommodation financed under the capital assistance scheme.
Ms Rosalind Carroll:
That element of the Act has not been commenced, but I understand from speaking with officials in the Department that it will be commenced fairly quickly. We have done a pilot in one local authority in Kerry to see how it would work, so I imagine it will come on line fairly quickly. In terms of finance from sources other than the Housing Finance Agency, most of the Irish commercial banks are lending to the sector. Almost all of them have lent at some point and some are expanding their business into that area. We also have had some non-Irish banks enter the market and come to us seeking information. We have also had engagement with the European Investment Bank on that front. I hope that answers most of the questions.
Ms Rosalind Carroll:
The way it works under the model is that instead of the body getting a capital payment from the Department, it gets a payment and availability agreement which is essentially a revenue payment. That revenue payment is linked to market rent and is based on 92% of market rent. The body has that money coming back in and it is up to it to try to pay back the loan through that revenue stream. It is a constant revenue stream rather than an upfront capital payment coming from the State.
Deputy Dowds asked if housing is being delivered as rapidly as possible. Mr. Barry O'Leary mentioned €60 million or thereabouts in terms of drawdowns so far from the AHB sector.
Ms Rosalind Carroll:
That is in regard to the HFA. That does not take account of other lenders or any input they would have had themselves. Some of the bodies will have put in some of their own finance. When we looked at the sector last year and conducted global accounts in respect of tier 3, which are the larger AHBs with more than 300 units, €46 million in funding from private finance or loan money had been drawn down at that time. We would expect a rapid increase from regulation. Regulation enables more supply of social housing. Our overall objective is to enable further supply and to protect tenants. We have launched our annual report which gives an overview of what the sector looks like as well as how it is performing in terms of further delivery. As I mentioned in my opening remarks, we have started our second cycle of assessments. Out of that we will launch another annual report in which we should be able to show what progress has been made in terms of the overall money that has come in by looking at the accounts of all the bodies. We should be able to show how much additional output there has been from the sector. We hope to have that report in another three or four months when we have accumulated and assessed all the returns in respect of 2014. We will be able to tell the committee about it at that time.
Senator Keane asked why only 82% of the housing agencies have signed up. This issue has been raised before. Regulation was first introduced only in February 2014, so we are quite pleased with the progress that has been made to date. We reckon there are more than 500 bodies. While we have 82% of the stock, there are still a number of bodies if only 210 of them have signed up. We have all the tier 3 bodies, which are bodies with more than 300 units, signed up. This represents about 80% of the stock. Many of the smaller bodies have signed up but some others have not. We have started to review those. We think that many of the bodies that have not signed up are non-developing bodies or bodies that may be inactive at this time. Sometimes people apply for approved housing status but may never take on units and may still have a status attached that will not have been reviewed and taken down. Other bodies, because they are not developing, may not have signed up to take on units. One of the conditions now if a body wants to access State funding from the Department of the Environment, Community and Local Government is that the funding is prioritised based on sign-up to regulation to the voluntary code. Any body that is accessing new moneys is signed up to our code. However, there is still work for us to do in trying to identify other bodies. We will continue to do that through newsletters and promote the code as much as possible in the voluntary framework that is in place.
In terms of interventions and what is necessary, in the first cycle of assessments we did last year, we would have identified 17 bodies out of the 142 where we said further engagement was necessary. That further engagement could have been where we required them to clarify a piece of information around their governance or it could have been that, having looked at their accounts, we would have seen that they had been running at a deficit for two years. We were worried about an organisation in that position and wanted to find out what it was doing about it. That is a typical example of some of the issues we found. We found some of the smaller, tier 1 bodies with fewer than 50 units were struggling in terms of board membership. They may have been set up ten or 20 years ago and had the required number of board members but now they were in a rural community and had only two or three board members. For good governance they needed to have a full board.
