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Joint Committee on Housing, Local Government and Heritage debate -
Tuesday, 9 Feb 2021

General Scheme of the Affordable Housing Bill 2020: Department of Housing, Local Government and Heritage

The committee is meeting today to begin pre-legislative scrutiny on the general scheme of the affordable housing Bill 2020. We are joined remotely by officials from the Department of Housing, Local Government and Heritage. I welcome Mr. Barry Quinlan, assistant secretary of the housing, affordability and homelessness division. From the capital infrastructure and affordability unit I welcome Mr. Robert Nicholson, principal officer. They are joined by Ms Marian O'Driscoll, assistant principal and Mr. Alan Smith, assistant principal.

Members have been circulated with the opening statements and briefing material. I now invite the officials to make their opening statements and then members will ask their questions. I ask members to identify themselves clearly and whether they are in the confines of Leinster House, as this helps the Debates team here.

Members attending remotely from the Leinster House complex are protected by absolute privilege in respect of the presentation they make to the committee. This means they have an absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege and it is my duty as Chair to ensure that this privilege is not abused. Therefore, if statements are potentially defamatory to an identifiable person or entity and a member is directed by the committee to discontinue remarks, it is imperative that he or she complies with the request.

There are some limitations on parliamentary privilege for witnesses attending remotely and as such they may not benefit from the same level of immunity to legal proceedings as a person who is physically present. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

I remind members of the requirement to be physically present in the confines of the place in which Parliament has chosen to sit, namely, Leinster House and-or the convention centre, in order to participate in public meetings. I cannot permit a member to participate where he or she is not adhering to this constitutional requirement. Any member who intends to participate from outside the precincts will be asked to leave the meeting.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

The opening statements submitted to the committee will be published on its website after this meeting.

Mr. Barry Quinlan

Good afternoon. I am assistant secretary in the housing, affordability, inclusion and homelessness division in the Department. I thank the committee for facilitating this early consideration of the affordable housing Bill, the general scheme of which was approved by the Government in December last year and which was published on 20 January this year. I am accompanied today by colleagues who are working on affordable housing and the Bill, Robert Nicholson, principal officer and Marian O'Driscoll and Alan Smyth, assistant principal officers who work with Mr. Nicholson. We welcome the views of the committee on the provisions contained within the general scheme and together we will try to address any questions the committee has.

I will start with an outline of the main provisions in the Bill. The Bill is made up of three Parts and 23 heads. The bulk of the heads deal with amendments to the Housing (Miscellaneous Provisions) Act 2009. Part 5 of that Act deals with affordable dwelling purchase arrangements and the provision of affordable housing led by local authorities. The approach taken has been to seek to utilise existing provisions, where possible, to facilitate as early as possible the delivery of affordable housing for purchase by local authorities. The Bill contains new provisions to facilitate delivery of affordable housing through new channels, such as cost rental, delivered by local authorities, approved housing bodies and the Land Development Agency, LDA.

Given the nature of affordable housing, we have sought the optimal blend of necessary facilitating measures in primary legislation, while allowing for flexible responsive requirements to be set in regulations. Our work has been informed through engagement with key stakeholders and delivery partners, including local authorities, the Housing Agency, the Housing Finance Agency, HFA, approved housing bodies and the Land Development Agency.

To give a breakdown of the Bill, 20 heads contain amendments to the 2009 Act dealing with local authority-led affordable purchase, one broad head puts cost rental on a statutory basis, as a new form of tenure, for the first time, and one head provides for the Housing Agency to administer the new cost rental equity loans announced in budget 2021. There is also one head to facilitate Government investment in a new national affordable purchase shared equity scheme for the purchase of private homes, which was also announced in budget 2021.

Regarding the local authority-led affordable dwelling purchase arrangements, the majority of the amendments to Part V of the Housing (Miscellaneous Provisions) Act 2009 are administrative and intended to improve its operation. Key amendments relate to the following areas. One is assessment of purchaser eligibility, involving an amendment to the criteria to replace the current provisions with a more workable assessment regime on the basis of regulations to be made by the Minister with the consent of the Minister for Public Expenditure and Reform. Regarding the scheme of priority, following engagement with local authorities, it is proposed to streamline the ministerial power to make regulations to cover the issues such as the suitability of the home for the eligible household, the length of time a person has been living in the administrative area and the time of application. Rather than lapsing after a charging period, an amendment is proposed to allow the local authority charge or its equity stake on the property to remain in place until bought out by the household. This charge or equity stake would become enforceable by the local authority on a breach of the agreement or at the end of a given period to accommodate the senior mortgage maturity.

In respect of the Land Development Agency, a new section is proposed to allow for affordable purchase of homes provided by the LDA to local authority eligible and priority households.

Other key provisions cover the cost rental scheme. For the first time, a legal definition of a cost rental tenancy will be provided. The Minister will be given the power to designate cost rental tenancies and ensure that the rent is set at a cost-covering level, including cost elements to be prescribed in regulations. The head also sets out the manner in which rents for a cost rental tenancy may be increased each year to ensure they remain stable in real terms, while continuing to cover costs. The head contains provision to allow for the setting of eligibility criteria for entering a cost rental tenancy, and the Minister would be given the power to set household income thresholds by regulation. The head also clarifies that cost rental tenancies are a new tenure and confirms it is not a social housing support. Cost rental tenancies will generally be subject to the provisions of the Residential Tenancies Acts, with a number of exceptions to provide even greater security of tenure to households.

In respect of the amendment to the Local Government Services (Corporate Bodies) Act 1971, the proposed amendment will allow the Housing Agency to administer the new cost rental equity loan scheme.

