The Government will use money realised from future Allied Irish Banks share sales to build thousands of social and “affordable” homes, as part of a new funding deal for the Land Development Agency.
In an arrangement to be signed off by the Cabinet on Wednesday, the State-owned LDA will receive another €2.5 billion in the next two years as part of a plan for the agency to build 13,000 homes by 2028.
The agreement, already approved by the Cabinet subcommittee on housing, ends months of uncertainty over the financing of the LDA, whose original €1.25 billion budget is almost fully committed.
Financial certainty is a critical issue for the LDA because it cannot tender to build homes on State land without having money in place in advance to pay for the work.
However, the new €2.5 billion allocation is less than half the €6 billion mooted when Minster for Housing Darragh O’Brien pushed to deploy a major portion of the Government’s corporation tax windfall for the LDA.
Although senior Coalition sources insist the LDA will have more than enough money to fund its 2024-2025 operations, the agency will still be required at a later point to return to the Government for its 2026-2028 funding.
Fifteen years after the then government intervened to prop up Ireland’s stricken banks, the LDA deal will move public money now in the part-nationalised AIB into housing.
The Government reduced its AIB shareholding below 50 per cent in June for the first time since the crash, selling 5 per cent for €480.5 million to bring its stake down to 46.9 per cent. Further sales including the disposal of another 5 per cent in November for €515 million have since cut the Government’s AIB stake to 40.8 per cent.
The scale and timing of any future AIB share disposals remain unclear. Still, the sale of another 5 per cent would realise some €499.2 million at the AIB share price on Tuesday.
Money from AIB shares would be part of a €1.25 billion tranche of funding for the LDA with the rest drawn from a State subsidy for the Secure Tenancy Affordable Rental Investment Scheme. That scheme, known as Star, usually provides money to market operators to make homes available for cost-rental tenure.
The remaining €1.25 billion in the €2.5 billion allocation will come from cash reserves held by the Ireland Strategic Investment Fund (ISIF), the sovereign wealth fund that was the source of the LDA’s first capital allocation of €1.25 billion. Such a fund is a pool of surplus money set aside by the State as a reserve for investment, often for pensions or infrastructure.
The LDA was set up to build housing on public lands but it has been criticised for the slow delivery of homes.
Mr O’Brien had set his sights on giving money to the LDA from new sovereign wealth funds set up in the October budget to save windfall corporation tax receipts for population ageing services and climate investment. However, that proposal led to divisions within the Coalition.
The Minister will ask the Dáil in January to approve draft legislation to increase the legal cap on the LDA’s capital to €5 billion from €2.5 billion. The agency had the right to borrow €1.25 billion in addition to its original €1.25 billion ISIF allocation but shunned borrowing because interest rates are high.
In a related move to boost housing supply, the Minister will seek Dáil approval to increase the capital of the Housing Finance Agency (HFA) to €12 billion from €10 billion. The HFA is a State institution which usually lends to local authorities, universities and approved housing bodies.
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