Thursday, 5 July 2018
Home Building Finance Ireland Bill 2018: Second Stage
I move: "That the Bill be now read a Second Time."
I am pleased to present to the House the Home Building Finance Ireland Bill 2018. It is a significant Bill which provides for the establishment of Home Building Finance Ireland, HBFI, which will give a much needed boost to the availability of finance for residential development in the State. HBFI is being proposed in the context of a major shortfall in the supply of housing in recent years. The CSO recently estimated that just under 15,000 housing units were delivered in 2017. While residential building has increased significantly in recent years, it continues to fall well short of estimated annual demand of between 30,000 and 35,000 units. The availability of appropriate development finance for commercially viable residential projects has been identified as a key contributory factor in the ongoing shortfall in residential supply. The introduction of HBFI will provide for a crucial boost to the availability of this important source of finance.
While the appetite to provide residential development funding among banks and alternative lenders has been increasing in recent years, it continues to fall well short of that needed to address the scale of the shortfall which has been identified. In the absence of this key policy response by the Government, there is a concern that these constraints could limit the market's capacity to respond to current and projected housing demand, particularly bearing in mind projected growth in the population and the positive outlook for the economy in the coming years.
Development activity continues to be impacted on by the legacy of the financial crisis. While traditional banks are returning to providing senior debt finance for residential development, the number of active lenders in Ireland has reduced from 12 a decade ago to three today. It is clear that the risk appetite among the remaining banks in funding residential development is more conservative and significantly reduced from the unsustainable and reckless levels seen in the period leading up to 2008. Outstanding loans to land and development exposures totalled €64 billion in 2008 across the six main retail banks and building societies. This comprised 15% of their total lending. By the middle of last year this figure had reduced to just €2 billion or 1% of their total lending. While this refocusing by the main banks is entirely reasonable and appropriate, not least from a financial stability perspective, it poses significant challenges to developers seeking to fund viable residential developments but not possessing the levels of equity now required by the banks. This trend suggests Ireland's future house building finance needs are more likely to be met by vehicles with a greater reliance on equity investment than previously. Other alternative lenders have entered the Irish market to satisfy some of the excess demand. It is estimated that the scale of provision by both the banks and these lenders continues to be well below that required to fund the estimated 15,000 to 20,000 annual shortfall.
Let me be clear. HBFI will not take on excessive risk for the State. Its introduction will not see a return to 100% lending or anything like it. Developers must still provide significant levels of equity or raise third party equity in the market to access HBFI funds. It is envisaged that a large proportion of HBFI lending will be to development projects with insufficient equity to raise finance from banks or projects that are unable to source funding from the relatively limited pool of alternative lenders in the market at this time. Currently, bank lending to residential projects in Ireland typically requires levels of equity finance of 35% to 50%. HBFI is expected to provide finance for viable projects where developers are in a position to put up equity of 20% or more for projects, thereby bridging the gap in bank finance and increasing the pool of finance available from other lenders. The State's investment will be protected by this layer of equity and through detailed viability testing by HBFI's experienced lending officers.
The problem of a shortage of access to supply of appropriate finance has been particularly acute for small development projects and those located outside the major urban areas. HBFI will be established to address these concerns and will focus on reducing this shortfall by focusing on those areas of the market that are currently underserved by the banks and alternative finance providers. Thanks to the considerable efforts undertaken by the National Asset Management Agency, NAMA, in delivering more than 7,200 units of residential housing in recent years and its commitment to facilitate the delivery of some 20,000 units by the end of 2020, the State now has market-leading expertise and experience in providing this form of development finance on a commercial basis.
While HBFI will be a wholly independent entity from NAMA, it will utilise NAMA's experience in developing its business model in preparation for its launch later this year. NAMA staff have already been involved in assessing development funding proposals for sites throughout the country and will have accumulated a high degree of knowledge concerning relevant planning, legal and financial issues affecting residential development. It is expected that some staff will transfer from NAMA and this will be of great benefit to HBFI to allow it to be up and running in as short a timeframe as possible. Depending on how soon HBFI can be established, it could commence lending later this year. The NAMA residential funding teams have also developed or customised credit approval processes and information technology systems to be scaleable and adaptable to business requirements. These processes and systems are likely to be adapted by HBFI to meet its business needs. NAMA's systems and processes are tried and tested and will be familiar to the Comptroller and Auditor General who will also audit HBFI’s activities.
HBFI will be established as a private company under the Companies Act 2014, with the shares held by the Minister for Finance. It will have an independent board appointed by the Minister, which will have all the powers necessary to conduct its business. The constitution of HBFI will be also be approved by the Minister. HBFI will be funded through the provision of debt and equity funding of up to €750 million that will be made available from the Ireland Strategic Investment Fund, ISIF. The redirection of this funding to HBFI from ISIF is a continuance of the refocusing of that entity towards projects of national strategic importance.
