Oireachtas Joint and Select Committees
Thursday, 5 May 2016
Committee on Housing and Homelessness
Minister for Finance
I welcome the Minister and his team. Before the meeting commences, I draw his 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 they are directed by the Chairman 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 are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. The opening statements submitted to the committee will be published on the committee website after the meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I appreciate the Minister attending when the talks on government formation are going on. I ask the Minister to make his opening statement following which we will take questions and comments from the members.
I thank the Chairman. I thank the committee members for inviting me to discuss the important challenges this country must address as regards housing and homelessness.
I also want to wish the committee well in its work. I hope that its work will stimulate debate on further actions that may be warranted to address the constraints impeding the housing sector. Indeed, these issues were an important priority for the outgoing Government. However, success in overcoming these problems has been slower than all of us would have liked. The findings of this committee will, I am sure, provide a new impetus.
I will introduce my officials: Mr. John McCarthy, chief economist in the Department; Mr. John Hogan, assistant secretary, banking division; Mr. Gary Tobin, assistant secretary, tax policy; Mr. Declan Reid, specialist in the Department’s shareholding management unit; Mr. David Hegarty, principal officer in the economics and budget division; Mr. Gerry Kenny, principal officer in the tax division; and Mr. Seamus Milne, principal officer in the tax division.
To begin, I would like to outline my analysis of the current problems facing the housing market. Ireland is in the midst of a significant housing shortage which is forecast to persist for the next number of years. The shortage is particularly pronounced in Dublin and in the other main urban areas. From an economic and societal point of view, the continuation of this housing shortage is of concern. Unless addressed, it could pose a serious threat to the competitiveness of the economy. The housing shortage is also giving rise to major social issues including rising homelessness, driven by pressures in the rental market.
It is clear that the problems we are faced with is primarily on the supply side. Thus, policy needs to focus on supply-side factors such as building regulations, the planning process, development levies, infrastructural constraints and construction costs. As regards the demand-side, various factors, including the macroprudential rules, have better aligned purchasers’ borrowing capacity with income levels and it would appear to have had a dampening effect on house prices.
In tackling these problems, primary responsibility for housing policy lies with the Minister for the Environment, Community and Local Government. However, home building is a complex process that involves the land, construction, property and finance markets, as well as the tax, social welfare and legal systems. Therefore, there is a need for a holistic, cross-government approach.
For my part, as Minister for Finance, the Department of Finance and I have proactively addressed those issues that fall under our remit.
We continue to engage with other relevant Departments and we worked closely with the Minister for the Environment, Community and Local Government and his Department on the stabilising rents and boosting supply package unveiled in November last.
I will now outline activity under way in my Department to address some of the key issues. The requirement to develop a sustainable financing model for the property sector is one that has received much attention. There is a growing acceptance in the sector that sustainable financing for development requires a mix of equity and debt financing appropriate to the risk of the project. This is a departure from the 100% debt financing model that contributed to the crisis. The transition to a new equity-based financing model is under way but will take time given the changes in behaviour required. This new financing model will help ensure a productive and efficient construction and development sector and reduce the risks of a re-emergence of a credit bubble.
My Department has worked to help smooth this transition. For example, last year we organised a conference on development finance options that brought together developers with various bank and equity finance providers. In addition, the officials in the Department of Finance have worked with the Ireland Strategic Investment Fund, ISIF, and the commercial banks - with the banks partnering with providers of mezzanine debt - to ensure that financing is available for development projects. For example, the Ireland Strategic Investment Fund launched a new €500 million joint venture, Activate Capital, to make funding available to the house building sector and support the construction of more than 11,000 new homes. This fund will address a gap in the financing market as it will provide up to 90% of the financing requirement of these projects.
Turning to mortgage holders, I have taken steps to ensure that the banks provide options for standard variable rate, SVR, mortgage holders to reduce their monthly repayments. In 2015, I requested a report from the Central Bank on the topic which was subsequently published on my Department's website. I also met the six main mortgage lenders at this time and outlined my view that the standard variable rate being charged to Irish customers was too high. The banks agreed to review their rates and products and to have simple options in place to allow reductions in monthly mortgage payments for SVR customers.
More recently, the increasing competitive dynamics evident in the market are benefitting borrowers. In this regard, the Central Bank noted in its recent Statistical Release that all mortgage rates declined in the fourth quarter of 2015, with variable mortgage rates for primary dwelling houses falling by 44 basis points to 3.76% over the year.
As regards taxation, there are growing demands for the use of the taxation system to support the development of the property market. The committee need not be reminded of Ireland's poor experience with property-related tax incentives in the past. Care needs to be taken with any fiscal incentive designed to stimulate the housing market, no matter how laudable the objective.
Indeed, to complement the Department's own analysis, the ESRI was commissioned to analyse the possible role of tax breaks in stimulating housing supply last year. Given prevailing supply constraints, the report found that tax incentives aimed at developers would be unlikely to have much effect on supply. It also noted that tax incentives targeted at home buyers, such as mortgage interest relief, would increase house prices with a limited increase in supply.
That said, I have been open to selective interventions in the property market where targeted action can be justified. For example, Deputies will be aware of the increased deduction for mortgage interest relief that I introduced in the recent Finance Act for landlords who commit to the provision of rental accommodation for a minimum three-year period for tenants receiving social housing supports.
Another example concerns the private rental market where there is a clear need to professionalise the sector in order to better serve tenants. For this reason, I introduced the real estate investment trusts, REITs, tax regime in the Finance Act 2013. This intervention has been successful in encouraging large scale investment into the commercial and residential property markets. There are currently three REITs operating in Ireland - Green REIT plc, I-RES REIT plc and Hibernia REIT plc. With subsequent rounds of capital raising since flotation, it is estimated that the market capitalisation of the three REITs is now approximately €2.3 billion.
I-RESREIT plc, which is purely focused on the residential market, has a property portfolio consisting of 2,087 apartments. The properties are based in 17 apartment complexes in Dublin county and city. The company has the ability to develop 600 to 650 apartments at existing complexes subject to planning permission and other approvals.
Other measures I introduced include the Living City initiative, in respect of which I admit the initial take-up has been slower than anticipated. However, the home renovation incentive, HRI, has been very successful. This incentive generates employment in the tax-compliant construction sector, increases sales and provides support for homeowners and landlords for building works. As of 1 April 2016, works on over 37,500 properties have been notified to Revenue’s HRI online system. This represents more than €845 million worth of works involving some 7,500 contractors. The potential total cost to the Exchequer in respect of these properties is approximately €59 million.
NAMA is frequently suggested as a one-stop solution to housing issues. Let me be clear: NAMA has a commercial mandate to achieve maximum return to the State. That said, NAMA has utilised this commercial remit to contribute to housing supply in a number of ways. For example, NAMA will fund development or completion of housing units on sites securing its loans where this is proven to increase the ultimate return. NAMA has also innovated so as to combine its commercial priorities with due consideration of ancillary social contribution, and has played a very important role in facilitating, on a commercial basis, the supply of social housing. Following a review last year, NAMA concluded that the value-maximising strategy for some sites under its control was to fund, on a purely commercial basis, the delivery of up to 20,000 residential units by the end of 2020. This activity will mainly focus on starter homes, reflecting consumer demand and viability. Separately, NAMA, again on a commercial basis, offered just over 6,600 residential units to local authorities for social housing, of which demand was confirmed for about 2,500, and over 2,000 have been delivered. Therefore, it is clear that NAMA has played and, I am sure, will continue to play an important role in addressing our housing needs while fulfilling its commercial mandate.
There is a need for continued improvement in the supply of housing as it is vital for the economy’s performance and to address social problems, including homelessness. As I have outlined, the outgoing Government has played its part through the policy actions I have highlighted above and others. For example, the recent package, Stabilising Rents, Boosting Supply, includes targeted development contribution rebates for starter homes in Dublin and Cork, while new flexible apartment planning guidelines will reduce apartment construction costs by €20,000 per unit. It is important to bear in mind that these measures were introduced quite recently and that it will take time for the full effects to be realised. Moreover, there is no quick fix to the housing shortage.
In designing appropriate policy responses, I stress that there is a need to be careful of the unintended consequences of any intervention, however well-intentioned. For example, I would have concerns about the plethora of proposed demand-side interventions. International evidence indicates that such policies are not appropriate and unlikely to be effective in alleviating the current supply shortage. I urge the committee to bear this in mind. I thank the members and look forward to their discussion. I hope to be in a position to answer their questions with the help of my officials. With the permission of the Chairman, I will call on my officials to address the members directly on certain questions.
I thank the Minister for his report and I thank him and his officials for attending.
Many of the submissions we have already received from various organisations whose representatives have been before us, especially those of the Construction Industry Federation, have stated that the VAT rate of 13.5% should be reduced in some instances to 9% - and perhaps even to 0% - to try to stimulate the construction industry.
What is the Minister's thinking on that? I understand 36% of the cost of building a house goes directly to the Exchequer. What are the Minister's thoughts on that? Would a reduction there stimulate more house buying?
My second question is on the Living City initiative. Why has the take-up on that been slow and is there any way we could fast-track it? My third question is whether the Minister considers that local authorities have a greater role to play in supplying social and affordable housing. Representatives from the city and county councils group stated that they are not developers or builders and would only ever supply between 10% and 15% of the amount of housing needed in any event. Does the Minister feel they should play a greater role to stimulate the housing industry?
I thank the Deputy. VAT is something we will look at. A document was published earlier in our discussions on forming a Government where we signalled this area as one in which a possible initiative would be taken. We were in government six weeks in 2011 when we reduced the VAT on the tourism industry from 13.5% to 9%. The tourism industry attributes to that the lifting of the industry off the floor at a very early stage and turning it into the fine and viable industry we have now. As such, it is worth looking at. There are other considerations to take into account, however. If we were to reduce VAT from 13.5% to 9% in the next budget, the cost would be €210 million. We could use that €210 million to provide extra capital for social housing. Given the way the fiscal rules operate, one can account for capital in consuming fiscal space over a four year period. Therefore, one gets a bigger bang for one's buck if one puts it into capital. In gross terms, one could generate approximately €800 million of activity for the same €200 million while having a much smaller impact from an accounting point of view on the resources available to us. That is worth consideration as well.
