The Land Development Agency took umbrage this week when a Department of Finance report on funding options for the body concluded it would only make “a minor contribution” to the Government’s target of 50,000 homes being completed every year for the remainder of this decade.
The agency, which delivered 2,054 homes between its establishment in 2018 and the end of last year, was quick to issue a statement saying it “disagreed” with this statement, had 6,000 homes under construction and was now “likely Ireland’s largest housing producer”.
Most of the homes the LDA has produced in recent years have not been on State land but on private sites through so-called Project Tosaigh partnership deals with developers. It has helped to address a gap in the market for apartment building in recent years, following a market failure as mainly overseas money, which previously flooded into the private rental sector (PRS), largely evaporated from 2021 amid spikes in interest rates and construction costs, and concerns about rent caps.
Project Tosaigh, focused on social and cost-rental homes, may have a different end market to the private rental sector but it has helped to deliver thousands of units that would otherwise not have been built in recent years, in a market that remains chronically undersupplied.
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The LDA hasn’t been alone, of course. Approved housing bodies, which rent to people who cannot pay private-sector rates or buy their own homes, have been the biggest player in the apartments sector in recent years. This has been both through deals to acquire blocks of homes once they are completed (known as forward purchase agreements) and, increasingly, forward funding deals, where they get involved much earlier in the process and fund construction.
And while approved housing bodies were not the focus of the department’s report, it did throw light on this sector as part of a very welcome one-stop tome for those of us often confused about the State’s multi-tentacled involvement in the housing market.
It comes complete with explanations of what roles various acronym-tastic funding schemes – from CALF to CREL and STAR – play.
There are 436 approved housing bodies in the Republic, mainly registered as charities, according to a database compiled by the sector’s main watchdog, the Approved Housing Bodies Regulatory Authority.
That is more than the number of credit unions there were in the State 20 years ago before a period of consolidation – driven by tighter supervision and necessity, as many struggled financially. The number of credit unions has decline by close to 60 per cent since then, to about 180.
The vast majority of approved housing bodies are micro- or small-sized -organisations with fewer than 100 homes on their books. However, the balance sheets of a number of medium to large entities have mushroomed in recent years.
In 2016, the four largest approved housing bodies – Clúid, Tuath, Respond and Co-operative Housing Ireland – managed a total of 14,855 homes. By 2023, the figure stood at 37,824 units, according to the report. The wider sector is on track to have 82,772 units under management by the end of this year.
The report says the LDA – and, by proxy, the State – has “moved higher up the risk curve, with direct exposure to construction risk” by becoming more involved in forward funding of developments.
“While the forward funding of developments has the potential to reduce delivery costs and improve viability, given the increased risks to the State, there should be strong evidence to justify the reallocation of construction risk from the private market to the State,” it said.
The LDA has required additional skill sets as its remit expanded over the years and has a strong senior team. Its chief executive, John Coleman, was previously chief financial officer of the National Asset Management Agency (Nama), for example. There’s breadth of funding experience below him, too.
But while many of the approved housing bodies – particularly the larger ones – have managers and board members with impressive finance backgrounds, there are experience gaps in others, according to keen observers of the sector.
They point to how the LDA’s forward funding deals, for example, see the agency put land purchase funds in escrow, to be released only once certain targets are met. It’s a layer of protection that’s not prevalent in similar approved housing body deals, according to sources.
Department of Finance secretary general John Hogan was fairly blunt in private correspondence with his counterpart at the Department of Housing in letters last year, subsequently released to The Irish Times in December under freedom of information laws.
“Any evidence of rapid [AHB] balance sheet growth, driven by the funding the development stage of delivery, should be closely monitored,” he said. “As we know all too well from recent history, the property sector is cyclical and can be swiftly impacted by external factors.”
The sector’s long-term liabilities – mainly loans – rose by more than 14 per cent last year to €8 billion, according to data from the regulator, as fixed assets – mainly housing stock – grew by almost 18 per cent to almost €9.8 billion.
Approved housing bodies are mainly funded through State support schemes and the Housing Finance Agency, which, in turn, mainly relies on the National Treasury Management Agency (NTMA). The NTMA raises its funding on the international bond markets.
With finite Government funding available for housing – as it also seeks to tackle water, electricity grid and transport infrastructure shortcomings – why is a State organisation even competing with taxpayer-funded approved housing bodies in developing apartments? Surely it would make more sense for the LDA to develop social housing and sell to housing bodies.
It would allow the agency to recycle capital into further construction, ensure tighter control of development risks – and possibly make it easier for the LDA to borrow from the private sector, which it was originally supposed to do, but never has.