On establishment of HBFI, a small equity investment of €20 million is expected to be provided allowing the entity to commence operations and to cover its costs during its start-up phase. Funding for lending purposes will be provided by way of a repayable loan from ISIF to HBFI on commercial terms. The exact timing and scale of the funding provided will be determined by the HBFI board in due course and will depend on market demand. The returns expected to accrue to the State from the funding of HBFI will be commensurate with the commercial returns for loans to entities with similar risk profiles. With this allocation it is expected that HBFI will have the capacity to fund the supply of more than 6,000 additional homes in the coming years. This supply will make a meaningful impact in addressing the supply shortfall that currently exists. HBFI will provide lending to viable residential developments on commercial, market equivalent terms and conditions. It is important to recognise that HBFI will not provide low-cost or subsidised funding to developers or the construction industry. HBFI will charge commercial rates for its lending and establishing HBFI in this manner will ensure it is compliant with state aid rules and provides an appropriate level of return to the State for the risk it is taking on.
A unique feature of HBFI will be its ability to fund smaller developments or those outside the major urban centres. These projects are currently underserved by the market where there is a clear preference for larger sites and those within the greater Dublin area. It is expected that HBFI will provide funding for projects with a minimum capacity of only ten units, equating to a loan facility of circa €2 million. Projects will be expected to have full planning permission and the sponsors to be fully tax compliant. HBFI will ensure its total exposure to any one borrower does not exceed 5% of its total lending, ensuring that the lending can be spread across as many developments as possible.
The specific interest rates charged by HBFI will be bespoke and will reflect the credit risk of each particular development project, the quality of collateral, the creditworthiness of the borrower and the track record of the borrower in delivery of residential development projects to date. To ensure compliance with state aid rules, the lending terms and conditions will also be benchmarked to the market. Recognising that the funding of residential development is clearly undergoing a temporary dislocation, I have included in the Bill a formal review clause that will commence in 2020, and subsequently every two years, under which the Minister will assess the extent to which HBFI has made progress towards achieving its overall objectives and the impact HBFI is having on residential development funding in the State. This review will help to minimise any distortionary effect HBFI may have on the overall economy. The continuation of HBFI will, therefore, be regularly monitored, with a view to the entity exiting the market in due course when sufficient supply of funding returns.
I will now turn to the main provisions. The Bill has six Parts. Part 1, containing sections 1 to 3, inclusive, sets out the preliminary and general provisions. Section 1 provides for the Short Title and allows the Minister for Finance to commence the Bill or particular parts of it at different dates. Section 2 is a standard provision providing definitions for certain words and terms used in the Bill. Section 3 provides that expenses incurred by the Minister in the administration of the Act will be sanctioned by the Minister for Public Expenditure and Reform and paid out of the moneys provided by the Oireachtas. Essentially, this covers the expenses of the Department of Finance in working to establish HBFI rather than the operating costs of HBFI. Costs directly attributable to HBFI will be the liabilities of HBFI and not the Minister or Department of Finance. This section also provides for the expenses incurred by the National Treasury Management Agency, NTMA, in the performance of its functions under the Bill, which will be charged and paid out of the Central Fund. All expenses incurred by the NTMA will be recouped from HBFI once it is up and running.
Part 2, containing sections 4 to 9, inclusive, provides for the establishment of Home Building Finance Ireland, HBFI. It provides for the formation of both HBFI and any group entities it requires. It also sets out the functions of HBFI which will be to lend on commercial terms for residential development in a manner that aims to contribute to the economic and social development of the State and enhance the competitiveness of the economy. This Part also outlines the composition of the HBFI board and HBFI's relationship with the NTMA and NAMA.
Section 4 enables the formation of a private company under the Companies Act 2014 called Home Building Finance Ireland, HBFI. HBFI will be independent in carrying out its functions under this Act. Section 5 provides that the constitution of HBFI will be consistent with provisions of the legislation. It establishes that no alterations to the documents will be valid without the prior approval of the Minister. Section 6 provides for HBFI to be able to form, promote or take shareholding in various types of subsidiaries such as companies or joint ventures and also sets out the terms on which this can be done. These will be known collectively as HBFI group entities. HBFI is not permitted to guarantee the borrowings or liabilities of any of its subsidiaries without the approval of the Minister.