The other point I wish to note is one on which we have not yet made a decision. I am giving my thoughts as we move towards the budget when we probably will make a decision. With all due respect to the Construction Industry Federation, its submissions are in the interests of builders. That is its job. It represents the industry not the purchasers and it is important to remember that. If I could give a tax break which would put money in the pockets of purchasers rather than of builders, I would be more favourably disposed to it. As such, we are looking, first, at the marginal advantage in using the same amount of money for capital as against tax breaks and, second, at whether there is a mechanism for directing the money to purchasers. The model I am looking at is the very successful tax break for home extensions. I have given the committee the statistics. It generated an enormous amount of activity at a very low cost. The numbers were €59 million with 7,500 contractors working on 30,000 homes. The model is that Revenue has a unit and one applies online if one is doing a home extension. It is the person who gets the home extension who gets the money back through the tax system. We are looking at a model like that. While no decision has been made, it is under active consideration in the talks that are taking place elsewhere as well as in my Department. Would the Deputy remind me of her second question?
The take-up is very slow. Much of that is to do with the building industry being on the ground anyway and people not going into it.
It was largely directed at disused Georgian houses, especially in Limerick and parts of Dublin. Given the many planning constraints on the development of such houses, they are probably more expensive to renovate. We confined the tax break to owner-occupiers rather than developers. It is early days. Many of these schemes start slowly and are actively taken up as the economy lifts.
Yes, and this makes it more expensive to deal with them. The Chairman knows my approach to these matters. One does something and hopes it works but if it does not work, one tries something else or modifies what one did. We keep it under review. If there is no take-up, we will have to revisit it. I am reluctant to extend the benefits to developers rather than owner-occupiers. We tried all that before and while we got the activity, we also got many problems. I welcome the committee's recommendations on it and we will provide all the statistics. The Deputy is correct. The take-up has been disappointing. However, there has been some take-up and, as the economy strengthens, I hope there will be more.
There was a major change around 2004 in the role of local authorities in the provision of social housing. The movement was away from the councils constructing what we used to call council houses to having money to purchase them on the market. Although it was introduced by a Fianna Fáil Minister, I was one of the strong supporters of the new policy. I agreed with the arguments about social mix and not developing ghettos of local authority houses. By purchasing in private estates, a social mix could be achieved. It worked. However, now there is a housing supply problem and there are not houses available for the purchasing model to succeed.
It is time for the local authorities to get more directly involved again. They have been given several billion euro for social housing for the next five years. While they should have organisational units for the building of houses, much of the construction could take place under the auspices of the voluntary housing agencies, which are still in the construction business and have the capacity to do it.
The other problem is that there seems to be a difficulty in getting clearance from the Department of the Environment, Community and Local Government through to local authorities for building houses. Somebody told me local authorities have to get over eight jumps before they get full clearance. I do not know whether it is correct. It would be national policy to reduce this. While there must be some authority in the Department of the Environment, Community and Local Government or a new housing Department, we should remove the unnecessary red tape and allow it to move forward more quickly, given that we are in a crisis. Local authorities have discretion, under their own authority, to have developments up to a value of approximately €3 million. This ceiling should be increased, perhaps up to €5 million. They need greater discretion to act autonomously.
If we are successful at forming a new Government, we will have a large policy section on housing and homelessness. I would not like to close the door on it and pretend that those who will form a Government have a monopoly of knowledge in the area. We will put doors into our new policy to specify that it will take into account the recommendations of the Committee on Housing and Homelessness to allow for easy feedback in so we can adopt new proposals. If I understand new politics, this is how we should work. We should address problems and see if we can come up with solutions with the best thinking available.
Before I take the next two questions, the Minister mentioned that the VAT element had an annual cost of €200 million. That is in a no change scenario. Obviously, if output increases, it could be cost neutral or the Exchequer could benefit. We need to bear that in mind.
The Minister also commented that he wanted to put money in the pocket of the purchaser. The committee is looking at this slightly differently as we are trying to bring the cost of houses down to enable people to meet the Central Bank guidelines. This is the balancing act. The cost of homes is beyond the reach of many people under these guidelines. That is the way we are looking at it.
I have been around for a good while and I have been looking for a self-financing tax break for years but I have not yet found one. While I agree with the Chairman that the gross cost might not be the gross figure, there is no self-financing tax break that I know of. There is always a cost to the Exchequer for any tax break. People looking for tax breaks always say, "This will pay for itself", as the opening position. We will give the committee the best data possible when it is assessing this but tax breaks are not self-financing; there is always a cost. We hope output will increase.
I refer to how to model this to bring the price of houses down. One of the fundamental problems over the past few years is that the replacement cost of a house for a builder was below the market price. Who would build if the house next door was available cheaper second hand? Now those pressures have increased and there is a supply shortage. There is a demand driver again and I understand that the replacement cost of a house and the purchase price of a new house are close enough at this stage. There is evidence of that on the market. In Dublin, since Christmas - do not pin me to the accuracy of this number, which is a ballpark one - approximately 80 new sites have opened up for residential homes. Some have 15 houses while more have 80 houses. A number of the larger developments are at planning stage. The largest property developer in the world out of Texas, Hines, has bought Cherrywood where there is potential for approximately 4,800 units. The company has a different model again under which it sub-lets to small builders and so on. Cairn Homes bought the Ulster Bank land bank stretching from west Dublin to Portmarnock as well as other sites scattered across the country. The land bank is mostly in Dublin. The advantage with the big players is they can raise money on the market and, therefore, they do not get into the same trap as the small builder of having to pay 14% for an equity stake. They can raise money at 2%. The market is correcting itself but it needs interventions as well in order that it corrects itself more rapidly. There is a range of other issues such as regulation, planning, bureaucratic delays and finance. However, the market is correcting but too slowly from our point of view and, I am sure, from the committee's point of view as well.
I thank the Minister and his officials for attending. Previously, I raised the issue of the different dynamic at play in different parts of the country. There is a supply issue in Dublin whereas in Kerry, where I am from, there is a significant number of empty properties. Reference was made to the Living City initiative. I believe one in three properties is vacant in most towns and villages in rural Ireland because parents have passed on and family members are living elsewhere.
These properties are lying vacant and there is no incentive to do anything with them. I made a proposal that it might be appropriate to make available a grant to the homeowner to do up a property to an acceptable standard and that the payback or condition of payment of the grant would be that the house would be made available to the local authority on a long-term lease. Again, I believe something like that would have a significant take-up because the benefits are self-explanatory. I do not know if the Minister's proposal is on these lines, but if not, he has said he will work to improve it. If a homeowner is incentivised to do up a property, with a guaranteed income at the end of it through a local authority rental, it would be a real win-win. I would like this proposal to be considered.
I have had significant interaction with the members of the Irish League of Credit Unions who believe credit unions have a strong and active role to play, if they are allowed to play it, but they make the point to me that they are more or less hamstrung in their lending abilities. They would like to play a role, particularly for the single homeowner, but they believe they are unable to do so. They have made proposals which I am sure the Minister has seen and I would like to know what his thoughts are. Can we have the credit unions come to the committee in order that they can play an active role to add benefit and help to resolve some part of the crisis?
The publication of the census results will provide us with very important information which we will need to take on board very quickly, in particular, on empty properties. We need to know whether it is actual or just anecdotal.
In his last paragraph the Minister expressed concern about "proposed demand-side interventions." He might explain this for my benefit as I do not understand to what it refers.
Apologies for my late entry. In fact, I was meeting representatives of a lending institution with a constituent to discuss the issue of mortgage arrears. It is one of many issues.
I welcome the Minister and his officials for whom I have three questions. First, there is the urgent, emergency problem, namely, the large number of families in emergency accommodation. The local authorities have insufficient accommodation available and have a huge number of people on various housing lists. For example, the number in my local authority area is growing and moving towards 8,000. The number of bank repossessions further adds to the problem and there is deep concern among the people directly affected.
What steps could be taken by the Department of Finance immediately? As the Minister knows, I have raised this issue on numerous occasions and made various proposals during the years. As he also knows, I am not one of the supporters of the voluntary housing agencies, but that is my problem. How do we deal with the urgent problem of what some call homelessness in the short term?
There is also the question of the degree to which funding can be obtained by bodies which are willing to assist the local authorities and that can be registered as being off the Government's balance sheet. I have made a number of submissions on this point. That is the nub of the problem with which we have been confronted. While we know that there are constraints on governments, we have a problem in this country that many other countries do not have.
How do we address this issue in the short term? It is socially and economically unacceptable that we have a large and growing number of people becoming homeless, with nowhere to go, and the social and economic damage of this to the economy will appreciate with the passage of time. Therefore, I again suggest the notion of a Government bond to fund directly a local authority building programme. I know the Minister has said - and correctly so - that a large amount of money has been made available - €3.8 billion already - to the local authorities, but we need to deal in the first instance with the immediacy of the problem. In six months' or a year's time, in case some people think that it will be acceptable to have people still homeless and living in emergency accommodation, with whole families living in one room, it will not be acceptable, nor will it be possible to achieve social stability if this is allowed to continue.
Lastly, the Government, as we know, and as the Minister has said, can borrow money very cheaply. Is there any way that money borrowed by Government can be made available to the local authorities through a medium, of which a number have presented themselves, in order to enable them to get involved directly in the building programme?
Those are the three issues, as far as I am concerned, dealing with my constituents, and this problem is getting worse by the hour.
I thank Deputy Brassil for his questions. His country is like my country. I know his part of Kerry. It is not so different from west Limerick, where I came from originally.
Deputy Brassil is right in that there are a lot of unused property in small towns and villages, but much of this is for social reasons as much as economic reasons. It is the ambition of every young working couple not to live in the village but to build on a half acre on the approach roads to the village. What has happened, as that has developed as the model over the last 30 years, is that the villages and small towns are becoming the residential areas for those in social housing. That then has its own economic effect on the villages because the purchasing power of those benefiting from social housing is obviously lower. The shops close down and so on while the people living on the approach roads get into their cars and drive to the Aldis or Lidls or the various big supermarkets and shop anywhere, even 20 miles from home. We need to come up with a way of encouraging young couples to live inside the speed limits rather than out in the countryside. I will not get into the environmental advantages that might have but if one looks at it purely as a model of development and wants to encourage that kind of a model then it would have to be done through grant schemes, as the Deputy suggests, rather than tax breaks. Tax breaks work at the marginal rate of tax, and a young person starting out and acquiring a home is probably paying tax at the lower rate, 20%. A tax break provides a big advantage if one is paying tax at the higher marginal rate, but a lot of the people who are paying tax at that rate have long since provided themselves with a decent home. It might be considered whether there is a way to tip the economic balance. A grant could be provided inside the speed limits of small villages and towns of a certain size, and perhaps we could figure out the level at which that grant should be pitched and whether it should act as an incentive. There is something in what the Deputy says.
