Friday, 4 June 2021
Affordable Housing Bill 2021: Committee Stage (Resumed)
Those were very useful contributions. I think that collectively we all agree right across the House that cost-rental has a significant role to play in, as Senator Pauline O'Reilly said, calming the market and moving towards a more mature, sustainable, European-type approach to the rental sector in Ireland, which we have not had to date. No doubt we have all heard of the state-of-the-art Vienna model that has been spoken about. I think we can achieve that over time and get towards 20,000 cost-rental units per year, bringing about a transformation in the rental market in Ireland and giving people security of tenure and long-term fixed rental accommodation in which they can live comfortably for all their lives. I think Senator Bacik is correct that in her constituency potential renters feel this quite acutely. I think hers is an area that would benefit from such measures, as I think cities across the country would.
The issue of institutional investors has been raised, but we cannot take from the fact that this involves pension funds, where there are modest returns. They have an important role to play. I know that Sinn Féin's housing spokesperson, Deputy Ó Broin, has previously welcomed pension funds in respect of investment. They have a significant and important role to play, and a modest return on those investment is worthwhile and helps to build up the capacity we need to deliver cost-rental.
To address specifically amendments Nos. 58 and 59, both amendments propose increasing the minimum length of the cost calculation period to 40 or 50 years, up from the 30 years proposed in the Bill. The cost calculation period is a length of time over which the owner of the home models the cost in order to calculate the starting rent when applying to the Minister for cost-rental designation.I understand the Senators’ desire to maximise this period, since the longer the period over which the costs can be spread, the lower the starting rent for the cost rental tenant. It is the Minister’s full intention that these calculation periods will be made as long as possible in any application for designation as a cost rental dwelling. For example, the costs for the first eight projects funded under the new cost rental equity loan, CREL, are being modelled over a 40-year period, which matches the period of the CREL loans themselves, and with the corresponding Housing Finance Agency loans which approved housing bodies have secured to cover the balance of the costs. Stretching the costs and required loans out over this period reduces the rents. However, it is important to be careful when setting the minimum duration of this period in primary legislation, particularly in light of the intention that non-State sources of finance could be utilised for cost rental over the longer term.
While it is intended that cost rental will be primarily provided by the Land Development Agency, local authorities and the AHBs, initially funded by the Exchequer and through State-backed lending from the Housing Finance Agency, it is important that the sector be open to non Exchequer-backed sources of finance over the longer term. Such diversification of financing will help to grow the cost rental sector - which is what we all want to achieve - with additional finance being available to build new homes in a countercyclical manner, while not impacting on the State’s overall debt burden. Under the Austrian model of cost rental, for example, much of the debt financing for new developments is provided by Austrian banks. With non-State loans, the durations depend on the commercial and risk considerations of private lenders. We also need to be aware that long loan periods do not necessarily mean that low interest rates can be fixed for the whole time.
A minimum duration for the cost calculation period must leave space for the longer-term goal of diversification of funding, balanced with our overall desire to make these calculation periods as long as possible, thereby reducing rents for the tenants. Given that the cost rental equity loan scheme and the Housing Finance Agency’s current offerings are for 40-year terms, I think on balance that a 40-year minimum for the cost calculation period would be appropriate. Therefore, I support amendment No. 58. By accepting this amendment, I must therefore oppose amendment No. 59, which proposes an alternative duration for this same period. Stretching the cost calculation period out to a minimum of 50 years may be appropriate once the cost rental model has fully proven itself in Ireland but it would be premature at the very inception of this new housing tenure, and 40 years would strike the best balance.