Section 7 sets out the functions of HBFI. The main function is to lend money for the purposes of funding residential development in the State on commercial terms. In providing this funding HBFI must take into account the risk profile of the project concerned and the market in which HBFI operates. In providing funding, HBFI is also expected to aim to contribute to the economic and social development of the State and enhance the competitiveness of the economy.
Section 8 provides for HBFI to have a board of at least three and not more than seven persons, including its chairperson. The Minister may appoint a chairperson from within the board. The terms and conditions of board appointments will be set out in the HBFI constitution.
Section 9 provides for HBFI's relationship with the NTMA. It sets out that the NTMA will provide HBFI and all of its subsidiaries with business and support services and systems that are considered necessary for HBFI to perform its functions. When assessing resources, it requires the NTMA to review resources that are already being provided to NAMA and allows for the reassignment of those resources, where appropriate, subject to the approval of the chief executive officer, CEO, and board of NAMA. The section also provides for the NTMA to assign staff to HBFI to enable it to perform its functions under the Bill. Again, where staff meeting HBFI requirements are identified in NAMA, this section allows those staff to be reassigned to HBFI, subject to the approval of the CEO and board of NAMA. The NTMA will be reimbursed by HBFI for the costs incurred under this section.
Part 3 of the Bill sets out the funding arrangements for HBFI. Section 10 provides for the determination of the authorised share capital of HBFI by the Minister for Finance and the initial issue of shares in the new company to the Minister. It provides that HBFI will issue shares to the value of €20 million to the Minister on incorporation. This €20 million of equity capital will come from the ISIF.
Section 11 provides that the Minister can dispose of shares in HBFI to a limited number of counterparties which include the NTMA, the Minister for Housing, Planning and Local Government or a body under the aegis of that Minister. It is not intended that the Minister for Finance will sell or transfer shares to the parties listed; however, flexibility to do so has been included. Funds received in respect of the sale or redemption of shares must be paid into the Exchequer.
Section 12 allows for the HBFI board to decide what dividends are to be paid to the Minister. It also provides that moneys received by the Minister in respect of his share in the company, including dividends, shall be paid into the Exchequer in such a manner as he directs.
Section 13 provides that HBFI may borrow money in any currency and through any type of debt it sees as appropriate. The section limits the amount of borrowings which HBFI can have outstanding at any particular time to €750 million. This borrowing would be in addition to the funding provided for HBFI through the ISIF. HBFI will be responsible for meeting liabilities incurred under the section and they will not be guaranteed by the State. If HBFI were to borrow in a foreign currency, the value of the borrowings in other currencies would be valued using the European Central Bank's published exchange rates.
Part 4 of the Bill sets out the procedures for the preparation of financial statements and ensuring the public accountability of HBFI. Section 14 provides that a reference to a HBFI group entity in section 15 or section 16 is a reference to a HBFI group entity which is a company formed under the Companies Act or an existing company under the Companies Act.
Section 15 provides that HBFI must submit its accounts to the Comptroller and Auditor General for audit within two months of the financial year to which they relate. The audited consolidated accounts will also be presented to the Minister and laid before each House of the Oireachtas. For the avoidance of doubt, the section also provides that a reference to "statutory auditor" or "statutory financial statements" in the Companies Act shall include a reference to the Comptroller and Auditor General for HBFI. The section also provides that Chapters 18, 20 and 21 of the Companies Act which relate to the appointment of statutory auditors will not apply to the Comptroller and Auditor General for the purposes of HBFI.
Section 16 provides that in the event that it becomes necessary for HBFI to appoint a statutory auditor, it may do so and that the Comptroller and Auditor General will continue to perform the audit functions set out in section 15 in that scenario.
Section 17 provides that a senior member of staff of HBFI nominated by its chairperson will, whenever required by the Committee of Public Accounts, give evidence to that committee on the accounts and reports of the Comptroller and Auditor General on HBFI.
Part 5 of the Bill sets out consequential amendments to two Acts, namely, the Taxes Consolidation Act 1997 and the National Treasury Management Agency (Amendment) Act 2014. Section 18 provides for an exemption in relation to inbound and outbound withholding taxes. This form of exemption is standard for State owned entities and will allow HBFI to operate in line with other market operators.
Section 19 provides for the Minister to give directions to the ISIF, with which the fund must comply. The section, essentially, provides the Minister with the power to direct the ISIF to provide credit for the HBFI on commercial terms and to provide equity funding for HBFI to fund the subscription of the Minister's shares in the company. The amendment limits the total funding to not exceed €750 million.
Part 6 of the Bill sets out a number of miscellaneous provisions. Section 20 provides that the Minister, the NTMA and its employees and staff are not to be considered either a shadow director under section 27(1) of the Companies Act 1990 or a de factodirector of HBFI. This ensures the Minister and the NTMA can carry out their various other functions without their involvement with HBFI impacting on these functions.