I am not sure whether that would then be extended to original owners. There are cases where parents die, the owner is in Dublin, he or she has the shop closed down and there is residential area overhead. I would be open to the suggestion of that happening with the intention of leasing the property to the local authorities for social housing. I think that is the Deputy's idea. There is a housing crisis, but there is also the crisis of the declining village and small town.
In solving one, perhaps we could solve the other. We need fresh thinking, which is why we have this special committee. I am very open to this.
I met the credit unions on several occasions and told them we would like to expand their activities into the provision of assisting in housing development. We must remember the credit unions are regulated by the Central Bank. The credit union regulator is a senior Central Bank official. They are independent in how they are regulated. The primary concern of the Central Bank in dealing with credit unions is to protect those with savings in them. The only money credit unions have is that from small savers throughout the country. The Central Bank will not allow the credit unions to get involved in speculative activity that would put those savings at risk in any way. This is not to say they are not putting some money into house building. My officials are speaking to them and we are working on it. I see an initial role for the credit unions as being in a position to supplement the purchase of houses and the type of thing we used to do previously. If they cannot contribute to a loan for the purchase of a house, they might be able to give a small loan for the kitchen, equipment or furniture. The committee might check it out with the credit unions this afternoon in order to discover what is their current thinking on the matter.
A difficulty I have is that when I speak to individual credit unions, they do not seem to have a unified approach. They come up with different proposals. In dealing with the Central Bank, there needs to be a general mandate on which the latter will agree. We spoke to the Ireland Strategic Investment Fund, ISIF, and the National Pensions Reserve Fund, which have quite a lot of money. This is for SME lending rather than lending for the purchase of houses. They are developing a programme whereby they will use credit unions and post offices as a platform for interfacing with small firms so they can lend to them. The actual analysis of the loan application will be done by the bodies themselves but the interface will be at credit union level. There is much happening and we want viable suggestions. The bottom line for the bank and for me is that whatever the credit unions become involved in, they cannot put at risk the savings entrusted to them by advancing money in respect of investments that would be regarded as overly speculative. The Deputy would agree on that point.
In every economic activity, there is a supply and demand side. The analysis of the housing issue at present is that there is just a shortage of houses and we need to build and provide more houses. Giving grants, for example, is on the demand side as is giving tax breaks to purchasers. Trying to reduce the price of houses could increase demand. There are two sides to it.
Deputy Durkan spoke about emergency accommodation. I am not the Minister with responsibility for the environment or housing, and initiatives on emergency accommodation come from the Department of the Environment, Community and Local Government. The Deputy is aware of them. Like many things in life, there is a supply-and-demand problem and, to return to the equation, there is a tipping point whereby 1,000 houses short or 1,000 extra houses can drive one from crisis to surplus. I examined the figures for Dublin and while approximately 5,000 people are homeless, the average seems to be approximately five per family. If we had more than 1,000 housing units in Dublin now, we would solve much of the problem. It is a tipping point situation. Some of the analysis being done does not contemplate the basic economic difficulty or address this issue.
If we could provide 1,500 additional units in Dublin, we would not have a homelessness or a tipping crisis. We are not talking about the need for hundreds of thousands of houses. Members will be aware of other initiatives, including the construction of modular homes in Finglas and the return to use by the Dublin local authorities of many voids. The councils are now doing much better in that regard. When a private landlord rents a property and it is wrecked by bad tenants, it will be ready to rent again within one month or six weeks because he or she is dependant on the income flow from it. In the case of a local authority property that is wrecked that process often takes up to two years. We see this happening all over the country. One of the interventions in emergency accommodation provision - this has been done successfully in Dublin - is to ensure that as a matter of policy local authority managers return voids to use within two months rather than two years. As I said, the turnaround time in the case of private accommodation is much quicker because the landlord needs the income flow to service the loan.
There are many small, as well as big, things that could be done. I am not prescribing to the committee or suggesting I have the solutions as this is not my area. I am speaking more as a constituency Deputy rather than as Minister for Finance. There must be a fast-track approach to the supply of the 1,200 to 1,500 houses required in Dublin. Fewer units are required in other areas. For example, while there is a homelessness problem in Limerick, it is not of the same magnitude and does not require the provision of 1,000 houses. The provision of several hundred houses would solve the problem in Cork. We have a tipping point economic problem such that on one side of the tipping point we have an emergency, while on the other we do not. Addressing that space is one of the issues I have been examining.
On off-balance sheet issues, the opening position is that we are bound by fiscal rules of the European Union. Following the passing of the referendum in 2012-13 European fiscal rules are matters of Irish constitutional law. We do not have a shortage of money. We have almost balanced the budget and can borrow money. Three weeks ago the National Treasury Management Agency, NTMA, borrowed €500 million at a rate of 0.81%. That is cheap money and it is ten-year money. It is the capacity to spend money that constrains us until we balance the budget. What we need to do in the intervening period is, as suggested by Deputy Berard J. Durkan, to try to secure expenditure that is not on balance sheet in order that it will not impinge on the fiscal rules and not take up the notorious fiscal space. The reason I push the National Asset Management Agency, NAMA, a lot is the 20,000 houses which it has committed will be provided off-balance sheet. We must be careful not to lead NAMA into State aid difficulties. If it does something that is competitively not commercial, private interests in the construction will complain. Some private interests have already made complaints to the European Union. If it had to be on balance sheet, the option of using NAMA as a vehicle for increasing supply would disappear. Currently, it is off-balance sheet and NAMA is committed to providing 20,000 houses.
Public private partnerships, PPPs, too, are off-balance sheet, if engineered properly. There are many schools being built around the country using the public private partnership model. As members will be aware, work is done on bundles of school projects rather than single schools. For example, seven or eight school projects are put out to tender and the bundle can be off-balance sheet because of the way in which it is engineered.
There is another area which I would like to track, and the committee might track it too. Somebody told me last week that the French Government had done a deal with the European Investment Bank for approximately €3 billion to channel through its local authorities for social housing. This was off-balance sheet. Perhaps somebody told me a tall story but I wish to check it out. It is interesting if that can be done because the Department of the Environment, Community and Local Government has been looking at ways of trying to get local authority houses off-balance sheet. That is what I have been told but it might not be simple. One often hears travellers' tales and when one checks the detail, they are partially true but not applicable to Ireland. However, when looking at NAMA and PPPs, the committee should take a look at the European Investment Bank and see if it can be used to fund PPPs where the local authority would be the central agent and if that could go off-balance sheet. If that were to happen, it would relieve a huge financial bottleneck and would get the process moving for social housing.
There is no problem with having a Government bond and calling it a Government housing bond. We would get the money at less than 1% for ten years. If it went out to 20 years, we would still get it at 110, 120 or something similar. I say 20 years because that would be the lifetime or model of a house paying for itself. The trouble is that it would all be on-balance sheet. The key problem is not a shortage of money. We can raise the money. The NTMA can raise money for us, it can go into the Exchequer and it can be used for house building. The problem is that it goes on the balance sheet and then we break the fiscal rules and the expenditure ceilings.
There is some relief down the line. Our model shows us balancing the budget in 2018 and once we balance the budget, we have more scope. Again, and not to be too technical, up to now we have been spending money, if we can, on reducing taxes a little, increasing expenditure across the key Departments and reducing the deficit. Once one balances the budget, the money is only going two ways - either reducing taxes or increasing expenditure. There is then much more scope. We have already committed to reviewing the capital programme in 2018 because we will have balanced the budget, so we will have extra resources. In reviewing the capital programme, obviously extra money will go towards housing. I am only giving the committee background for its work.
I wish to raise a technical point about the off-balance sheet issue. The voluntary housing sector says it gets a grant of 30% and borrows 70%. Is the 30% it gets from the State on-balance sheet and the 70% it borrows off-balance sheet?
That is unless a PPP model can be devised. The Department of the Environment, Community and Local Government has been examining this for quite a while and it has not yet proposed a model to me that is off-balance sheet.
I thank the Minister for the frankness of his views. His opening comments were welcome and my questions take them on board. Many first-time buyers find it impossible to get into the market. One of the reasons is that they cannot come up with the 10% deposit. At the same time, there is much land in infill sites owned by local authorities and banks of land owned by State organisations. Is there a possibility of using the Ireland Strategic Investment Fund, which has a large amount of money and is off-balance sheet, to invest at a commercial level to fund the development or the infrastructure of these sites? The qualifying people would be first-time buyers or proposals for social housing.
Could such investment be fast-tracked? Given that the State owns these lands and has access to finance, why can they not be serviced to cater for this group?
Will the Minister review the room to rent scheme, under which people may earn up to €12,000 per year tax free in renting out a room? I understand rooms may be rented to only one person and that he or she may also avail of a tax break on the rent paid. Will the Minister vary the qualifying conditions with a view to increasing the number of people offering to rent accommodation under the scheme? I refer, in particular, to measures targeting so-called empty nesters and others who have significant space available in their homes.
The Minister referred briefly to developing accommodation in space available above shops. Hundreds of people lived in Drogheda town centre 70 or 80 years ago but no one lives in it now. Will the Minister introduce measures to incentivise the owners of town centre premises to provide modern accommodation that meets fire safety and other requirements?
Is a fast-track mechanism available to encourage development, given that water and sewerage infrastructure, shops and so forth are in place? The provision of incentives in this area could quickly deliver significant results for people on the housing list.
On the vacant site levy, I am aware that for legal reasons the Minister was precluded from commencing this measure before 2018. Why was a levy in excess of 3% of the value of the property not considered? Some people have been sitting on vacant sites for long periods.
Pressure must be put on the National Asset Management Agency to provide more social housing units because more social housing is required. Given that the 10% social housing requirement under Part V will not meet current needs, will consideration be given to increasing it?
If land banks are identified as belonging to the State, how quickly can they be transferred and used for housing?
