Saturday 1 October 2016

Fixing the housing market will take three years, Nama warns Noonan

Tough mortgage lending rules must be softened - stockbrokers

Published 04/04/2016 | 02:30

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NAMA has warned Finance Minister Michael Noonan that it will take another two to three years before the housing market returns to normal levels.

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It said the government needed to take urgent action to tackle a "formidable cultural challenge" in the supply of housing.

Correspondence seen by the Irish Independent, released under the Freedom of Information Act, shows how the Government was warned that it would take some time before the construction industry was able to return to pre-recession levels.

"It is unclear how long this reversion to normal conditions will take but it is reasonable to assume that it could take another two/three years," Nama said.

"Most developers with residential development sites are currently struggling to attract construction funding, given legacy debt levels and a lack of access to equity.

"Banks are making very little funding available for residential construction. Even where they are open to providing funding, they will commit to funding only 60pc of costs, which means that the developer has to find 40pc equity elsewhere."

Much of the current housing supply issue is caused by builders deeming the construction of homes to be too expensive.

Releasing €250m in loans at an appropriate rate of interest for "commercially sensible projects" would help to address the current demand for housing, Nama said. It added that its board was open to the idea of providing funding to commercially viable projects from next year.

Developers are struggling to acquire loans to get housing projects off the ground.

Many lenders are unwilling to take a chance on financing builders because housing projects are not considered to be commercially viable or are only marginally viable.

The State's bad bank said that within Co Dublin alone there were sites capable of delivering 46,000 housing units.

This would help to significantly relieve the housing shortage in the capital.

Profitable

Nama has also told the Government to consider making loans available to builders until residential housing projects become more attractive to banks.

The Construction Industry Federation of Ireland's director general Tom Parlon said it could take longer than two years for the construction sector to recover unless immediate action was taken.

He said: "We obviously need to make money available to developers and to mortgage seekers, so they are in a position to build and buy houses. It is going to take the bones of 12 months from when you dig the foundations to finally getting a house; these things take time."

He added that the delay in the formation of a new government was not helpful.

"If there is an action plan in place, there is no reason why we could not start addressing some of the problems inside six to nine months," he added.

Meanwhile, Goodbody Stockbrokers warned that the tough mortgage lending rules brought in by the Central Bank needed to be softened.

Higher rents, partly due to the lending rules, increased pressure on social housing and ultimately worsened the homelessness crisis, the report said.

The lending caps brought in just over a year ago mean banks can only lend most mortgage customers three-and-a-half times their salary, and most loans are capped at 80pc of the value of a property.

The review should look at loosening the rules on deposits, but not buyers' incomes, Goodbody's Dermot O'Leary said..

The loan-to-value limit that forced most buyers to have a 20pc deposit to buy a home was overly restrictive, especially in Dublin where houses were most expensive, he said.

Irish Independent

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