Section 21 provides that, except as otherwise authorised by the section or another enactment, a person will not disclose or use confidential information obtained in the manner set out in the section. The section permits appropriate disclosure to law enforcement authorities and, where authorised by HBFI, a HBFI group entity, the NTMA, NAMA or authorised or obliged by law. Breach of the obligations under the section may constitute a criminal offence.
Section 22 provides for the issuance of written directions to HBFI that are consistent with the functions of the Bill. HBFI is obliged to comply with directions under the Bill. Such directions will be published and laid before each House of the Oireachtas.
Section 23 ensures HBFI will only continue in existence for as long as may be required. The section provides that the Minister may at any time require HBFI to report to him on the performance of its functions and that, as soon as possible after 31 December 2020 and subsequently every two years, the Minister will assess the extent to which HBFI has performed its functions and the level of availability of residential funding in the market. This process will require a public consultation and ultimately decide whether continuation of HBFI continues to be necessary.
Section 24 provides that, subject to certain exceptions, a person who communicates with HBFI or a HBFI group entity, with the intention of influencing the making of a decision on the performance of the functions of HBFI or the HBFI group entity, commits an offence. A number of exceptions are allowed for where the person making the communications is an employee or an adviser to a client of HBFI or where the communications are published.
Section 25 provides that certain provisions of the Companies Act will not apply to HBFI. These provisions ensure the Minister's relationship with HBFI does not prevent him from carrying out any other of his functions and avoids redundant reporting requirements in the administration of HBFI.
Addressing the shortfall in the supply of housing requires a broad cross-government response and requires a strategy to make best use of the resources available to the State. While the establishment of HBFI will not solve the problem singlehandedly, it will play an important part in the overall strategy to increase the supply of new housing. Together with the comprehensive set of actions laid out in Rebuilding Ireland, HBFI will provide further impetus to increase the level of home building across the country. I commend the Bill to the House.
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.
The Minister has said it cannot. Therefore, the finding is only for the construction. Those who bring forward schemes will still have to find 100% of the acquisition costs elsewhere.
Stage payments were abolished some years ago. That has been to the benefit of the consumers but it has created funding difficulties for those who are developing schemes because they do not get any money from the purchaser until the end of the process when the house or the apartment is being sold on. They are carrying very substantial development costs. It is not popular to say that, but that is the reality. If the sums do not add up, these scheme will not happen. That is part of the reason supply is lagging so far behind demand and that is likely to continue to be the case at least for another few years. I acknowledge that there was a significant increase in supply last year but it was from a very low base, a much lower base than we even envisaged.
It is good we now have accurate, hard Central Statistics Office data on home completions. The ESB connection measure was long discredited but was still being used as the official measure of home completions in Ireland. At least we have accurate data now but it underlines the scale of the problem where we have to get from 14,000 or 15,000 units to perhaps 30,000 to 35,000 units. Activity is being scaled up but there much more activity in the commercial construction sector in office and student accommodation developments than in residential developments. That is still a significant issue.
We will not see major changes by the Central Bank in its macro-prudential rules. I acknowledged that the Comptroller and Auditor General will be the auditor here. In effect, there will be accountability through the Committee of Public Accounts. It is important that those running this new company will come before the Committee of Public Accounts, be held accountable and answer questions on the operation of this fund.
Overall, we welcome this initiative. It took far too long to get to this point. We will engage in a positive fashion to seek to improve this. It needs to be kept under review. There is no getting away from the simple fact that finance is a vital ingredient in delivering homes. There is no point talking about a housing crisis in this House and decrying the private construction sector if we are not prepared to do something in a responsible way to assist in the delivery of the homes our people need throughout this country. We look forward to Committee Stage, which I presume will be in the autumn.
I welcome the opportunity to contribute to the debate on this Bill. It was announced in the budget last October and we are only on Second Stage now heading into the last week or so of this Dáil session. Even with everything going right it is unlikely it will have completed Committee Stage and Report and Final Stages in the Dáil by the time of the anniversary of the budget. That speaks volumes in that while we welcome the initiative to help address the current crisis, we need only reflect on the length of time it has taken to bring this Bill to the floor of the Dáil and the time it will take before it is passed. This Bill should be a priority. We have announcements made with great fanfare every week on how we will tackle the housing crisis. This was one of the announcements made to great fanfare and, nine months later, we are still looking at the Bill going through the Houses of the Oireachtas.