The Minister has indicated that the Living City initiative is geared towards work done by owner occupiers. For how long must those who avail of the initiative remain the owner occupier of the premises in question? In Dublin people with large houses are converting them into unsuitable accommodation, namely, tiny box rooms, because there is a demand for a certain type of housing.
On first-time buyers, potential buyers are paying more in rent than they would pay if they had a mortgage.
To respond first to Deputy Fergus O'Dowd, I indicated that the Ireland Strategic Investment Fund, ISIF, under the auspices of the National Treasury Management Agency, was providing funding to increase the supply of housing. For example, the ISIF is now in partnership with the private equity firm KKR to support the construction of 11,000 new homes. This €500 million fund, known as Active Capital, consists of an investment of €325 million from tge ISIF, with KKR investing the remainder. The ISIF is certainly playing a strong role in this regard.
Deputy Fergus O'Dowd asked about the room to rent scheme. In the previous budget I increased the tax relief available under the scheme from €10,000 to €12,000. I was trying to move to a position where a homeowner, for example, a person living alone who had lost his or her partner, could rent two rooms and gain the benefit for so doing. I take advice on where we could pitch the scheme, but changes would be marginal because we cannot provide a massive tax break.
The kind of people who would be inclined to rent a room in their house are not very high-income people. It stands to reason that one's income limits what one can gain from a tax break. If one does not have a taxable income, one will not benefit from a tax break, so there is not much of a margin there. I would not be adverse to moving it up another bit if it was considered that another €1,000 or €2,000 would incentivise the rent of a second room in the house. We would be in trouble then with the people with the app one uses if one wants a room in Paris for the weekend.
Airbnb is looking for a tax break also and wants the room to rent to apply to it. One can see the reasons we will not concede on that issue. The room to rent is for the home owners. It has some potential but not an awful lot.
On the question of land, there is land in public ownership and there is land owned by various State agencies and so on. I am disposed to put a fund in place of, maybe, €100 million or so to fund the opening up of land which is inaccessible. This would be for service roads and primary utilities. Obviously, not all land is ready to build on. Local authorities must open up land. The committee might develop that idea and give me advice on it as to its potential.
Deputy O'Sullivan raised the vacant sites levy. That is an issue for the Department of the Environment, Community and Local Government. I understand it had to defer it on legal advice. The constitutional position is very strong on property rights. The Department had to have a long lead-in time to avoid a challenge. The 3% levy was guided by that. Given the strong property rights, it had to impose the levy that was proportionate. It would be open to challenge if it had imposed a higher levy. I was not the decision-maker on that issue but the problem was in that space and that was the reason it landed there. It does not incentivise anybody at the moment but I think it will as we get nearer to the implementation date. I would hope that land which would be subject to it in the future will come back into the market and be used for the building of houses. That is the intention.
Part V is 10% for social housing and 10% for affordable housing, so the full piece is 20%. I think members know the arguments from their constituencies. If the percentage is increased too much, private purchasers will not buy the other houses, therefore, it is a question of balancing the two. It is more of a market problem and a social problem rather than a legislative problem. It has worked to a certain extent but now that housing is in short supply, it is working less well.
It is gone completely.
The Deputy asked about the Living City initiative and how long one has to stay in the house. The tax break is over ten years. If one purchases and refurbishes the house at a cost of €100,000, one can write it off against tax at €10,000 a year for ten years. There is no obligation to stay but if one moves, one will lose one's benefit.
The tendency, if it was working properly, would be to stay for the full life of the tax break, ten years.
That is the job of the Revenue Commissioners.
On a point of clarification, the Part V provision is only 10% as it was reduced from the original 20% provided for in the Planning and Development Act in order to reduce construction costs. I said 20%, but that was the historic figure.
Before we move to the next questions, I would like to comment on the vacant site levy. The Minister said the advice to Government was there should be a long lead-in time and a lower rate to avoid a court challenge. To date, that advice has been sustained and there has not been a court challenge. However, I do not believe a court challenge would necessarily have been a bad result, in the sense that it might have brought a greater degree of clarity, because the levy and the lead-in time were conservative in order to avoid a challenge, rather than the outcome of a challenge.
I welcome the Minister, who is my constituency colleague. He started by saying progress has been slower than we would have liked and we would all agree with that. He also said the crisis in housing is not the same Limerick as it is nationally. I agree, but there is a crisis in Limerick, where there are 5,000 people on the social housing list. We could probably multiply that number by five to get the number of people who are looking for housing. We probably need 1,000 social housing units to solve most of the problems.
The Government social housing strategy 2020 provides for €3.8 billion over the next six years, but I do not believe that is enough. Based on that strategy, the outgoing Government would need to deliver 80% of the 100,000 houses needed through the private sector. I doubt anybody on this committee believes that strategy will succeed.
We often hear that we are restricted in what we can spend by EU fiscal laws. Perhaps the Minister can clarify that by answering the following questions. Ireland has the youngest population in Europe and is expected to be the fastest growing population over the next 30 years. Despite this, we have the second lowest level of public capital expenditure in the Union. Given that there is the possibility to push for greater flexibility at European level on EU fiscal rules to support long-term investment programmes, has the Government asked for additional leeway to allow us to invest sufficiently in housing? If it has not done so to date, why not? Will it consider doing so?
The scale of the housing crisis was highlighted yesterday at the launch of the Mercy Law Resource Centre's paper on policy. The centre pointed out there has been a 43% increase in homelessness from 2014 to 2015, with 3,930 homeless adults and 1,181 children in emergency accommodation. It highlights the urgent need for investment. Does the Minister think it is wise to progress with cuts to the USC with this problem facing us?
My second concern is the issue of mortgages. While there is a crisis in regard to mortgages currently, this is only going to get worse. At a recent meeting of the committee, Conor Skehan, chairman of the Housing Agency, said:
This is a nettle that must be grasped by the incoming Government. The arrears will peak, so to speak. The numbers are enormous and they will dwarf all other matters we are discussing, such as emergency accommodation and other things. It is uncomfortable; the bullet will have to be bitten - whatever clichés one wants to use. We urge the committee to get the Government to give its highest priority to addressing this issue. It will not go away. As we get closer to negative equity going away, we will see banks tempted to realise their assets. We must act urgently and the committee must use its voice to make this urgent issue known to Government.
This is an issue we are dealing with daily in our constituency offices.
We know many buy-to-let units are in serious problems and that sales have forced many tenants from those properties. What action is the Government going to take on buy-to-let and other mortgages in distress? In particular, what action is it going to take to regulate vulture funds? How does the Minister propose to amend the code of practice on mortgage arrears and will the Minister meet with colleagues in the Department of Justice and Equality and come up with a cross-departmental report to address the Land and Conveyancing Law Reform Act, which people refer to as the "eviction Act", effectively an insolvency service which clearly contributes to families losing their homes.
The third issue I want to raise concerns NAMA. When NAMA was established, its terms of reference included a social clause. I do not believe that has been delivered either. While Mr. Eugene Cummins from the County and City Management Association stated that NAMA delivered 2,000 social housing units by the end of last year, I understand that only 1,400 were delivered. The Minister also gave a figure of 2,000 this morning but he might have been talking about the period up to yesterday or whatever. That might be clarified. I believe that only 1,400 were delivered and that there are still no tenants in some of them.
The Minister, Deputy Kelly, said that the outgoing Government was not in favour of rent certainty and claimed that the Department of Finance opposed it. Would the Minister, Deputy Noonan, consider legislation to create a compulsory code of conduct for banks and funds selling buy-to-let properties that are rented? The code of conduct should give sitting tenants an extended notice-to-quit period of up to 12 months and also first option on becoming tenants if the property is bought by a new landlord. There is also a need for legislative change in respect of the mortgage-to-rent scheme in order to make it easy for local authorities and housing associations to keep people in family homes that are facing repossession by banks and property funds. Would the Minister consider that?
I welcome Deputy Quinlivan. It is nice to see a fellow Limerick man on this committee. When I referred to the issue relating to Limerick being of a lesser magnitude than that which relates to Dublin, I was not talking about the local authority lists for social housing. I was specifically talking about homelessness. I think the Deputy would agree that while there is a homelessness problem in Limerick, it is not of the same magnitude as the problem in Dublin. As a consequence, it could be remediated more easily.
The answer to the question about extra capital for local authorities is "Yes". However, they have not spent their allocation of capital for 2016 and are not on target to spend it. There are other problems in the relationship between the Department of the Environment, Community and Local Government and the local authorities, as well as in the capacity of the local authorities to use the funds they are given. There will be a review of the capital programme in 2018. It may even take place in 2017 with the way things are going. At present, it looks as if there will be extra capital to be allocated over the five-year period of the capital programme. Social housing would be very important of course.
On the flexibility clause in the European rules, it is there and we have talked about it in Europe and pushed very hard. Currently, however, we do not meet the criteria for applying, particularly in light of the economic cycle and other factors. As stated previously, investment can be smoothed out over four years. The fiscal rule that applies to capital is taken over a four-year cycle, so €1 million can be €4 million when it is put across the four-year cycle. I will ask the chief economist, Mr. John McCarthy, to comment on the flexibility issue when I have dealt with Deputy Quinlivan's other questions.
The Government is committed, as it always was, to reducing and eventually phasing out the USC. It was introduced as an emergency tax and, in our agreement with Fianna Fáil on its support for a minority Government, we have agreed that the emphasis will be on reductions in USC for low and middle-income people in particular but not exclusively. That is our position on the issue. It comes back to a very simple point. When we were kids, we all learned the story of killing the goose that lays the golden egg. If we kill the economic goose that is laying the resources for all of our social and economic objectives, we will have no golden egg and will be able to do nothing. The USC is for people at work. They are paying too much in personal taxes.
We must progressively encourage working people and give them extra spending power through the tax system and wage increases. Through this, the economy can continue to grow at a projected rate of 5% this year and nearly 4% next year. There must, however, be a balance. The Government cannot simply spend on social programmes and state to the taxpayer, "You are going to pay for this now, lads. Keep working. We admire the way you work and would like to compliment you on your hard work." We have to keep a balance in the economy whereby working people can see the value of their work in their pay packages. That is why we are committed to a reduction in USC. Now that we are out of the main crisis that nearly bankrupt the country, we can agree that social programmes have to be repaired. Of the money available to us, we will spend a much bigger proportion on the expenditure side than in providing for tax cuts, but we will still have some tax cuts in any budget in order that working people can benefit from their hard work, as well as from the improvement in social services. That is wise.