We are not there to criticise them but to support them, to see what way the issue can be addressed and how they are looking to address it. Issues are also referred to us directly so, apart from our work assessing bodies, some bodies will refer issues to us. Issues have been referred to us regarding conflicts of interest and governance where members of a board are being paid, which is against our code as one should not be on a board if one is being paid. There have been various different issues but everybody has positively engaged with us thus far and they have followed the steps we have recommended to them.
Deputy Cowen brought up the issue of tenant purchase and hopefully I have dealt with that. I am not sure what I can add to the question on the adoption of nursing home schemes. Mr. O'Leary may be able to give further information on that.
Mr. Barry O'Leary:
Ms Carroll has dealt with most of the questions from Deputy Dowds. There are four sources of funding for the HFA. We borrow money from the NTMA, we borrow money from the European Investment Bank, we borrow from the Council of Europe Development Bank and from local authorities, because we offer a facility for them to manage their short-term cash flows. They put surpluses of cash flows with us on a short-term basis, which we use as a source of finance. All those sources are Government guaranteed and allow us to offer the rates we offer, which Senator Keane identified as being particularly good. The approved housing body rate, which we offer at 3.25%, is significantly below the rate at which other lenders in the market would be able to lend, and rightly so because we are a semi-State body and do not have a profit motive. We just need to manage our own agency on a break-even basis. The rates we offer to local authorities are significantly cheaper because there is less risk associated with lending to local authorities. We can lend money to local authorities at quite a low rate, 1.5% or 1.75%.
I have a question on shared ownership and borrowings in that area. A great many people are stuck in the shared ownership scheme and in negative equity. The HFA is a bank of the local authorities but while the banks have written down or recognised negative equity, there is no such recognition in this case. Is there anything the HFA can do, in conjunction with local authorities and the Minister, for that group of people? Shared ownership was common but many people are stuck in the middle. There is a clause that a person cannot let out a house if, for example, they get a job in England.
Mr. Barry O'Leary:
Some measures are being developed at the moment between the Department and a number of stakeholders but we have been involved in changing the way a shared ownership loan was financed. The loans were originally drawn up in the early 1980s and were index linked. We paid back the bonds earlier this year so we can offer the ability for local authorities to switch the shared ownership element of the loan to a variable rate loan at those lower rates. Half of the shared ownership loan was essentially renting a house and people at the end of a renting period do not expect to own a house. If they want to own a house they need to buy it out.
Mr. Barry O'Leary:
Some developments will come out from the Department on shared ownership shortly.
On the question on the hurdles we set, we have two stages in our approval process. If one wants to get into the group that can borrow from us, one must pass the first hurdle. Twenty five have applied and 12 have been successful. We look at the applicant's past, present and future - their past financials, present governance and future plans. Quite frankly, 12 of them were not good enough to be approved or to give us the feeling that we had a good chance of our money being paid back. As a semi-State entity we are supposed to safeguard the assets of the State in the agency. Some of the applicants have gone through the process more than once and have come out successfully at the end of it but we are satisfied that the 12 that have been approved are the best to lend to, and of those 12, seven have borrowed money from us. The others are in the course of developing projects that will allow them to do it.
Of the €180 million we have approved this year, €60 million has been drawn down and 100% of the people who have applied to us for loans have got loans because we have already been satisfied with their set-up. It is not that we have given them a bad offer or failed to give them an offer; everyone who applies for a loan to us will get an offer. As Ms Carroll explained, the cash flow that remunerates those loans comes from a payment and availability agreement. There are fairly predictable cash flows so once somebody shows their ability to manage it, they have a very good chance of getting a loan. We have plenty of funds available with more than €500 million for lending. It is a question of people coming to us and drawing them down.
Compared to last year, we have seen a fourfold increase in our activity this year, reaching €180 million. There is a noticeable increase in AHB activity this year compared to last. It will take time for the building and development parts of the projects to progress to the point where drawdown is necessary. The borrowers draw down money in stages as a project develops and there is plenty of money available. Even if we got rid of the €500 million tomorrow, we could get more money from the EIB, who have made it clear it would give us more money.
