Tuesday 15 October 2019

Credit unions hold off on social housing loans

CUDA has been blocked from backing projects due to tight rules, writes Michael Cogley

Credit unions have work to do to assess the lending risks involved, said Paschal Donohoe
Credit unions have work to do to assess the lending risks involved, said Paschal Donohoe

The Credit Union Development Agency (CUDA) has stopped short of establishing a fund to back social and affordable housing due to a lack of suitable projects.

It is understood there are two significant developments that CUDA could support but it needs to invest at least €40m to cover the cost of setting up a special purpose vehicle and pay the management fees associated with maintaining it.

Credit unions began asking the Central Bank to allow them to lend to help ease the housing crisis more than six years ago. In February, the financial regulator granted the unions permission to invest in 'tier 3' approved housing bodies (AHBs), but stated that they must set up a special purpose vehicle to do so. Tier 3 refers to housing charities that have more than 300 units on their books, such as the Peter McVerry Trust and Tuath.

However, a month after the regulatory changes were made, Eurostat deemed that approved housing bodies should be considered "on-balance sheet", seriously hindering their ability to lend for housing projects.

Kevin Johnson, the chief executive of CUDA, said that he believed there was a "natural fit" between the credit union ethos for servicing the financial needs of local communities and the provision of social housing.

"Initially we sought to enable credit unions lend on a collaborative basis," he told the Sunday Independent. "However, the current credit union act does not facilitate this and following considerable work by various stakeholders, the Central Bank introduced regulations that could see credit unions become involved in effectively lending to housing bodies through a specialist investment fund to fast-track the provision of social and affordable housing in Ireland.

"These new regulations permit credit unions to invest up to €700m. Unfortunately this has not materialised, as soon after the investment regulations were introduced, the status of the AHBs changed and our hope that our funds would encourage AHBs commence more projects has not happened."

Johnson said that it was time to "enhance" the Credit Union Act to allow unions to lend rather than invest.

He said that such a change would reduce the overall cost and expand the range of projects that it can support financially.

During a Dail debate on the matter last week, Labour finance spokeswoman Joan Burton accused the Department of Finance of "sitting on its hands" and that it was not helping credit unions lend for such projects.

"The minister and the Department of Finance are not prepared to assist the credit unions in getting the initiative under way," Burton said.

"He said that he wants the credit unions to do all of the work when, in fact, much of the expertise in the structure of the project should be provided by the Department of Finance. The minister is standing back from that; perhaps he is cold on the idea."

In response, Finance Minister Paschal Donohoe said that he and the Central Bank had put in place a framework that would allow the unions to lend for social housing.

"The deputy is correct that it now requires the credit unions themselves to determine what projects they want to be involved in, what level of risk they are willing to bear and what level of return they want," he told the Dail.

"That is work that they need to do themselves for the simple reason that, as the deputy well knows, it is the money of their members at stake."

In a separate debate, the minister also confirmed that a commitment to establish an off-balance sheet fund, controlled by the Ireland Strategic Investment Fund (ISIF), had been scrapped.

The promise, which was included in Rebuilding Ireland, the Government's catch-all plan to address the housing crisis, has been replaced by a new long-term leasing scheme, which involves private operators taking long State-backed leases on new buildings.

Donohoe said the fund had run into hurdles that were "not possible to overcome".

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