The level of mortgage arrears is a big problem, but the measures that were put in place have worked in that there has been a very big decline in the number of people in arrears. It has fallen well below 50% of the number who were affected when the crisis commenced. This is due to two reasons: the measures introduced and their implementation by the banks; and people going back to work. People are again in a position to service their mortgages. Many people are picking up where they left off in their payments, or making reduced payments, simply as a result of being back at work or their partner being back at work. It is self-correcting. We are now in a position where just north of 30,000 people with mortgages have a particular difficulty. There is a hardcore who are finding it very difficult to cope. In the programme for Government we are designing a new set of initiatives to deal with that cohort. We will see the programme in the next 24 or 48 hours. I do not wish to breach confidence, but it is not just a couple of makeweight measures added to what is in place. This is a major departure to deal specifically with that cohort which is not being reached by existing measures.
NAMA is fulfilling its social mandate by providing houses. The figures I gave the committee are the ones we received from NAMA which has provided well in excess of 4,000 houses, but the local authorities do not take all of them for a variety of reasons. I am not always sure what the reasons are, but they are to do with local authority policy. It is not a failing on NAMA's side. It states 2,000 houses have been given and taken by local authorities.
Another way NAMA is fulfilling its social mandate is through the use of its cash flow and available resources to build 20,000 affordable houses in the next five years. That is a huge commitment to social policy because we all agree that there is a problem on the housing supply side. NAMA can do it off balance sheet. All over the country there are examples of it selling playing pitches to sports clubs and accommodation of various kinds at cost price. I am sure different Deputies would be able to give examples from their constituencies. NAMA is strongly fulfilling its social mandate.
The other thing Deputies who have been here a while know is that NAMA has an e-mail and a telephone helpline for Deputies. While a Deputy cannot legally make representations to NAMA on a commercial issue, he or she is legally entitled to seek any information he or she requires from NAMA on its social programmes, policies or sales programmes. This can be done by telephone or e-mail. A Deputy is not committing any offence or putting himself or herself at ethical risk, as long as he or she stops short of lobbying for a commercial reason when engaging with NAMA.
The last point concerned rent certainty, which we think could be counterproductive. I remember the housing crisis of the 1990s, which led eventually to the bust. There were three reports by Dr. Bacon calling for intervention in the market. Intervening in the market can be quite tricky and many of the interventions of that time caused more trouble than solutions. One needs to be very careful. It is very easy to say we want to have rent certainty and not allow rents to rise but who will get involved in investing in rental property in that case? Unless a landlord in the private sector can generate an income from investing in a block of apartments, or a house which he converts into two apartments, he will not do it. If one interferes with the market to the extent that normal commercial activity does not proceed, one will not fix it; it actually causes the problem. When I received proposals from the Department of the Environment, Community and Local Government about rent certainty my advice was that some of the proposals could cause difficulty. We agreed with certain things but not with others. One has to be very careful because most of the housing market is supplied by the private sector. Affordable houses are supplied by private vendors and rental accommodation is provided by private landlords. One can intervene to increase supply but if one intervenes in a way in which the consequences are to restrict supply, the situation might be improved for a cohort of tenants on a temporary basis but it would lock everybody else out of the market. It is very tricky and I do not claim a monopoly of knowledge. Maybe there are measures around rent certainty that would work but not the ones that were proposed to me by the Department of the Environment, Community and Local Government. That is the reason we did not go down that road.
I will finish where I started. There is a supply side problem which needs to be fixed very quickly. Part of it is a funding problem and there is a also financial problem. I am absolutely delighted that the first serious action of this Parliament will be this committee addressing these issues and bringing forward a report, after due analysis, which can be turned into policy to help resolve the situation. Mr. McCarthy will comment on the question of flexibility.
Mr. John McCarthy:
At the beginning of last year, the Commission introduced the investment clause in the Stability and Growth Pact, which was designed to promote investment. The problem is that the eligibility criteria for member states to qualify for the clause were set at very strict levels. It was done unilaterally by the Commission without any input from member states. The criteria are quite technical but two of them are worth mentioning. A member state needs to have a negative output gap - a very poor performing economy - but we have a positive gap and that restricts our ability to apply for the clause. The other is that all member states are supposed to be close to a balanced budget in structural terms but we are too far away from that position at the moment to be able to apply. However, as the Minister said, the so-called expenditure benchmark smooths investment over four years so for each X one puts in, one gets four times X in year one and that gives some flexibility on that front.
I have only two questions but a number of observations. My first question is about NAMA and the fact that, despite its having 6,600 units, only 2,000 have been delivered into social housing. What is happening to the other 4,600? The witnesses may not be able to answer but we might get an answer from NAMA.
I want to raise two issues with the Minister. As he knows well, I was reared in the inner city surrounded by Dublin City Council housing developments and flat complexes in Ballyfermot, Inchicore, Crumlin and Drimnagh. It always astonished me that the city council was unable to continue the building system it operated in terms of local authority housing. If we are serious about supplying social housing, or other forms of housing, we need to look back to the local authorities and perhaps restart investment in local authorities to allow them build. I was born and reared in a Dublin City Council house and the normal practice was that most of the maintenance of the house was done by the council, but that no longer happens because of the reduction in staff. That is leading to many properties falling into a very bad state of disrepair and ending up back with the council, and it takes a long time to bring them back into suitable condition to allow them be put back on the market. If there is any way this committee can encourage a policy on local authorities taking up the mantle and building houses again, that is something I would like to see happen.
I am glad the Minister raised the question about homelessness and housing because last week I raised with Mr. Dick Brady, the city manager, the 5,801 people who are homeless. I broke down the figure, as they did, for the number of adults and children and asked if he could give me a figure for the number of those who are family units. He came back with a figure of 790. Yesterday, I received the report before me - I was not at the launch but I read it last night - from the Mercy Law Resource Centre, which is in my constituency. Since 2014-15 there has been a 43% increase in homelessness and in terms of the breakdown for adults and children, the centre comes up with a figure of 912 homeless families. What the Minister said is true. If we were to house those who are homeless now, all we would need, according to this report, is 912 houses and we would be laughing.
The other question I asked Mr. Brady was whether the figures from the housing authorities across the city could be broken down to show the number of people being rehoused, the number on a transfer list and the number on a long-term list because part of the problem to do with homelessness is what we as a Government did in the past two years, and particularly in 2014 and 2015 when we declared homelessness as a priority. I could outline for the Minister some serious cases I dealt with where people handed back their keys to go on the homeless list and live in a hostel or hotel because they believe that if they are on the homeless list they will be made a priority.
In my short career in politics and my other career working voluntarily in the community, I dealt with families and children on a daily basis and I believe that in many ways the councils' figures are not the true figures for the number of units needed in the coming years. If we were to build thousands of houses based on some of the reports, I can guarantee we would have many houses lying idle in Dublin because they are not needed. We need exact figures from the local authorities on the number of family housing units that are needed. It is clear in this report that if we decided tomorrow to deal with the homeless crisis in this city and built 912 houses, we would address it. We need to nail the local authorities, so to speak, on the housing supply and the number of family units needed.
I am dealing with people now who have been on a transfer list for 12 or 13 years. They are accommodated by the city council but they are in units that are inadequate for the size of their growing families. One family has four grown-up children living in a two bedroom maisonette. That family should have been housed ten years ago but because of the homeless crisis and the increasing demand that the homeless should be a priority, many of those people will continue on that list and never rise to the top of it. I did not ask many questions but the way to go is as the Minister said, namely, give the local authorities the power to facilitate and supply social housing.
The number of houses bought for the tenants in St. Teresa's Gardens, Fatima Mansions and Dolphin House is huge.
The council has done a considerable job on the ground locally trying to buy houses through the funding from the Department of the Environment, Community and Local Government, and also in filling many of the voids that were left there. In that sense, the local authorities are doing their job. However, we need to go back to them to get exact figures for how many homeless families we need to house.
I am not disagreeing with Deputy Catherine Byrne. In trying to elicit the information she is looking for, it might be more appropriate to ask the Department of the Environment, Community and Local Government rather than the Minister for Finance. I would say to the other remaining members with questions that they should direct them specifically to the Minister for Finance.
Over the past couple of years organisations with capital and expertise in delivering homes have appeared and I have met one or two of them. These organisations were interested in delivering a substantial number of homes to the State, but for a return to themselves over a mortgage-type period. The model would also have included the homes coming into State ownership at the end of a fixed period, such as 20 or 25 years. Has that model been put to the Minister? It seems to be an attractive proposition. Was the problem that the payments to these organisations would be on balance sheet? Would there be any scope that such a model might comply with fiscal rules?
Yes. First, in reply to Deputy Catherine Byrne's questions, NAMA identified by the end of March 2016 some 6,637 houses that it could transfer to local authorities. The local authorities confirmed that they had demand for 2,540 of these houses and 2,042 were delivered by the end of March. There are approximately 500 that are not yet delivered but they are agreed by both sides as suitable and wanted by the local authorities.
I am not sure why the local authorities did not take up all 6,000 of them. Among the reasons is local authority housing policy regarding the proportions of local authority houses and private houses in the one estate. If NAMA has a whole estate of 60 or 70 houses, the local authority will not take the full amount; it will take a proportion of them. I refer to what they describe as concentration issues where there are too many social housing units too close together. Then there are houses in some areas where there is not a demand for them.
However, NAMA continues to do its best. It will work with the local authorities. I was talking to the chairman of NAMA yesterday and he committed to doing another search and providing extra houses to the local authorities within the next couple of months.
I welcome Deputy Catherine Byrne's explanation statistically of the supply situation in Dublin in respect of homelessness and how less than 1,000 units would fulfil the demand and solve the homelessness problem on the basis of the information provided by the local authorities in Dublin. It comes back to my point that there is a tipping point issue which needs to be addressed quickly.
In answer to Deputy Brendan Ryan, the voluntary housing organisations are active in providing houses. Private sector organisations come up with schemes at times but they would go to the Department of the Environment, Community and Local Government rather than to me, and I do not have a lot of information on them. Mr. John McCarthy, the economist with the Department of Finance, may have some information of a cross-Department nature.