Mr. Barry O'Leary:
We have plenty of money and it is cheap money. Deputy Cowen raised certain matters but I do not want to get involved in the tenant purchase debate at all. We are a small specialist agency. Mr. Cremin raises the money cheaply and we lend it cheaply. We fund schemes the Department has brought in so developments in the area of tenant purchase are probably safest left alone for the moment. The Department's focus is primarily on supplying houses to people. If they are housed in ABH houses, worrying about buying those houses later on is another issue.
We were asked what the HFA could do in connection with the adaptation of homes. There is probably a role for the HFA in this. Lending to local authorities is particularly cheap at the moment as the EIB will give us fixed rate money for 25 years at approximately 1.5%. We could lend that to the local authorities without big margins because we do not need big margins. It would cost very little to service €1 million on a day-to-day basis so if the local authorities have the clearance from Government to borrow money, there is a cheap way of delivering it. There is some cost benefit in adapting homes and leaving people in homes rather than the alternatives which are quite expensive. EIB money is available for retrofitting houses so it is a reasonably good fit. There is an overall restriction, from which all local authorities are suffering at the moment, in that the Government's borrowing restrictions prevent them from borrowing a lot of money to increase the Government deficit but that is another issue. If one balances the benefits of borrowing at cheaper rates, and servicing the borrowing at cheap rates, against the other costs that flow from that, somebody could draw the right conclusion but we would be happy to play a role as there is easy money available to lend.
Given that the local authorities are prohibited from borrowing money, we are trying to get the AHB and voluntary sector to pick up the slack.
That is the thinking, hence the need to regulate and so forth. Am I correct that up until 2011 all of the money that went to the AHBs was direct Exchequer funding and that it was only after 2011, when this Government took office, that the funding dropped significantly and we started to focus on trying to get money elsewhere, other than from the State? The scheme changed then. Am I right?
I have a graph from the document we received from the Oireachtas Library and Research Service. It shows housing expenditure capital from 2007 to 2014. In 2008, it shows there was €1.7 billion in State funding available while in 2014 it was-----
If possible, I wish to get the figures for the funding to the AHB sector from 2011 up to now, and the projected figures up to the end of the housing 2020 strategy. It would also be useful if we could compare that with the output from the sector for each of those years. On the output from the sector, has it increased this year, how does it compare to last year and what is expected next year and the year after?
Mr. Seán Cremen:
The value of loan approvals has increased fivefold. The total number of approvals is €180 million. This year, we have had approvals of €125 million to €126 million. Last year, that number was approximately €25 million, so there has been a very significant increase in the approvals in 2015 over 2014.
Ms Rosalind Carroll:
My understanding is that the Department has not confirmed that yet. However, in the social housing strategy the Department has given indications of how much of that would be revenue based. Obviously, much of the output that is revenue based would have to come from either the leasing scheme or from AHBs using loan finance to fund acquisitions or construction of property. Over time in the social housing strategy, one will see more and more reliance on the revenue funding. That information is within the social housing strategy document. However, the specifics of how the revenue funding is split have not been defined.
Ms Rosalind Carroll:
We do not know. We conduct an annual regulatory meeting with each of the tier 3 bodies and we have been asking them to submit business plans to us and to talk to us about their business plans over the next five years. I cannot give information for individual years but I can state that almost all of the tier 3 bodies we are considering are looking at a minimum of nearly doubling their stock size over that five year period.
On the availability of private finance, it is basically like matching funding. A certain amount comes from the bodies represented by the witnesses. Do the witnesses get their money based on approval from the Government?