The cynic in me would say there were three initiatives announced. An initiative was announced in the budget on the fair deal scheme for self-employed people. That has not seen the light of day. It was to come into effect in early January 2018. Changes were proposed on the consolidation of farmland. Deputy Michael McGrath sought changes to what was announced in the budget and that will now come into effect on 1 August. It has taken a long time for major decisions that have been made to be seen. This Bill is reflective of that.
I have read the various analyses of this Bill. A series of initiatives are needed to provide the amount of housing needed for our people in the next decade. We have to go back and examine the social housing aspect of it and the success of that, not only in providing housing units but the social integration of people also. There is reference to housing units in all the data produced but a holistic approach must be taken to that.
I have seen reports today that say housing stock or houses should not be sold off from the housing estates that were built in the 1930s, 1940s and 1950s. People brought ownership to those housing estates and they eventually aspired to buying the houses. Those people contributed enormously to that society and we cannot ghettoise people.
I am encouraged by one element of the Minster of State's speech, which is the unique feature to fund smaller developments outside of the main urban centres. This is fundamental to how we approach the housing crisis. My colleague, Deputy Michael McGrath, gave the current figures for building a three bedroom semi-detached house in Dublin. It is beyond the reach of even the higher than average earning families to buy and own a house at those prices and to tie themselves to 30, 35 or 40 years of commitment to that debt.
If the Minister of State's suggestion for small developments outside of major centres is a serious part of the legislation, if it is to be seen right through the legislation and encouraged after the legislation is enacted, and if the €750 million is put out there, we then have to ensure the development is right across the regions. For far too long we have seen the amount of people who are building on the east coast and in large urban centres. There are a whole series of initiatives and issues that need to be dealt with in this regard. All of the announcements and fanfare - I have looked at a fair few of them over the last 12 or 18 months - have been for huge urban centres. This piles more people and pressure onto urban Ireland and leaves the rural communities dying on their feet. It has to be accepted that this is happening. Fundamentally people are saying that this is not the case but the Opposition parties consistently raise the issues around rural communities and isolated communities in the context of Ireland powering ahead. Right across the regions small rural schools are struggling to maintain teachers and their communities. In the teeth of the housing crisis there has been the huge need for the various schemes and initiatives and I hope the other announcements that were made do not take so long to come to fruition.
Parts of Dublin and Limerick had huge housing crises in the 1950s and 1960s. Houses were built without any communities and without any integration. Society is continuing to pay an enormous price for that planning. We must make sure that whatever is done is sustainable, realistic and irreproachable.
The Bill states that the money cannot be used for land. This will constrain a lot of people from getting into the construction industry and in encouraging more people to access and use the fund. Although banks and others are putting money in, it is still not enough to tackle the crisis or the shortfall. Land cost, especially in urban centres and in Dublin and Cork, is a huge element in the cost of a unit. This must be looked at seriously if costs are to be tackled to ensure we have affordable houses.
The figure of €750 million is to be put out there. This Bill took nine months to get to Second Stage in the Dáil. There is a whole series of checks and balances as a Bill goes through the Houses of the Oireachtas. There is Committee Stage, Report and Final Stages, then back to the Seanad and perhaps back to this Chamber for further amendments. The Minister of State, Deputy D'Arcy, has said that money could be flowing through this initiative right through the latter part of this year. This is simply not practical. The initiative might be introduced but before people start to engage it needs to be properly set up and so on. I do not think it is realistic. If it was the case that the Bill had been brought in three or four weeks ago in June, and if there was an urgency about it to make sure it had gone through all the stages prior to the summer then the State may have been able to work through the initiative. I do not, however, believe that it is practical or possible to have any sense of using this to try to tackle the housing crisis before 2019, at the earliest.
The Bill provides for full accountability by the machinery of the Houses of the Oireachtas and the machinery of the State, and this is as it should be. It is vitally important, whatever legislation we pass, and especially in this regard. This generation of politicians will be judged on how we tackle the housing crisis and whether or not the response was properly planned and detailed to ensure a coherent solution for the housing units, for the people and families who will live in these units and for the setting up of a proper society. It is important that the machinery of the State is able to access it and that the citizen is assured the initiative and the money that will be put through it is put to good use to make sure every cent is properly used for affordable housing for the citizens of our State.
I thank the Minister of State for the opportunity, but a little urgency is needed on this and a whole raft of issues.
Increasingly our debates in the Chamber on housing are becoming acrimonious. It is because the gap is growing ever wider between the Government's delivery in meeting housing needs and the rhetoric of Rebuilding Ireland.
