Government measures designed to drive apartment building are “not as effective in practice” as originally envisaged, the Department of Finance has been told.
This includes the Croí Cónaithe (Cities) fund, which seeks to roll out €450 million in funding to support the construction of 5,000 new apartments.
A Department of Finance paper on the future of the State-owned property development lender Home Building Finance Ireland (HBFI) outlines how this scheme and others have been criticised by market stakeholders it consulted with in recent months.
While there was support for the intent of the measures, the report outlines that “stakeholders advised that as currently designed, these schemes are not as effective in practice as envisaged”.
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Developers want the Croí Cónaithe (Cities) fund to be restructured so that subsidies are paid earlier in the development cycle, rather than when an apartment is sold to an owner-occupier – which is currently the case.
“This means that even when a scheme is preapproved, there is no certainty that the subsidy will be made available,” the report outlines, citing feedback from the market. Only larger developers with healthy balance sheets can use it, according to the document, with small and medium-sized developers being effectively frozen out.
At the moment, “it is unlikely to become a scalable solution for the delivery of owner-occupier apartments,” the report notes.
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Earlier this year, The Irish Times reported that the scheme is on track to deliver less than 20 per cent of the apartments it originally aimed to build. The report outlines that similar criticisms were made of another scheme, the Secure Tenancy Affordable Rental programme.
The report outlines that Minister for Finance Paschal Donohoe is to extend the lifespan of the HBFI body by another two years.
Since inception, it has loaned out €2.7 billion in State-backed borrowing, equivalent to allow for the construction of 13,186 new homes.
It will now be given another two years to continue its work before its effectiveness is reviewed again.
The report also outlines a range of other concerns included in feedback from lenders, developers, investors and representative groups.
This includes that while debt financing is available for viable developments, such opportunities are few and far between with sites held back by a variety of factors.
These include a lack of certainty around planning timelines, the risk of judicial review of a planning decision and the provision of enabling infrastructure. These issues are particularly acute for smaller developers, it outlines.
Feedback given to the authors also pinpoints an ever-shifting policy backdrop as a difficult, with uncertainty about what the Government may do next acting “as a disincentive to investors committing capital to Ireland.”
