Friday 20 April 2018

Developers could be paid upfront by the Government in bid to kick-start building

Housing Minister Eoghan Murphy. Picture: PA
Housing Minister Eoghan Murphy. Picture: PA

Gretchen Friemann

The Government is considering using taxpayers' money to buy property 'off the plans' from developers on a large scale, in order to convince them to build.

A draft document drawn up for Housing Minister Eoghan Murphy, and seen by the Irish Independent, outlines a raft of new measures to tackle the nation's crippling homeless crisis.

The strategy hinges on the Part V scheme that obliges builders to construct a portion of affordable homes on land zoned for development.

According to the draft document, the Government will "consider the purchase of additional Part V units on select schemes". The paper states that this "reduction on risk will ultimately reduce development margin".

By committing to buy this property before the homes are built, the Government hopes to make it easier for developers to get finance - as the perceived risk attached to the project would be lower. It would only apply where developers commit to providing affordable homes.

Up until now Part V, which currently equates to a fifth of the zoned land, has widely been viewed as an obstruction by developers.

It was described by the Construction Industry Federation (CIF) as a significant cost burden to builders, with the organisation complaining it adds as much as €10,000 to the cost of each unit identified for social housing.

But the Rebuilding Ireland document casts the policy as a key solution to the housing crisis. The paper states: "Despite much talk of available finance, the reality is that the finance market for residential delivery has contracted significantly." It argues the "de-risking of residential projects is key to attract reasonable finance levels".

A Government commitment to "purchase units over and above Part V" could potentially be considered where a developer would then be able to "deliver units at affordable levels".

Read More: Just 130 houses have been built from a tranche of 3,000 promised last year

But the Government risks leaving itself open to accusations of distorting the residential property market, which has lurched out of kilter since the crash with supply at dire levels compared to the scale of demand.

Low loan-to-value ratios following the crash have forced builders to seek short-term financing from private firms that typically charge far higher borrowing rates. Mr Murphy's department is considering whether cash from the old National Pension Reserve Fund could ease this credit bottleneck.

As the Irish Independent revealed on Monday, Government may divert more money from the State's Irish Strategic Investment Fund to "stimulate more finance house interest in affordable housing".

A spokesperson for the Department of Housing described the report as "part of a Rebuilding Ireland observation" designed to examine "housing delivery input costs".

He said its aim was to "consider areas where economies can be achieved" and claimed: "It is the intention therefore that actions arising out of the completed report will assist in achieving a more economic product within the marketplace".

Another proposal sets out the possibility of leasing State land "for development in select circumstances". How that process would work, including the selection of eligible developers for such a venture, remains unclear.

Another mooted plan envisages matching builders and developers to sites the Government wants housing built on.

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

Irish Independent

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