When Home Building Finance Ireland was announced in last year's budget I was taken by the idea that if done right it has the potential to be a positive contribution towards tackling our affordable housing crisis. Crucially, if it was to be done right it would require a number of changes and modifications to the proposal as it is currently outlined. The logic of the Bill is the crisis in affordable housing. The Minister of State, Deputy D'Arcy and the other speakers are absolutely right - the lack of affordable homes is a real problem. A growing number of people, called the "locked out generation", are struggling with and finding it impossible to cope with excessively high rents and the requirement to save for very large deposits. They are unable to secure appropriate levels of mortgages, even from the Rebuilding Ireland home loan scheme, on the basis of the most recent figures. In some cases they are forced to live back with their parents for extended periods of time to meet those saving requirements. I think that everybody agrees this is a growing problem that needs State intervention. It is important to say that in the last two years not a single affordable home has been delivered as a result of any direct Government scheme. This is a fact. The only affordable houses to have been delivered are in Ballymun and Poppintree. They were built as a result of a community initiative with Dublin City Council, without the active support or intervention of Government.
Deputy Michael McGrath is absolutely right. This fund was announced almost one year ago. By the time the legislation is passed, and before it starts to do any lending, we will probably have passed budget 2019 with the problem still remaining. We were also told that the Local Infrastructure Housing Activation Fund, LIHAF, was about increasing the supply and delivering affordability but it is only now being drawn down. It is not delivering any level of affordability, particularly in the large urban areas of Dublin and Cork. The very small amount of money that was announced in last year's budget, €25 million, to assist local authorities to deliver Ó Cualann-type projects such as the one in Ballymun has not only not been spent but the scheme surrounding it has not been decided or agreed. While the Minister has decided to roll it into an announcement for next year, when it will be €75 million, we are still none the wiser as to how it could be spent. According to the Minister for Housing, Planning and Local Government, Deputy Eoghan Murphy, we are to expect some developments in this regard in the next week or two. The most disappointing aspect is that there is still no core, affordable housing scheme in place for local authorities to try to develop housing into the future.
I put it to the Minister of State that the mantra of increased supply delivering affordability is not the case. Supply is absolutely crucial and we need to increase it. There are many examples, however, from here and from other jurisdictions, from during the current housing crisis and from our own experience during the Celtic tiger, that there can be dramatic increases in prices alongside dramatic increases in supply.
Therefore, if we are serious about tackling the affordability crisis and are to use taxpayers' money to do so, we must increase supply in a way that delivers genuine affordability. As proposed, the Bill is not clear on how it will do that. If the Minister is willing to work with the Opposition, we can find solutions.
It is important to understand what affects house prices. Providing more bricks and mortar does not do it in and of itself, as house prices are also a function of the supply and price of credit to builders and buyers and the supply and price of land. The important debate in the House yesterday on Deputy Wallace's Bill allowed us to consider this part of the housing crisis. When listening to the Ministers, Deputies Eoghan Murphy and Donohoe, I often get the sense that the Government fails to understand this. Until it grasps what drives house prices in the private market, it will not be able to design adequate policy interventions that ensure supply is increased in a way that provides genuinely affordable units.
The narrow focus on incentivising private sector supply is not only expensive to the taxpayer, but is proving counterproductive. For example, perhaps 60% or more of the households accessing the help-to-buy scheme do not need it and are buying homes far beyond affordability. In fact, they should not be getting any taxpayer support. The scheme could be beneficial were it properly targeted, but there is evidence to suggest it is leading to house price inflation. There is €200 million of taxpayers' money in the local infrastructure housing activation fund, LIHAF, with a further €50 million to be provided, but it is not delivering affordability. Fast-tracked planning and reduced apartment standards and sizes do not increase supply and, in many cases, drive up prices. The House has often debated the exceptionally generous tax breaks for real estate investment funds, Irish collective asset management vehicles, ICAVs, and so on with little evidence of them being of any benefit in resolving the housing crisis. Indeed, there is much evidence to the contrary.
While the Minister of State is right about a section of the building industry having difficulty getting finance, it is not as if there is not a wash of international investment in Irish property. We have seen that in the large amounts of capital entering the State to buy distressed assets from the portfolios of IBRC and NAMA in the commercial sector and increasingly in the residential sector, especially student accommodation. That capital is entering the State on profitable terms.
I accept that there are difficulties for a cohort of builders, particularly small and medium-sized indigenous builders who are trying to enter the market for small to medium-sized developments. Under certain terms and conditions, the idea of a State-funded lending facility could be beneficial for those builders. I use the word "builders" deliberately because builders, not developers or land speculators, should benefit from access to this finance.
I will outline the conditions that need to apply for any such lending facility to work. It should only be available to those builders who need it. Even if the fund charges a commercial return, it would not be tolerable for the €750 million of taxpayers' money to go to developers who do not need it and can already access mezzanine or standard bank financing. One of my main criticisms of the LIHAF is that a large number of its recipients do not need a single cent of it. The likes of Hines and Cairn Homes could easily access funds for those pieces of infrastructure without having to rely on taxpayers' money. There must be mechanisms to ensure that those who are accessing it need it and would otherwise not be able to build homes.
