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Published in Construction on 18/09/2017

ISIF to Potentially Assist in Funding Housing Crisis


CNI Editor reports

Cash from the old National Pension Reserve Fund could pay for a ramp-up in housebuilding, according to draft proposals drawn up for Housing Minister Eoghan Murphy and circulated to the construction sector for response.

According to a story published in today’s Independent, the Government may divert more money from the State’s Irish Strategic Investment Fund (Isif) to help pay for much-needed housing as it considers bold new measures to tackle the growing homeless crisis.

A draft document, drawn up by the Department of Housing and seen by the Irish Independent, sets out a greater level of involvement in the sector by Isif, which is managed by the National Treasury Management Agency (NTMA).

The tactic is designed to generate more private funding for affordable housing. In 2015, Isif injected €325m into Activate Capital, a €500m fund jointly controlled by US private equity fund KKR. Activate was set up to lend to private developers. Its deals to date include financing the €107m acquisition by Cairn Homes of part of RTÉ’s Donnybrook campus in Dublin which is to be developed as luxury apartments.

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Isif’s total resources are more than €7bn. The draft Rebuilding Ireland document urges a wider use of the cash portfolio. It says the Government should “encourage [the] use of Isif funding to stimulate more finance house interest in affordable housing”.

It also proposes a radical overhaul of the management of State-owned land, suggesting the Government should actively try to match builders and developers to sites it wants housing built on. The document recommends the State’s land management role should be upgraded to “target best use and delivery mechanisms”, with the land matched to the best “market player”.

It is understood the document has been circulated to key industry stakeholders including lenders, builders and developers over the past week for feedback.

A spokesperson for the Department of Housing said the report was being prepared as “part of a Rebuilding Ireland observation” examining “housing delivery input costs”. He said it was designed to “consider areas where economies can be achieved” and said “it is the intention therefore that actions arising out of the completed report will assist in achieving a more economic product within the marketplace”.

But the draft document paves the way for a major shift in the Government’s approach to the housing crisis. It raises the prospect of the abolition or reduction of the vacant site levy and recommends an analysis should be undertaken in to the “effectiveness” of the penalty.

Industry sources said the Government’s punitive measures are ineffective and argued that while some owners are hoarding land others are doing so because they “are unable to make a return on their investment”.

Last year, the Society of Chartered Surveyors Ireland released a study showing over half the cost of building a three-bed semi-detached house was soaked up by non-construction factors, including value-added tax, levies, the cost of acquisition and development finance.

The organisation calculated the build cost of the home at €330,493 and pointed out the developer would need to sell the property above that figure to make a profit – putting it beyond the financial reach of a couple on the average industrial wage.

But the Rebuilding Ireland paper dismisses any alteration to the current VAT regime for housing, stating that “what may be a short-term benefit will ultimately only serve to enhance what is already a problem with overpayment for residential land”.

At Fine Gael’s ‘think-in’ in Clonmel last week, Taoiseach Leo Varadkar indicated that Nama could be turned into a housing agency, to tackle the undersupply of new homes.