Huge subsidies to go to builders as experts predict the return to offices will trigger crisis
Half-a-billion euro is to be provided directly to developers by Government in a bid to get them to overcome concerns about making housing schemes a commercial success.
The move, never before attempted in the history of the State, will subvent builders in creating homes in both cities and towns across Ireland.
It comes as property experts warn that the large-scale return of workers to offices from next month will trigger a deeper crisis in the availability of housing, particularly in the rental sector.
“Unfortunately it’s going to get worse for tenants before it gets better,” one Dublin-based estate agent said this weekend, while another said there are “huge issues ahead”.
The new government measures will be a centrepiece of the Housing for All strategy expected to be unveiled within weeks by Darragh O’Brien, Minister for Housing.
He has received top-level approval in Government, including from Finance Minister Paschal Donohoe, to establish a new €500m Cities and Town Centres Fund. It will be known as ‘Croí Cónaithe’ — the living heart.
The measure, regarded by the Government as a strategic investment decision, is aimed at reviving the centres of cities and towns, where there are numerous brownfield and even greenfield sites — but where access and services are difficult to achieve, thus making the homes more expensive.
Over the last three years, there has been a marked increase in planning permissions granted, but not acted upon, particularly for apartments in urban areas around the country.
Nationwide, there are up to 80,000 prospective residential units with full planning permission granted.
They have not yet been commenced, because developers have argued to Government that the sums currently don’t add up to give them the reasonable expectation of a profit.
The figure for full planning permission in Dublin alone is around 40,000 apartments — all green-lighted but unbuilt — which advisers have told the Minister is about “four years of housing supply” to meet the capital’s needs.
A key focus of the ‘living heart’ plan will be to ensure that these permissions are activated as quickly as possible.
“This requires tackling both affordability and viability barriers to development,” a senior source said.
Lack of viability is constraining the development of apartments for the purpose of sale, rather than rent, in the built-up areas of cities that are more suited to higher-density residential development, the Department believes.
There will be two branches within the ‘Croí Cónaithe’ fund — one for cities and one for towns.
This new strategy has the objective of addressing the viability challenge for builders while resulting in “an end-product [a home] that will be cheaper for the buyer,” a source close to the Minister told the Sunday Independent. “It will reduce the cost overall.”
The intervention is aimed at stimulating housing supply mainly in Dublin, Cork, Galway, Waterford and Limerick, and it also feeds into Green Party ideas about the “15-minute city”.
Political sources said the financial commitment, coming after months of controversy over developers, landlords and cuckoo funds, is justified by the overwhelming need to leverage units which would not otherwise be provided.
Grants will apply to developments over a certain height and density threshold, and will involve a competitive bid process.
The level of Exchequer investment per unit will be a maximum of one-fifth (20pc) of the total cost of the eligible unit or residential accommodation, and there will be an overall limit to the level of support — although it could run into millions for a very large scheme.
“Effectively, the housing unit will be delivered to purchasers at a lower cost, with the reduction being broadly equivalent to the level of Vat and development levies,” an official said.
The €500m pot will be managed by the Housing Agency on behalf of the Department of Housing, with developers required to open their accounting books for inspection before qualifying for funding.
The Government will also introduce a specific programme to be delivered by local authorities for the provision of serviced sites for housing, in order to attract people to build their own homes and live in small towns and villages in a sustainable way.
This is the second strand of the wider ‘Croí Cónaithe’ fund — but will be specifically focused on towns and villages. Green Party leader Eamon Ryan recently told the Seanad that town centres all across Ireland were “dying”.
There is significant potential for local suthorities to support home ownership in these areas by making available serviced sites at reduced cost, the Minister believes.
A pathfinder programme will be initiated to help make available about 2,000 sites for homes by 2025, depending upon demand. The programme will be reviewed at that point.
This will be complemented by investment by Irish Water in servicing of small towns and villages.
Meanwhile, prospective renters have yet to see the worst of the current availability crisis, according Marian Finnegan, managing director of Sherry Fitzgerald.
Last week’s Daft.ie quarterly report that revealed a chronic undersupply of rental accommodation is placing further upward pressure on rents. Prices have been rising nationally at an annual rate of 5.6pc in the second quarter of the year — the strongest year-on-year increase since mid-2019.
“We had a huge rental crisis, we didn’t have enough stock — and then we had this false dawn when Covid hit, and everyone went home. That took the heat out of the market, so this is just the beginning of it,” she said.
“I think we are going to see a huge fall-out in terms of people willingness to come back to the office when the economy reopens, because they are going to find it hard to get accommodation,” she added.
Owen Reilly, an estate agent in Dublin city centre, said renters will feel the “crunch” early next year.
“You are going to see a huge pick-up in demand,” he said. “When most of our sellers are landlords and most of our buyers are owner-occupiers, it squeezes the number of rental units available — and it’s going to hit crisis point at some stage next year.”