Mr. John McCarthy:
From our side, Deputy Brendan Ryan asked if it could be accommodated within the fiscal rules.
It all comes back to whether such funding is on or off the balance sheet. If it is included on the balance sheet, then the expenditure will need to be met by reductions elsewhere or by higher taxation and so forth. The fiscal rules are absolutely clear on this. If it is off the balance sheet, it can proceed.
Approximately two weeks ago, with the AIB transfer and so forth, we saw that EUROSTAT is becoming increasingly intrusive in terms of the on and off balance sheet types of classifications. There have obviously been some issues in that regard in the past, not just in Ireland but in every country. It is a difficulty. As I say, EUROSTAT is becoming very intrusive. Moving expenditure off the balance sheet is becoming an issue increasingly for all member states.
Most people would agree that all is not well in how we go about supplying housing in Ireland. It did not start with the current Government because it has been like this for a long time. I am very much aware that much of this does not actually come under the remit of the current Minister for Finance, Deputy Michael Noonan. I do not know whether there is any merit in having a separate housing Department given that there are so many different strands to the issue. There probably is given that there are so many issues in which the Department is involved and so many others in which it is not involved.
The Minister began by saying this is very much a supply-side problem. There is a supply problem but there was no supply problem ten years ago and yet there was still a problem. There were plenty of units but they were not affordable. Surely affordability is at the heart of the problem associated with supply, whether one is trying to rent or buy a unit or whether one is just trying to get one from the State because one cannot afford either of the first two options. We have reached a stage at which, if one has a job, the proportion of one's take-home pay required to keep a roof over one's head is greater in Ireland than in most countries. It is a big problem that has not really been addressed. There are many dimensions to it.
On 15 January 2015, the Minister and I had a discussion on REITs. At that time, I was warning that this could distort the rental market in Dublin. The Minister replied that only two REITs had been established by then and that both were capitalised at approximately €400 million. I was told two REITs with a total investment of around €400 million will not distort any market or give anybody control. The Minister said, “The REIT system will raise standards and if something goes wrong I will move to correct it, but so far it is moving in the right direction as intended.” The Minister told us today that the figure has moved to approximately €2.2 billion and that it is rising and will continue to rise. People in Ireland did not have access to finance and the Minister is now eager to bring in foreign money so they will have money to purchase. Units were bought by REITs at fire-sale prices with powerful tax incentives built into the structure of the vehicle. The REITs now control a very important chunk of the rental market. It has led to circumstances that I have referred to a few times. Apartments I happen to have built in Dominick Street that were €900 per month three and a half years ago are now €1,500 per month. It has become very difficult to rent an apartment in Dublin city centre. Dominick Street is not Ballsbridge, by any means. Some people would still be afraid to walk up there at night-time. Does the Minister believe there will be a time at which brakes should be put on this? How far does it go?
I have heard the Minister speak about the idea, of which he is very fond, of professional landlords. That is all very well but if people cannot afford to rent from such landlords, it creates a bigger problem.
On NAMA and the 20,000 units, the Minister referred to the fear of state aid rules and developers who have appealed to Europe about the matter. The vast majority of people in Ireland who have a problem renting or buying a house could not possibly afford to pay €300,000 for a unit. The Minister says NAMA is obliged to make a commercial profit from its activities. Given that it owns the land, would it be possible for the State to put in place some sort of arrangement if NAMA cannot do so? Clearly, 20,000 is a large number of units. Surely a minimum of one third of these would have to be made available to those who cannot afford to pay €300,000. The land already belongs to the State and it does not cost more than €150,000 to build a 1,000 sq. ft. house. The average house in Dublin is under 1,000 sq. ft. in size. Is there some way for the State to engage in supplying at least one third of those units to people who cannot afford to pay €300,000?
The vacant site levy was mentioned. While it is under the remit of the Department of the Environment, Community and Local Government, there is a tax issue in respect of sites and land-banking which has never been dealt with by the State. Given that I am younger than him, the Minister is probably more familiar with the Kenny report, which was published in 1974, than I have ever been. Without a shadow of a doubt, the biggest single problem around the affordability of housing in Ireland is linked to land-banking. That is not changing. We have investment funds, including the likes of Hines and Kennedy Wilson, coming in and they have not only bought units but development land. Some ten or 15 years ago, 90% of the banked land in the greater Dublin area was controlled by 26 people. We now have foreign investors coming in and taking more or less the same control over that area. It is not rocket science to see that this will be problematic down the road. Is this going to be dealt with?
The issue of the powerful right to property overriding the rights of the individual in our Constitution is also problematic. For the life of me, I cannot understand why no Government has dealt with this matter. Does the Minister consider that there is a need to address that issue in the Constitution so that we have greater flexibility in the area and can stop the cancer of land-banking in this country?
In a bid to be helpful, I note to the Deputy that the committee will deal specifically with the issue relating to the Constitution when we have a session on legal issues. The Deputy is entitled to ask the Minister the question, but I ask him to note that we will try to investigate the matter a bit further.
The Minister was talking about void houses. Again, that is very much a matter for the Department of the Environment, Community and Local Government. The Minister said it takes the private sector four to six weeks to turn around a void house, which is correct, and that the local authorities take two years to do it. I accept that the Minister has responsibility for finance and not local government or the environment. Does he agree, however, that if there is such a problem with local authorities, the answer is to strengthen rather than undermine them?
If the local authorities are not delivering as they should be, perhaps they need far more support from central government. During the past 30 or 40 years we have no longer had good local authorities, compared to our counterparts elsewhere in Europe. This is a major problem and I would like to hear the Minister's ideas on it. Given that local authorities are totally dependent on central government for funding, we do not have local government but weak, underfinanced local administration. What does the Minister think about strengthening local authorities?
When asked about the issue of rent certainty and rental markets, the Minister mentioned the risk of interfering with the market. In other European countries there is stronger regulation in this area and it works for the private sector, as well as for the client. Does the Minister think we should learn from other Europeans?
My next point has been raised in different spheres today. The Minister has made the point that our adherence to the fiscal rules is enshrined in the Constitution and that we could not possibly break our own law. What would he think about appealing to the European Union to allow us breathing space? He mentioned borrowing money recently on the markets at a rate of 0.81%, which is fantastic. Anyone in business would love to be able to do this. It is unheard of in the private sector. The State could request breathing space from the European Union to tackle an emergency and a major crisis in the supply of housing in different forms. Could we appeal to the European Union to be allowed to borrow approximately €10 billion at a rate of 0.81% over ten or 20 years without being caught by the 3% rule? We would not be the first in the European Union to be given some breathing space. We have been very good boys. Does the European Union care about individual countries, especially smaller smaller member states such as Ireland? Does the Minister think it would be a good idea to appeal for a break in this area?
I thank the Deputy. It is always good to hear his views on housing, given his expertise in construction. He said affordability was the issue rather than supply. However, affordability is a function of supply. If the supply of any good increases, the price tends to decrease. If the supply decreases, the price tends to increase. If supply was to increase, the price would either stabilise or tend to reduce and houses would become more affordable. It is just another word to describe the same problem, approaching it from a different point of view. Again, it comes back to asking what builder will build if the cost of constructing a house is greater than the price of the equivalent house on the market.
There was a basic imbalance after the economic crash. Two years ago, in parts of the city, not far from the Chairman's place, one could have bought a house for €150,000, while one could not have built a house for that figure. The model was broken and builders were impaired by debt. It was not a financial proposition to build three-bedroom semi-detached houses, given that, as recently as two years ago, they were available on the market for significantly less than the price of construction.
However, there is an affordability issue. It is a function of the supply side and we have to examine that as well as considering all ways of financing home purchasers.
REITs have been successful. They have increased supply because not only did they buy many apartments, which they refurbished to ensure better quality, they are professionalising the rental market and there is capacity to build beside many of the existing apartment blocks. The trusts have plans to construct 600 apartments in the immediate future but they are subject to the same controls, including rent controls, as everybody else. This is something we keep under review. There are three trusts on the market now and, therefore, they are not overwhelming it. The trusts are a new model and a new way of doing things, which is helping supply. It is true that they bought at the bottom of the market but the same buildings were available to everybody else. When the market goes bust, the first run of stuff is sold cheaply but many people will not buy at that time. Warren Buffett came in and invested in Bank of Ireland and he made a great deal of money. He invested in Greek banks and he lost his shirt. He thought both were a good idea at the time. That is what happens at the bottom of the market. There are various arguments about property being given away and I was asked why I did not wait and so on but unless somebody sells cheap and there is somebody to buy cheap, there is no market. It is from then on that the market builds. There is a viable market now for commercial property in Dublin but that is on the back of these initial sales which recreated the market.
With regard to land banks, the same constraints apply to a use it or lose it tax as to a vacant site levy. I would like to have a use or lose it tax on them. The large builders who have come in from abroad intend to build. Cairn Homes is actively developing sites and it does not seem to be hoarding. I met representatives of the company to see what they are about and I discovered are in the business of making money from construction. They say that are not in the business of making money through capital gains by sitting on land banks. The same applies to the other large developer which bought Cherrywood. There will be approximately 4,800 units when it is built out with a commercial centre. The company is actively pursuing the development of Cherrywood. There are others who are sitting on land banks. For example, there are people who bought land at extravagant prices and are hoping that if they sit on it, they will at least recover their money, or that if they wait a little longer, they will generate capital gains. We are examining a use it or lose it model for land banks but I do not have a solution yet. The committee might help us with this issue. The Chairman is correct that too few landowners control land in Dublin and if everyone holds back from the market, first, there will not be a supply coming through and, second, if the site element of the construction cost is too high, it will drive prices beyond the affordability level. It is an area that needs examination.
I would like to support local authorities but their elected members have a function and a responsibility in this as well. When I brought in the property tax, I provided for 15% discretion in setting the rate to local authorities. Most local authorities, for reasons that were never fully explained, decided - when they were skint for money - to avail of the 15% reduction. One of the Dublin local authorities not only reduced the rate by 15%, it took money from the housing budget when it made the reduction.