Mr. Barry O'Leary:
No, we just raise the money independently. If we get money from the EIB, and we got a €150 million facility with it at the beginning of this year, EIB will only facilitate 50% of a scheme. If there is a scheme costing €10 million, it will cough up €5 million and we must put in the other €5 million or we will get it from another source. Once the EIB offered the €150 million, another bank in Europe, the Council of Europe Development Bank, offered another €150 million facility, so it will do the 50%. Between our resources and the two sets of €150 million, there is more than €500 million available at present. Given what people are seeking, that is more than enough to cover us for the next two or three years.
Mr. Barry O'Leary:
They can also do that but, truthfully, most of the loans that are done in the market at present are done with us. Our rates are so low that going to a bank does not make any commercial sense. They will approach us and they will get the entire element of their funding requirement, which is usually approximately 80% of the total purchase price of the scheme. They will get it all from us; it is just that we will have packaged it up in the background.
Ms Rosalind Carroll:
No, there is not a huge amount. Some bodies are deliberately accessing them and some that do not have HFA approved status will go to the private banks and access the funding. It depends on both.
To refer back to the overall funding stream, there is the money coming from the private lender or the HFA, there is a capital advance coming from the Government and the Department of the Environment, Community and Local Government via the local authority and then there is a revenue payment coming behind that, which goes over a 20 to 30 year cashflow. They are the three elements that make up the funding.
One thing concerns me. I have heard some criticism in England, where this sector is much bigger, that profit motives can potentially start to creep in. I have not read through the heads of the Bill yet, but is profit seeking excluded in this sector under the legislation?
Ms Rosalind Carroll:
No, it is not. In the English environment, there might be a commercial element to some of what is being done. However, in the overall business, if it is meant to be a not-for-profit business, the dominant factor must be the not-for-profit housing provision, even within the UK. Among the provisions in this Bill is a consent on disposals. If an AHB sought to sell a property or to give away the security of a property, it would have to go to the regulator for consent to that. That gives the regulator the power to oversee that it is not unnecessarily giving away security to fund commercial activities just on a whim. One of the difficulties experienced in the English market would have been where a particularly large body went off and secured social housing assets to conduct a risky commercial venture without seeking the consent of the regulator. The regulator had to step in at that point. They did so and then transferred the asset.
Ms Rosalind Carroll:
It did a lease project that it had not thought through properly. It did not understand the project it had done. It did a lease deal for student accommodation, which had nothing to do with the social housing provision. The idea was that it would raise some money to help social housing provision, but in doing so it inadvertently started using the social housing assets to secure that deal. When the deal went wrong it put the assets at risk. We are trying to ensure that does not happen. While we will not be preventing profit seeking, so to speak, we would be safeguarding the asset.
One of the things that even the approved housing bodies have said themselves is in the shift to source more social housing from that sector than has traditionally been the case, they are just not resourced to manage the problems that can come with a much bigger social housing stock, in terms of dealing with tenants' concerns, maintenance issues, anti-social issues and complaints, which are all things local authorities would be better resourced to do. Can regulation deal with this problem when, to some extent, it is a resourcing and staffing problem?
Ms Rosalind Carroll:
Under the financial standard about which I spoke earlier each large approved housing body is required to give us a business plan which must show how it will manage to develop thousands of units over the next five years if that is what it plans to do. The bodies have to show a cash flow over 30 years so they think it all the way through. What good regulation should do is ensure the capacity of the sector rises to the challenge of the risk it will take on. We are looking for these to be earmarked in the standards we will introduce. We will look for strategic plans, business plans and annual returns to ensure the issues spoken about by the Deputy are being thought about in advance and being done as per the business plan.
There is a very close connection between the housing list that local authorities have and people being housed from that list in approved housing bodies and a rent scheme which is similar. Will this relationship be fully maintained?
Ms Rosalind Carroll:
It is not proposed in any way to change the relationship of the local authority with regard to nominating rights to properties. They will still be responsible for agreeing local rents with the approved housing body at local level. These matters will stay local with the local authorities.
This concludes our consideration of the topic for this part of the meeting. I thank the witnesses for the frank and detailed exchange they have had with members. We will suspend for two minutes and then go into private session.