More importantly, there must be a strict link between access to financing and the delivery of genuinely affordable homes. This is the crucial element of our intervention. In Dublin, this means homes for sale to working families priced at between €170,000 and €260,000. These people are earning modest incomes of between €45,000 and €75,000. They must be the target. They are being squeezed by the crisis in the private housing market. If the loan facility assists in developing affordable homes for them, it is worthy of taxpayers' money. I urge the Minister to engage with us prior to and during Committee Stage on determining whether there are ways of doing this that are consistent within the rules and obligations.
Deputy Michael McGrath is right, in that the 2016 report of the Society of Chartered Surveyors Ireland and its follow-up 2017 report on the viability gap for apartments tell us something important. The €330,000 figure that the Deputy cited was not the worst bit, though. Across 22 low to medium density developments in Dublin, the cost of making apartments viable ranged from €330,000 to €533,000. This tells us that the private sector, building private houses on private land with private finance, cannot provide affordable homes. The requisite market conditions do not exist. Reducing the cost of finance a little might help, but the society's report indicated that doing this would not decrease the price considerably. According to the report, the expensive cost of finance adds approximately €20,000 to overall cost of a €330,000 home. That figure cannot be reduced, but even if it could, the home would still not be affordable.
The only way to use this fund to deliver genuinely affordable homes for working families and individuals on modest incomes is through local authority-led schemes. Under the Ó Cualann model, for example, the local authority devises a master plan for a piece of public land and determines what is required in terms of social housing and genuinely affordable housing. As it does with social housing developments, the local authority tenders for a private builder and the builder builds the units. Instead of the State then buying those units back as it does in a traditional social housing development, it buys its portion - 30%, 40% or 50% - and the rest is sold into an affordable housing scheme nominated through the local authority, as was the case previously, at affordable prices. Crucially, however, there would be no possibility of those homes ever being sold into the private market. They would have to remain permanently in an affordable housing system. If the owners wanted to sell them at a future stage, they would need to sell them back into the affordable scheme to someone nominated by the local authority. There would be some index-linking to account for inflation, improvements to the property, etc.
This is what Ó Cualann did. A piece of council land was sold to it at a nominal price. The local authority looked after the site servicing outside the curtilage of the property. Ó Cualann got private bank financing at approximately 7% and built the units at market cost, which was between €120,000 and €140,000. When it added on its compliance costs and administrative fee, it was able to sell those units to people with private mortgage finance for €170,000 to €225,000. They are wonderful and good-quality houses with high energy efficiency levels and so on.
If this can be done on a small scale, can we find a way of constructing the HBFI to allow local authorities, approved housing bodies and private builders utilising public land and publicly serviced sites to deliver genuinely affordable units in good-quality, mixed income and mixed tenure estates? In this way, we would deliver what the land initiatives and public private partnerships cannot currently, namely, value for money for the taxpayer, affordable homes for working families and a good impact on our overall housing system.
Some might ask whether this model breaches state aid rules, fails the market corporation test and be off the balance sheet. We must tease out these issues. The Minister of State's officials have greater expertise than many of us might have individually. We would benefit from talking about that. The recently announced Rebuilding Ireland home loan scheme does not breach state aid rules because it lends to people who cannot access mortgage finance in the private market, having been refused or given insufficient offers. We must be able to find a way of constructing some or all of this loan facility for such people without breaching state aid rules.
Questions arise, and can be teased out on Committee Stage, about whether this would be an off-balance sheet facility. If AIB lending at commercial rates to Ó Cualann and Ó Cualann then selling on to someone with AIB, Ulster Bank or Bank of Ireland mortgage finance was considered off-balance sheet because it was a private commercial transaction, there must be a way of combining that with the local authority element of mixed income and mixed tenure estates and delivering good-quality housing.
We must learn from the lessons and weaknesses of the LIHAF. I have examined a number of developments. Deputy Boyd Barrett rightly talks about Cherrywood often. I talk about Adamstown in my constituency.
These are developments led by large building contractors and they are getting millions in taxpayers' money to get homes that they would have built anyway and that, on the basis of the information the Department has given us, will sell for a minimum of €320,000 to €350,000. I do not understand how anybody could justify in that instance giving a free amount of money to these developers. I know home building finance is different because there will be a commercial rate of return on the loans but we have to learn from that and ensure that we do not make the same mistake.