I want to make the point, without making it too strongly, that local authority members also have a responsibility. There is no point in cutting their own budget, especially the housing budget, and then coming crying to central government and stating, "Give us more money". It would make anyone a little cynical about giving more powers to local authorities when that was what happened. Other local authorities were cash rich and cut the figure by 15%, although some cut it by smaller amounts of 3%, 4% or 5%. That is fine and that is the discretion that was given. However, when there was a clear and obvious need, cutting the housing budget was less than admirable, but I will not put it any stronger than that. In general terms, I would favour supporting local authorities more and favour more autonomy for them, but, unless local authority members are prepared to take responsibility and use it in the best interests of citizens, delegation to local authorities will not work.
We are always looking for more discretion from the European Union and have been given a lot of discretion from it. The last piece was signalled before Christmas but delivered just after the general election, whereby the European Union now states that because Ireland has made significant progress, it can be considered we have balanced the budget, even if we are within a figure of 0.5%, which is €1.5 billion. The European Union has provided us with that leeway, which is one of the reasons I am signalling that we will be reviewing the capital programme in 2018. Owing to that change in the rules, we have extra flexibility and it will be quite a lot of money, including for spending purposes. My preference would be to spend it for investment purposes, in other words, increasing the capital programme, rather than on current expenditure measures. That is one example of flexibility being given by the European Union and we are working on other models.
It is true to say other countries, especially the bigger ones, take French leave - not to coin a phrase - and break the fiscal rules. When one is smaller, one has to obey the rules as best one can, but, as well as this, we have gained by being prudent in meeting the fiscal and economic rules. This is the fastest growing economy in Europe. Last year it grew by 7.8% and for this year every agency, including the Department of Finance, has marked it up. The Department puts the figure at 4.9%; the Central Bank, 5.1%; the ESRI, 5%; and the European Commission, around 5%. We are, therefore, having a very strong year again. The sustainable rate of growth in the economy for the foreseeable timeframe of five, six or ten years is about 3.25%. We are above that figure significantly this year and will be above it again next year. What is Mr. McCarthy's figure for next year?
Therefore, we are just about at the figure of 4%. There is a big advantage in staying within the fiscal rules, but they are giving us some flexibility also. I will be advising, through the Department of Finance, if I am back in it, that we use the rules cautiously and carefully in order that we can keep growing the economy at well above the average figure and then use the fruits of that growth to give us the leeway on expenditure that the Deputy is advocating.
The Minister can tell us about how wonderfully the economy has grown, but during the election campaign I knocked on 20,000 doors in Wexford and saw a level of deprivation that I never thought I would see in my lifetime. Sadly, the figures mentioned for the economy do not necessarily translate into a decent standard of living for many. The fiscal rules to which the Minister has referred can be curtailing and have an impact on the living standards of many ordinary people that is not always positive.
What would the Minister say to that?
I would say first of all that the Deputy is right. Secondly, I would say to him that I never promised the Government would be able to fix in five years what went wrong because the country was on the verge of falling over a cliff. If one considers Greece, which got into trouble seven years ago, it is still in dreadful trouble. There is no sign of a correction in Greece at the moment because it is following a different economic model.
In this period of government, we must change the emphasis. Much of the fruits of the very strong growth have gone towards reducing the deficit and the debt. As soon as we balance the budget, that monkey is off our backs. Regardless of who is in government for this phase - it will be a different government in its formation - there is extra money for social programmes. The next thing we must do is address exactly what the Deputy identified.
What we did in the five years was that we kept the basic rate of social welfare at €188 per week. We were lucky that there was very low inflation, so the purchasing power of the social welfare payments remained nearly the same, although other bills of course went up. We must now progressively give tax breaks to people at work, increase social spending programmes, so that we have better health and education and better law and order on the streets, and address in a targeted way people who are in poverty and who, despite their best efforts, cannot come out of it. They must get direct assistance and that is the way that it will go, in my view, for however long this Government lasts and, indeed, the one after it. It is possible to correct the ills of the country in a substantial way over a ten-year cycle.
I ask Deputies to consider what has happened in the last five years as phase one, to create the engine and the vehicle again that can produce the resources. Now that we have the resources, let us direct them towards the areas of need without taking risks with the growing economy. We can talk at length on other occasions about how the details of that model might be filled out but I do not disagree with Deputy Wallace's analysis. It is the same as in my own city, and the Deputy beside him will confirm that.
I probably do not have time to ask all the questions I would like to ask of the Minister. They relate to his Department, the EU and capital spending on housing, vulture funds and real estate investment trusts, REITs, NAMA and relevant contracts tax, RCT, and the tax evasion going on in the building industry, which would fall under the Department of Finance as well.
I was a bit disappointed with the Minister's presentation. He began by saying that we need fresh thinking but in his opening comments, he never mentioned the words "housing crisis", certainly not "housing emergency". The furthest he went was "housing shortage". I did not hear anything today to suggest that he sees this as being the emergency that it is. However, there are certainly those of us who represent constituencies, Dublin West and many others, where this is the number one issue and where we have a homelessness and housing emergency. The Minister said, "Unless addressed, it could pose a serious threat to the competitiveness of the economy." That was his first point. It is a bit little crass to worry just about the competitiveness of the economy. It is the human cost that most of us are concerned about. However, he is right: the rocketing rents will drive people out of the country. They are doing so already.
Regarding capital spending and the EU fiscal rules, this committee was set up by the Dáil to come up with key solutions to the housing crisis. I was a bit bemused to see that the first point relating to the economy in the Fine Gael-Fianna Fáil deal arrived at two days ago is an agreement that they will "maintain [the] commitment to meeting in full the domestic and EU fiscal rules, as enshrined in law".
These rules are preventing governments from borrowing at the current rates of well under 1%, even for long-term capital investment in housing.
As other speakers have said, this has been a burning issue with regard to resolving the housing crisis. It seems that in their deal on the formation of a government, Fine Gael and Fianna Fáil are effectively promising to starve the country of funds which could be used for public investment. It is a slight document but this is stated. The document mentions that the delivery of social housing units would be significantly increased and expedited, barriers to private housing supply would be removed and an affordable housing scheme would be initiated. There is no mention of construction or building social housing anywhere in the document. Under the previous Government, delivery of social housing units came to mean the housing assistance payment, the rental allowance scheme and doing up voids but not building social housing. I am concerned the committee is being pre-empted by that document.
They will be taken into account, right.
The key point raised by many Deputies is if we stick with the type of capital investment in housing we have had for the past number of years we will not solve the housing crisis. It is not possible. Current social housing construction costs of €180,000 per unit mean that over five years only 13,000 units would be built if we kept and maintained the capital spend on housing. It would not solve anywhere near what would be needed.
It is well documented that the Minister and the officials here today have met the vulture funds on a number of occasions. They now control 5.4% of all mortgages, but they control more of the rental sector because many of them are buy-to-lets with families living in them. Residents in Tyrrelstown in my constituency are finding out at great cost that they are now controlled by European Property Fund, EPF, which is a vulture fund linked to Goldman Sachs. Many of these mortgages were bought from State agencies under the Minister's watch. The IBRC sold 15,000 to Mars Capital, a vulture fund. The State-owned permanent tsb and AIB have also sold mortgages to vulture funds, as have privately-owned foreign banks such as Ulster Bank and Danske Bank. It has been Government policy to allow this to happen and sell family homes from under the feet of families to vulture funds.
The Minister met representatives of these funds eight times in 2013 and 2014 and the Department met them 65 times. What did they speak about? The Minister does not seem to see this as a problem, but these funds will quickly sell many of these properties and, as residents in Tyrrelstown and other places will find out, 90% of NAMA's sales have been to vulture funds. The Minister could have shouted "Stop" at any time but he chose not to do so. Many people have concluded that the red carpet was rolled out by the Government and the Department to these vulture funds. The Minister stated they do not operate under different rules but they get tax breaks. They are exempted from tax on rental income and capital gains tax. This is a different rule.
With regard to real estate investment trusts, REITs, I am surprised to hear the Minister state they have been a success and have professionalised the market. People studying them, such as Dr. Michael Byrne of UCD who has done a report on them, argue they help to push up prices across the board by reducing the amount of land available for social and affordable housing. Rents have increased by 10% to 15% in the first half of last year, where these REITs now control a huge section of the market.
The Minister stated that NAMA has a commercial brief. He can change that brief at any time. Surely as the housing crisis unfolded it was obvious that it was time for a change of policy.
According to NAMA's end of year review 2015 it generated €32 billion but it only spent €206 million on social housing, which is a tiny fraction of what it could have spent. Why can the Minister for Finance - we do not yet know whether Deputy Noonan will continue to be Minister for Finance - not direct NAMA to spend the €3 billion cash-in-hand which it had at its disposable at the end of last year on the construction of 16,000 social housing units rather than on commercial property in the docklands?
In regard to the Minister's reference again today to the NAMA starter homes, where are they? There are two NAMA housing estates in Dublin 15, which is in my constituency. The price of The Eagle, which is a three-bedroom property at Diswellstown Manor, has risen in the past few months from €365,000 to €395,000. In Hamilton Park, which is another NAMA estate in Carpenterstown, the smallest three bedroom house is priced at €410,000. What starter homes is the Minister talking about? NAMA is not providing starter homes. It is building houses for commercial profit, and in areas in which the highest price can be achieved. Unless the Minister or the Government intervenes that is what it will do and only 10% of these houses will come the way of local authorities that are struggling with a housing emergency.
On the relevant contracts tax, RCTs, which is a growing sector in the construction industry, I am concerned that if construction really takes off the growth of this sector will continue. The Construction Industry Federation, CIF, appeared before this committee on Tuesday. According to its representatives 36% of the cost of a house relates to tax to the State. That percentage is based on a highly-inflated wage for a building worker. According to the CIF the average wage of a construction employee is €47,270 per annum, which is not true because construction workers have had their wages reduced dramatically. According to the Central Statistics office, CSO, the average yearly wage for a construction worker is €38,000. The majority of such workers earn much less, many of them far less. As such, the tax dividend from housing is not as high as indicated.
