Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I need to start my contribution on Second Stage of the Bill by criticising the delay in bringing it forward. It was announced on budget day last October. It was one of the main elements of a set of measures the Government heralded to tackle the housing crisis. It rightly identified the lack of finance for the construction sector as a key issue, but nine months later we are only commencing Second Stage of the Bill. The Minister of State said in his opening remarks that funding might start to come through before the end of the year. That underlines the lack of urgency in dealing with the housing crisis overall. This is only one strand of the measures to be introduced, but it is an important ones because homes cannot be built without funding.

The Bill and what it provides for are quite modest in the context of the overall scale of the problem and the crisis we are facing. I will not spend my time talking about all of the other new things we need to be doing in the direct delivery of social housing, which is obvious and a must, the need for a State-backed affordable housing scheme and a meaningful cost rental scheme - I know that there is a pilot scheme under way - but the private sector has to be supported. We have to ramp up capacity in that sector to deliver homes.

The Bill provides for a figure of €750 million which the Government estimates will support the construction of approximately 6,000 home over a three-year period, or about 2,000 per annum. Fewer than 15,000 houses were built last year, probably 20,000 to 25,000 fewer than we needed. The fund will provide funding to approximately 10% of that shortfall. That shows that it is a modest initiative but a welcome one. We will support this initiative and engage constructively on Committee Stage by raising questions and bringing forward amendments, as appropriate. To resolve the issue of private housing supply, it is necessary to align viability with affordability.

For it to be viable for a construction project to proceed, the ultimate price that must be charged to the consumer is simply unaffordable. Not enough work is being done to align viability with affordability. Private building firms must have a profit margin and one in the region of 15% is often quoted as the norm. The 2016 report of the Society of Chartered Surveyors Ireland is helpfully provided in the Oireachtas Library and Research Service's note on this Bill. In its report it analyses construction and delivery cost data from the overall cost to build a new home, including completing roads and drains, as being €150,000. However, once costs other than construction are factored in, such as professional fees, valued added tax, VAT, land and acquisition and a margin, the cost of delivering a three-bedroom semi-detached home in Dublin increases to over €330,000. We have a high cost housing environment. That is attributable to all the different input costs. Not a whole lot can be done about many of them. Finance is certainly one element where the State has a role to play.

The banks have had to change their business model. The type of unsustainable lending they were providing to the construction sector, which the Minister of State, I and others studied over the course of the banking inquiry, could not continue. They are providing, as the Minister of State rightly said, perhaps a maximum of 60% to 65% of the funding for development. As not many building firms have the equity, they have to bridge that gap with very high cost finance from international funds of the order of 10%, 12%, 14% and even higher. That is a crazy price to pay in the current market for money. The current environment is one of effectively zero interest rates. High funding costs feed directly into high property prices being charged to the consumer. It is a vital ingredient and it is an issue which must be resolved in the overall context because that type of high cost funding cannot continue. It makes it even more difficult to align viability with affordability.

What the banks are providing is modest. The Bank of Ireland appeared before the joint Committee on Finance, Public Expenditure and Reform, and Taoiseach this morning. The fund it is providing for its development book is approximately €1 billion. In the context of what needs to be done, there is still a very sizeable gap in the amount of money that will have to be provided. AIB has provided a fund also but, overall, it is quite modest.

Funding of €750 million will be provided by this company on commercial terms. If we spread that across 6,000 units, that works out at €125,000 that will be provided in finance per unit. There will have to be proper underwriting. We need to have checks and balances and good safeguards in place. The Minister of State said this will be done on commercial terms. That is a requirement because if we do not want to flout state aid rules, we want this to remain off balance sheet. The funding will be sourced from the Ireland Strategic Investment Fund. This will be a private company that will be incorporated, therefore, commercial terms need to be charged but they also need to be competitive commercial terms.

When Activate Capital started providing funding to the construction sector, initially the rates were of the order of 14%. It reduced that to within the range of 6% to 10% on a bespoke basis project by project. The Minister of State said that while he has not cited any interest rate that will be applicable to these loans, it will be done on a bespoke case by case basis, but it needs to be competitive if it is to play a meaningful role in meeting the funding gap that exists.

We have spoken a number of times about the issue of serviced land being made available. I am not sure if the funding from this company can contribute towards site acquisition costs. The Minister of State might clarify if that is the case.

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