I recognise that there is a need for a loan facility such as this. I recognise that if it is constructed in the right way and used appropriately to deliver good quality, genuinely and permanently affordable housing, it could be a significant intervention. It can only deliver approximately 6,000 units over three years and I do not believe that any of that money will be drawn down this year, but we are looking at next year. If the Department and the Ministers were a little more cautious in their pronouncements, we would have a realistic expectation of how all this will work. We in the Opposition are genuine about trying to get this right and trying to ensure that there is a loan facility that could work in a completely different way to how some people think. We will sit down with the Minister of State in private briefings, on Committee Stage and when we come back here on Report Stage to craft it in such a way that it makes a real difference and allows builders to build those homes at genuinely affordable prices for people who need them. If we do that, this will be a different kind of debate to the housing debates we are currently having, because it will be something that we agree is good and will benefit working families with modest incomes.
Deputy Ó Broin has pretty much covered everything. We want to work with the Minister of State and the Department to try to get this right. There is a unique opportunity to target a cohort of people who do not qualify for social housing because they earn too much. They are over the income limits but do not qualify for mortgages from banks. They are caught between a rock and a hard place. This is a perfect example of where the State can intervene and ensure that affordable homes are built to cater for those individuals. It was disappointing that there was such a delay in publishing the legislation, given that it was announced as a key proposal in the budget last year. It was a little disappointing that the heads of Bill were first published with a bit of imagination and thought having gone into them and there was something there which one could welcome and work with but then the heads of the Bill changed to what is now published. Some of the proposals have been dropped. A more significant proposal which is now not included but which was originally included in the heads of the Bill was the one that referred to the design and credit facilities that address funding needs in the context of developing residential units and-or contributing to the diversity or types of debt-funding available for residential development in the State. That has been abandoned between the heads of the Bill and what has been published. That is regrettable.
I know there was much discussion on this legislation with the European Commission. Was that done at the behest of the European Commission during those negotiations or was it just the conservative nature of this Government coming to the fore again? Will the Minister of State explain why there is such a difference between the heads of Bill and what is now proposed? The functions now contained within the Bill lack imagination and ambition. There should be a period of reflection from the Minister of State and Department on this legislation. There has been a significant change in the functions between the heads and what has been published. There are some things that we need to work on on Committee Stage. Deputy Ó Broin has outlined our position on the Bill. We want to support an initiative like this but we have to support initiatives that will deliver for the people in dire need of housing. There is a cohort of people who cannot access truly affordable housing, who have been left behind. They cannot continue to be left languishing in private rented accommodation, paying increasing rents through the nose with no prospect of getting a mortgage from a bank, and earning too much to qualify for social housing. They are left there. We need to deal with that cohort of people. This is an opportunity to do that and I hope the Minister of State works with us in the coming weeks to make sure this Bill caters for that section of society.
To make this Bill fit for purpose with regard to helping the young people of Ireland in particular to get a personal family home, either to purchase on an affordable basis or to rent, perhaps via a local authority, we need to change the definition and purposes of the Bill. The purposes of the Bill as described are to enable developers seeking to provide and build viable residential development projects. Residential development means a development solely or primarily for residential purposes. There is nothing about social or affordable housing. That means that we will not focus on the people who really need help, including nurses, teachers, gardaí and soldiers. When the Taoiseach was celebrating our contribution to the UN with regard to peacekeeping, did he know that soldiers cannot afford to buy a modest house unless they are living in a part of Ireland with very cheap housing?
There are also people in the private sector at the start of their careers. The CEO of the Bank of Ireland told me this morning that the starting salaries in the Bank of Ireland for people taking on careers as bankers are €25,000 to €30,000. Will the Minister of State tell me how many of those young people can afford an affordable house? We have to work on this Bill. We will co-operate with the Minister of State to help him work on the Bill to make it fit for purpose for our young people at the start of their careers who, instead of having to stay with their parents to save for a mortgage, can afford to buy a house as was traditional before the collapse.
Somebody came to me recently. There are fairly modest but lovely estates all over Dublin West. Those people are paying €1,500 a month in rent, have two kids and between them, with one working full-time and one working part-time, they earn €40,000. Will the Minister of State tell me how they will afford to buy a house? How does the Government propose to help them? A development bank approach is available all around the world. We have a huge amount of public land in this country. We could either lease the public land on a long lease via the local authority at a very low fee or almost cost-free. That would reduce the price of the house because the cost of the crazy speculation going on with land, particularly in the greater Dublin region, would be removed from the equation. As the Government recently reported, there are many potential development sites in the Dublin area. We will co-operate with the Minister of State to make this Bill fit for purpose and to provide homes for people who need to be able to buy an affordable home.