According to the Revenue Commissioners there has been a massive increase in self-employment in the building industry. In my opinion much of this is bogus self employment and forced self employment. Contractors are forcing ordinary building workers into self employment. I have heard from the many building workers to whom I have spoken that this is happening. In November last year, there were 99,741 subcontractors in the building industry. This is a joke. Of course there are not 99,000 plus subcontractors in the building industry here, 23,000 of whom are sole traders and 76,000 are companies and partnerships. Why does this matter? It matters because not only is the State being deprived of vital tax revenues in the construction sector which would allow for the construction of social housing and so on, but workers are being denied pension entitlements and protections in terms of their safety. We are all aware of the battle construction workers had to wage to ensure payment of proper stamps on their behalf to ensure they are properly protected if they have an accident on-site. Why do we now have a situation whereby 37% of all those working in the construction industry are self employed? That is incredible. The Department of Finance does not appear to be interested in doing anything about this. The Construction Workers Alliance estimates that because of this, the State has lost €2.5 billion in taxes since 2008 and workers have been endangered. I would welcome a response from the Minister on those issues.
I wish to clarify one or two points. The Minister mentioned the €3 billion borrowed by the French Government and how it might be off-balance sheet. That is news to many members of the committee. Would officials in the Department be in a position to investigate that matter further and, in correspondence, advise the committee on it?
When commenting earlier on the capital spend in 2016 the Minister said local authorities were unlikely to draw down all that was available. What is the predicted underspend? We are discussing the supply side and there is concern and frustration among committee members. We must try to front-load. It is a little disappointing to hear that the capital funding available in the current year will not be drawn down fully. That is adding to our problem somewhat. As we will have representatives of the local authorities before the committee again, it is important for us to have that information.
Central Bank rules on lending, mortgages and so forth are set, although I realise there will be reviews and so forth. However, does the Minister have a view on first-time buyers? He is always reluctant to interfere in the marketplace, but does he have a view on saving schemes for first-time buyers such as the old special savings incentive account, SSIA, specifically to save for a mortgage with State support? Does he consider that to be a useful market intervention for such persons or does it have other negative effects on the market?
Out of respect for the Chairman - I am sure Deputy Ruth Coppinger will not object - I will answer his questions first.
Yes, I will ask my officials to get the details of the French scheme with the European Investment Bank. My former private secretary, Mr. John Moran, whom the Chairman will have known, is still on the board of the European Investment Bank and is the source of my information, but he did not provide me with the details. In general, the information is accurate. What we must establish is if there is anything which is French specific and would prevent us from gaining access. I will ask the officials to check.
Regarding the underspend by local authorities, I often say I only collect money. It was my colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and the Department of Public Expenditure and Reform who spent it. Again, it is something I have heard in the system, but we can check.
There is the idea that young couples should be assisted financially in putting together the deposit necessary to take out a loan. That is effectively the Chairman's point, but I would like to see his proposals. I would not rule it out as a matter of principle, but perhaps he might come up with some type of working model.
I apologise to Deputy Ruth Coppinger for responding to the Chairman first. Initially, she criticised me for ignoring housing and homelessness in my introductory remarks. She said I had not referred to them at all.
In fact, my first sentence was: "I thank committee members for inviting me to discuss the important challenges this country must address as regards housing and homelessness." In the rest of my speech I developed that point. The Deputy also referred to the paragraph in which I said: "Unless addressed, it could pose a serious threat to the competitiveness of the economy." She interpreted this as meaning I was only a cold-hearted economic interventionist who had no interest in people, only the economy. However, my next sentence was: "The housing shortage is also giving rise to major social issues, including rising homelessness, driven by pressures in the rental market." It is not true, therefore, that I ignored the issues the Deputy has raised. I addressed them specfically. I then dealt with them from the perspective of the Department of Finance.
When the Deputy was quoting the competitiveness sentence, in fairness she should have quoted the next sentence also in which I talked about the issues of homelessness and housing supply giving rise to major social issues, including rising homelessness.
I make that point in case anyone listening to us misunderstands what I am saying.
Deputy Coppinger subsequently asked a series of questions. She also stated it would be unwise to stick rigidly to the fiscal rules, arguing that we should borrow money at the current rate of less than 1% and spend it on solving the homelessness problem. The bit she missed is that if we no longer stuck to the fiscal rules, we would not be able to borrow money at less than 1%. When my party entered government in 2011, the top rate of lending was more than 13% but this quickly settled at around 10%-11% for ten year money. The actions of the Government in adhering to a rigid set of fiscal rules brought the interest rate to under 1%. If the Deputy would like more evidence, she should look at the model she has admired on a number of occasions in the Dáil, namely, the Greek model. Greece has been trying to correct its problems for eight years by following a different model from us. It is paying 10% for ten year money, whereas we are paying less than 1%. It is not a question of having choices. To keep the interest available to us at current rates, we must impose fiscal discipline on ourselves. However, as we do so, the position is improving and we are getting more flexibility, which we will then use in pursuit of the objectives to which the Deputy referred.
Deputy Coppinger criticised me for not intervening with what she described as vulture funds. The investment companies in question may be colloquially known as vulture funds but it was, in the first instance, a compliment when they were so dubbed in the United States where vultures provide a very good service in the ecology through cleaning up dead animals that are littered across the landscape, especially in the prairie provinces. They were given this title as a kind of a joke. Nevertheless, I will refer to them as vulture funds.
The Consumer Protection (Regulation of Credit Servicing Firms) Act, which I introduced, protects consumers whose loans are sold to previously unregulated entities, thus creating a consistent level of consumer protection for borrowers regardless of who owns their loans. Put simply, if Bank of Ireland has a mortgage, it must comply with a code of conduct and the rules under the code of conduct will have to be complied with down to the final detail by any purchaser of that mortgage. There is, therefore, no diminution of the rights of the mortgage holder when the loan is transferred.
In addition, tenants and landlords of rental properties which serve as security for loans sold by the National Asset Management Agency or any other agency have the same rights and obligations as all other tenants and landlords. The purchaser of the loan book does not shed its responsibility under the law and its obligations are carried forward to the new owner. Vacant possession cannot be legally sought anywhere in Ireland by any landlord without meeting specific requirements, as set out in the Residential Tenancies Act. When the mortgage book is transferred to a new owner, the obligations on that owner under the Act are not cleared but remain exactly the same as those that applied to the previous owner. If such properties are vacated legally and subsequently sold, why should the property owner not sell on the vacant property in compliance with the law if it increases supply in the market?
Certain issues arise regarding vulture funds. For example, protocols in place for dealing with mortgage arrears do not carry across. In the next period of office, I intend to enshrine in the code of conduct the principle underpinning these protocols. As such, an extended code of conduct will apply to existing and new owners. No issue arises in this regard; as a matter of fact, I expect an advantage will arise if a so-called vulture fund buys a loan book because it will do so at substantially less than its nominal value.
If the nominal value is €100,000 and it buys at €80,000, the fund has more discretion than the original owner to do deals because it is still profitable if it does a deal with the 20%.
In terms of making arrangements that would involve arrears write-offs, the vulture fund has a lot more flexibility than the original mortgage owner. There are difficulties and I will address those. If new difficulties emerge and are pointed out to me, I will address those too. However, they are not the difficulties that are recited so frequently. Those difficulties are non-existent because the new owner must comply with the law in the same way as the previous owner. We legislated for that in the House approximately two years ago. As stated, there are advantages on one-to-one negotiations if people are seeking an arrangement as a result of the fact that the vulture fund has more flexibility because it bought not at the nominal rate but at a much cheaper one. Of course, the vulture fund is in it to make profit. Who in the commercial world is not in it to make a profit? The profit does not arise from selling houses out from under people - that is not the way these funds operate. Their main activity involves taking a loan book where there are many non-payers and under-payers and working their way up to try and get all the loans serviced to a payment system. That is how it makes its money; it is not by disposing of property. Ultimately, they are free to sell in the same way as every other property owner.
The difference with vulture funds is that they buy huge numbers of properties at one time and that they also sell them en massein this way. That has been the experience of 40 families in one estate in Tyrrelstown. Therefore, vacant possession can be sought to sell a property in this country. That is the aspect that these funds cite. The Minister does not seem to have an understanding of the way 40 families - possibly 100 - leaving an area at the same time might constitute a problem.
Vulture funds must comply with the law in exactly the same way as any other owners of loan books. The same protections apply to the mortgage holders or tenants under the new arrangement as applied under the old arrangement. That is the inhibition on them. The argument I am making is that the transfer to new ownership does not disadvantage or give new rights to vulture funds. They has the same rights and the same responsibilities as the previous owners. That is my point.
I agree with the Deputy that the model on building sites is changing. The primary builder is now more correctly described as a developer. By and large, they work out the project through subcontractors. As a consequence of this, many people who are skilled in the building industry are setting themselves up as subcontractors and have their own small businesses. That is just a change in the model and that is the way the world works. It is the way construction is working in all the major cities around the world and Dublin is no exception. If one visits building sites which have cranes on the skyline - which I have not done - I would be surprised if the work is not being carried out by quite a large number of subcontractors who come on site when their particular skillset is required to develop out the building. There is a tax issue but the Revenue Commissioners have been working very hard to modernise the relevant contracts tax, RCT, system to counter tax avoidance and evasion. The Revenue has been rolling out new electronic or e-RTC system. The Department of Finance and the Department of Social Protection have also been examining whether people employed in sectors such as construction should be regarded as subcontractors or employees. This is an issue that has been raised by the ICTU and it is under active consideration. There is no doubt that, as the model changes, an issue arises for Revenue. The issue in question relates to an individual working on a building site who is an employee and who decides to describe himself, with the collusion of his employer, as a subcontractor.
Then he is taxed as a subcontractor rather than an employee. That is tax evasion, which is a criminal offence. Revenue is addressing this. The issue was pretty bad two years ago, although activity was low. However, the problem is being cleaned up and we are giving Revenue all the resources and support it needs to deal with the problem.
The Deputy is correct to say there is a problem, but it is not a problem we or Revenue are closing our eyes to. I assume the Chairman will invite Revenue to attend these proceedings at some stage and its representatives can provide more details on this issue. It was a significant problem, but it is a lesser problem now. It remains a problem, but it is being addressed.
I think I have dealt with all the issues raised by the Deputy.
It would be important to bring Revenue representatives before the committee and to raise this with them. It is a problem that can be easily dealt with by outlawing it. That would be very easy to do.
It is outlawed already, so that is not the issue. It is outlawed, because it is a criminal act to evade tax. Making sure people comply is the issue, not the need to legally outlaw the practice.
The other side of this is that if a bricklayer who is employing two further bricklayers and contracting them in to do the brick work or block work on a building is probably a legitimate sub-contractor and is entitled to be taxed as a sub-contractor.