Friday 28 November 2014

Cash-strapped builders will now get state loans to tackle housing crisis

Fionnan Sheahan Group Political Editor

Published 05/04/2014 | 02:30

Dublin, Ireland
Cash-strapped builders will now get state loans to tackle housing crisis

THE Government's new investment fund is set to provide loans to cash-strapped builders in a radical move to try to ease the desperate shortage of quality housing in our towns and cities.

The country is facing a growing housing crisis, with 80,000 new homes needed – but access to finance for developers is causing a blockage in the system.

Builders cannot get bank loans without having up to 30pc of the finance themselves, but now the Government is poised to step in with an injection of cash.

It is looking to use the new Strategic Investment Fund as a way to provide equity to allow the banks to then provide loans to these developers, which in turn will allow more homes to be built.

Efforts are also under way to link up developers with cash-rich foreign investors in order to improve the flow of money into the property sector.

However, some experts sounded a note of caution, saying that simply building more houses was not the solution – and that there should be sharper focus on the specific types of properties needed to meet demand in any given area.

It could also prove deeply unpopular among those who feel developers should not be given too much leeway just six years after the property crash.

But the radical plan comes amid deep concern about a shortage of larger homes coming on to the market suitable for growing families, which is leading to spiralling prices.

Estate agent Douglas Newman Good said the lack of supply was adding €5,000 a month to house prices in Dublin, with the average now at €329,700 – a jump of 23pc in a year.

Identifying a new source of funding is seen as key to restarting the property market and developing a source of homes for workers and families hoping to upgrade to a larger property.

The Government's construction plan, expected shortly, will mention the potential of the Strategic Investment Fund to help finance developers.

It cannot order the fund to finance house construction, as it is an independent body, but it will explicitly point to it being a key source of funding that can be tapped in this way.

The latest draft of the Government's plan is expected to be discussed at Cabinet next week.

The problem of finance in the construction sector will also be addressed.

The plan looks at builders who have land and sites available for development.

Often the problem is the developer has no cash upfront or has substantial loans already with banks unwilling to give them more funds.

EQUITY

The Construction Industry Federation claims banks are looking for as much as 60pc of equity in projects before approving funds. It argues construction companies do not have access to that level of funding.

Under the proposals the Strategic Investment Fund would provide up to 30pc equity as an investment in the project. Presuming the development makes money, the fund would then make a profit on it – although like any investment it carries a level of risk.

A spokesman for the Strategic Investment Fund said no decisions had been made on what types of projects it would invest in.

The new government plan is part of a raft of measures being drawn up to speed up the building of family homes and create 60,000 jobs in the construction sector.

However, the body which yesterday identified the need for 80,000 homes nationwide has warned that this complex problem requires highly innovative solutions.

The Housing Agency insists that the answer to the housing crisis involves a mix of property types, and not just blindly building more three- and four-bedroom family homes.

Its boss, John O'Connor, said it was vital that sites were used to the maximum extent possible, particularly in cities, and that large apartments should be part of the housing solution for growing families.

In a further development, the Government will also enforce the rule for developers to provide for social housing in every development, where a portion of new homes are given to those on council waiting lists. However, the so-called Part V rule setting out the requirement for social and affordable housing will be substantially reduced.

Under the Planning and Development Act, 2000, builders have to give up to 20pc of a development of more than five houses over to social and affordable housing.

This will now be reduced to one in 10 new homes in a development.

Developers have been able to buy their way out of the rule through a financial contribution of similar value or by transferring land or houses elsewhere to the council, but this loophole will be closed off.

The affordable housing aspect will also be dropped so only social housing will be provided. The view within government is that Part V has never really worked properly, and has become another tax on development.

The lack of homes coming on stream means that families are increasing in competition with cash buyers, which is resulting in a surge in prices.

Bank of Ireland was also criticised this week for offering to refund stamp duty paid by first-time buyers who draw down a mortgage by next September, equivalent to 1pc of the mortgage amount.

Experts warned that additional sources of credit in the system would result in further price hikes, fuelling a return of the property bubble.

Editorial Comment: P32

Irish Independent

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