The secretary general in the Department of Finance raised concerns with his counterpart at the Department of Housing in letters this year about mounting risks to taxpayers as to how approved housing bodies (AHBs) and the Land Development Agency (LDA) fund construction deals.
Department of Finance secretary general John Hogan said in a letter on April 30th that there has been a “fundamental shift in risk appetite” by AHBs — and, by proxy, the State — in forward funding the development of apartments and houses “at an increased scale”.
Fianna Fáil and Fine Gael, in fresh coalition talks, each promised before the recent general election to use AHBs and the LDA to build more homes.
“Through the provision of staged payments during construction, the State exposes itself to a number of risks,” said Mr Hogan in the letter, released in partly redacted form to The Irish Times under freedom of information laws. “These include cost risks, developer solvency, contractor solvency, and a risk that any savings are not passed on in unit prices.”
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He said there needs to be sufficient checks and balances. “Any evidence of rapid [AHB] balance sheet growth, driven by the funding the development stage of delivery, should be closely monitored,” he said, adding that it was important that State funding of development does not replace private capital that might otherwise be deployed.
“As we know all too well from recent history, the property sector is cyclical and can be swiftly impacted by external factors,” he added.
Mr Hogan urged in the letter, and again, in correspondence dated November 7th, that the Department of Housing provide details of forward funding developments under way and committed to by AHBs and the LDA. “This information will be critical to quantifying the overall State exposure and assessing the counterparty risk,” he said.
A department spokesman said on Monday it expects a response “in due course”.
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AHBs rent to people who cannot pay private-sector rates or buy their own homes. The sector had €7 billion of borrowings at the end of last year on €8.3 billion of housing stock.
The LDA, which has received €6.25 billion of State capital commitments, was set up in 2018 to develop affordable and social homes on public land. It has since expanded to work with builders to deliver homes on private land.
The Housing Finance Agency (HFA) plans to approve more than €2 billion of loans this year for AHB deals, Mr Hogan noted in the November 7th letter. Some 42 per cent advanced as of then was for construction activity, with the remainder for completed home purchases. The figure is up from 22 per cent for 2023, he said.
Department of Housing secretary general Graham Doyle said in a 10-page letter to Mr Hogan on September 2nd that AHBs’ increased involvement in funding construction “is a policy objective that we strongly support” to boost accommodation.
He highlighted various checks and balances in the system, including: the AHB Regulatory Authority’s oversight of housing bodies; the HFA; work by the so-called AHB strategic forum to monitor “increased financial risk involved in lending to the sector”; and plans for increased Government oversight of LDA capital commitments.
“I fully agree the matter of increased financial risk involved in lending to the [AHB] sector requires immediate attention and therefore the Department has already put in place various initiatives to address this more immediately,” he said.
Eurostat, the EU’s statistics agency, and the Central Statistics Office deemed several AHBs, including all the largest ones, to be part of the State’s balance sheet. However, the main AHBs are now weighing a fresh lobbying bid to have their borrowings removed from this, to ease constraints on future financing and growth.
Supporters of the sector argue it is driving construction at a time of chronic undersupply. AHBs have stepped up, they say, when much of the overseas private residential sector money that piled into the market between 2016 and 2021 has backed away following a spike in interest rates. However, policy changes, such as rent-hike caps and a special stamp duty on the bulk purchase of properties, have also weighed.
Others say AHBs are distorting the market, being able to fund deals much more cheaply, from Government sources, than the private sector.
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