Wednesday 12 December 2018

State backing for builders is under fire

The state's new entities have been accused of lending too much support to developers, writes Michael Cogley

The Government will provide cheap funding to builders and developers to finance the development of lands they secure through the newly-proposed Land Development Agency (LDA). Photo: Igor Stevanovic
The Government will provide cheap funding to builders and developers to finance the development of lands they secure through the newly-proposed Land Development Agency (LDA). Photo: Igor Stevanovic

Michael Cogley

The Government will provide cheap funding to builders and developers to finance the development of lands they secure through the newly-proposed Land Development Agency (LDA).

Last week, Taoiseach Leo Varadkar and Minister for Housing Eoghan Murphy announced the establishment of the LDA. The new entity, which will be backed with €1.25bn in seed capital, will co-ordinate State-owned land for development and regeneration.

It aims to deliver 150,000 homes over 20 years, either directly or through "joint ventures" with the private sector.

Separately, House Building Finance Ireland (HBFI), which was announced in last October's budget but has yet to be set up, was given a pot of €750m to lend to the private sector at below market rates of interest.

Brendan Howlin, the leader of the Labour Party, said the Government has now gone too far in incentivising private developers to address the housing crisis.

"It's as if we haven't gone through an economic disaster led by developer failure," he said. "We've learnt again and again the market is focused on maximising profit. This is the State basically bankrolling developers again when it should be bankrolling itself to solve the problem."

Howlin said that there were numerous avenues the Government could look to for finance without having to provide it to the private sector. He said the European Investment Bank (EIB), the country's credit union network and the Ireland Strategic Investment Fund (ISIF) would all be suitable.

The LDA will act as a commercial entity and will form joint ventures with both developers and builders to provide homes. There will be a requirement that 40pc of homes built on State lands must be social and affordable, meaning the remaining 60pc will be left to the developers to price.

Tom Parlon, the director general of the Construction Industry Federation, said that setting up the LDA and HBFI was to address two separate problems in the supply of housing - the price of land and the limited access to finance for builders.

"You can talk about castigating builders and developers all you like, but you won't get any houses built without them," he said. "I don't have an iota of a problem with that [the State bankrolling itself instead of developers] except it just hasn't happened."

Parlon said that HBFI had been promised almost a year ago and that he was still unsure as to when finance was going to be made available.

Minister for Finance Paschal Donohoe announced plans for the State lender, which will take its funding from ISIF, last October to much fanfare.

The bill to bring it into law was brought before the Oireachtas last June with the proposed legislation now sitting at committee stage.

Housing policy analyst Mel Reynolds claimed the strides that have been made to encourage developers to build could constitute State aid.

"These LDA sites are likely to be very heavily subsidised by the State in terms of the site value and also the cheap finance that will be provided," he said.

"They're going to be competing with other developers who aren't going to be availing of the same supports."

Reynolds said that other players in the industry that are bidding to be involved in State lands that haven't taken money from HBFI will ask whether it is a level playing field.

He said it was his belief that it would be better if social housing was delivered by the State.

Sunday Indo Business

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