Tuesday 17 September 2019

Kevin Byrne: 'How housing bonds could finally unlock the crisis blighting so many communities'

Anger: People from Dublin’s Summerhill wearing masks of Housing Minister Eoghan Murphy during a recent protest. Photo: Colin O'Riordan
Anger: People from Dublin’s Summerhill wearing masks of Housing Minister Eoghan Murphy during a recent protest. Photo: Colin O'Riordan

Kevin Byrne

Dublin has a 10-year infrastructure deficit, most acutely in housing, which worsens every day.

Our housing crisis threatens to smother growth and foreign investment in the capital. With Dublin generating more than half of the nation's tax revenue, this would hurt the entire country.

Today's plight is the legacy of long-standing underfunding of our capital. To tackle the chronic shortage of affordable housing, the city urgently needs to be allowed to raise funds.

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The way to do so is by letting the Dublin local authorities issue Dublin housing bonds.

Across the EU and the US municipalities, states and regions issue bonds as a source of funding for infrastructure projects. Semi-states in Ireland do similar, for example, the Dublin Airport Authority funded Terminal 2 this way. It is an established funding mechanism for capital investment and could provide the jolt our housing policy needs to move from emergency towards resolution.

These bonds would be structured as a long-term (eg. 30-year) revenue bond where only monies generated by housing are legally required to be used for repayment of the principal and interest on the bonds, rather than there being any general obligation on the city.

A mix of property sales and rental income would be used to do this. This harnessing of external funding to provide for profitable, but affordable, housing would complement existing, directly State-funded social and affordable housing programmes.

The council could use the funds to either build directly or to fund Approved Housing Body projects.

As Professor Ronan Lyons has pointed out in this newspaper previously, our biggest shortfall is in urban apartments, and they should be the priority. He has estimated Dublin will need about 600,000 new apartments over the next half-century, requiring an ongoing construction rate of about 200 a week.

However, CSO figures show we are currently building fewer than 35 apartments a week in the capital. A step change is clearly needed to close that gap.

With often only poor returns available elsewhere, even with a relatively low coupon (interest rate), these bonds could attract billions in investment over time.

Issuing a housing bond would, however, require legal changes, including modifications to the regulations and fiscal rules our local authorities operate under.

These are all surmountable, but a national government would need to facilitate them. There may be some objections, but few believe that the resources the current Fine Gael Government has earmarked for Dublin housing are going to cut it. If the Government is not going to provide a solution, it should get out of the way and allow the capital to bring new funding to the table to tackle the problem itself.

There are a variety of potential investors for a housing bond like this. Most obviously the credit unions have billions of surplus funds, to such a degree some are capping or turning away savings.

For more than five years now, they have been asking central government for permission to invest in helping tackle the housing crisis blighting the communities they serve.

Despite some welcome rule changes by the Central Bank in February, the Government has still not provided a viable way forward. Housing bonds could be the mechanism to do so.

PENSION funds are also looking for stable, long-term investment options in Ireland and would likely welcome this. The Ireland Strategic Investment Fund could be allowed to invest in the bond too, which would appear to fit with its mandate.

Investors on the open market could be invited to participate as well. In particular, Dublin residents might find the bond attractive given the community benefits and the negligible returns on bank deposits.

In the US, it's common for the interest on local bonds like this to be tax free for local residents. This wouldn't be essential, but if provided it would encourage Dublin citizens to participate. Deploying inactive local capital, we could push out the vulture funds by creating the ability to do large-scale sustainable homebuilding in ways that are in Dublin people's direct interests.

Right now, Dublin is caught in a vicious circle of insufficient supply, rising rents, escalating homelessness and increasing housing insecurity, which threatens our city's economic future.

Housing bonds could set up a virtuous circle of investment returns for Irish savers and pensioners, at the same time as providing affordable homes across our capital.

Dr Kevin Byrne is a university researcher with an interest in public policy who plans to run for Dublin City Council.

Irish Independent

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