Finally, on the issue of affordable privately provided housing, the proposed amendment will allow for the contribution of funds towards a special purpose vehicle to purchase an equity stake in homes for affordable housing provision. The head sets out what the terms of a memorandum of agreement may provide for, including purchaser eligibility, types of dwellings, charges that may be applied, etc.

The provisions contained in the Bill, subject to their progression through the legislative process, will help provide the legal basis for the delivery of more affordable homes to eligible households under each of the programmes outlined during this year and beyond. Importantly, these measures will not operate in isolation. In parallel, and to help respond to housing affordability challenges, a broader range of longer term and complementary measures are in place or are being developed in line with programme for Government commitments. Taken together, they will represent a significant and expanding level of interventions to support affordable housing provision. We welcome the opportunity to engage with the committee on the provisions.

I thank Mr. Quinlan and his team for all of the work they have done on this Bill. It is most important legislation and I am delighted we have an opportunity to scrutinise it.

A major chunk of affordable housing will obviously come from the new builds that will be delivered by the local authorities, the LDA and the approved housing bodies, AHBs. That is most welcome. I am fully supportive of the commitment to a new housing plan this summer. I appreciate that the national development plan has to be reviewed and that takes a bit of time, but the new housing plan is important. I ask Mr. Quinlan to provide us with an update on how it is progressing.

In respect of the serviced sites fund, from the numbers I have seen, there is funding for more than 6,000 units, at least in the initial stage. The local infrastructure fund is also key. It is very important for unlocking land and for the building of affordable homes. Will Mr. Quinlan give the committee an indication of the number of units that can potentially be funded through the local infrastructure fund? In respect of the cost rental scheme, I know 400 units will be provided. The affordable rental scheme will make affordable rental an option for the first time in the history of the State. The three AHBs have been announced. Will there be a second round of announcements for cost rental later this year? While the scheme is very welcome, we would like to see it scaled up. What are the Department's plans in that regard?

I apologise for not raising the purchase of affordable housing under Part V earlier. I am going backwards. Affordable housing purchase under Part V was abolished by a former Minister, Deputy Alan Kelly, in 2011.

What is the Department's thinking on reinstating that as an option?

On the shared equity scheme, I understand that regulations have to set the eligibility criteria. It is my understanding that those eligible will be people who do not qualify for social housing because their income is marginally above the social housing income thresholds. Can Mr. Quinlan confirm that? Will having a local connection be part of the regulations?

On the issue of repayments, having spoken to people in Dublin about this, some of them estimate they could potentially save €11,000 per year. If people can make those savings, can they repay the equity within the first five years without incurring a penalty?

Mr. Barry Quinlan

I will go through the questions in the order I have them. On the new housing plan, the Minister has signalled his intent to have that ready in the summer. Work has commenced on it. It will be a cross-government plan. Within the Department, the teams are in place to review Rebuilding Ireland and to prepare the information, etc., for the new plan. That work is under way with a timeline of the summer. At the same time, the review of the national development plan is under way. Again, the Department is inputting into that in terms of future investment in social, affordable and other forms of housing on a multi-annual basis.

With maximum funding of €50,000 available per home, around 6,200 homes could be facilitated under the serviced sites fund. So far, more than 3,000 homes have been facilitated across 14 different local authorities on the basis of the €50,000 maximum funding. To date, around half of the fund has been approved in principle. The Minister has approved a number of sites more recently, including St. Michael's and other sites in Dublin.

On the local infrastructure housing activation fund, LIHAF, I will bring in my colleague, Mr. Nicholson, when I have responded to the other questions.

On Part V, a review was signalled as an objective in the programme for Government. It has been carried out by the Housing Agency and is now under consideration in the Department. Again, depending on what changes come about as a result of that, there will be an impact on affordable housing plans going forward.

In respect of the local authority equity scheme and the eligibility piece on that, the plan is to change that from what is currently in the 2009 Act to a more workable solution which will be based on individual ability to buy a home. It is trying to link the eligibility in terms of income to an individual's ability to buy the home that is available from the local authority. The local connection piece is a simplification, more broadly, in respect of who would be eligible.

On the issue of repayments, the overall objective of the equity schemes we are bringing forward is that people will own their homes. They are help-to-buy schemes. Therefore, the sooner people can buy out the equity share and own their homes in full, depending on how house prices go, the sooner it can be of benefit to people. That is an objective. In other schemes and in international comparison, we have seen significant buy-out in the first five years, so that people own their homes fully.

With the Chair's agreement, I will ask Mr. Nicholson to respond on the LIHAF.

Could Mr. Nicholson please cover the Local Infrastructure Housing Activation Fund, LIHAF?

Mr. Robert Nicholson

As the members will know, the local infrastructure housing activation fund, LIHAF, was a scheme introduced in 2017 with €200 million to fund 20 large infrastructure programmes around the country. Those programmes intended to deliver approximately 20,000 social, more affordable and private homes. To the end of 2020, based on incomplete data - we are still looking for figures - approximately 2,703 were homes delivered. Of those, 1,129 had some form of cost reduction and 251 were social. The rest were private. Everyone accepts that the local infrastructure housing activation Fund, LIHAF, delivered more slowly than anticipated originally. That is largely because they are very complex infrastructure programmes and take quite a deal of time. Delivery is beginning to significantly ramp up. We saw an announcement by Cork City Council yesterday that it was going to tender for 600 homes in Old Whitechurch Road.

What we are seeing around the country in respect of the local infrastructure housing activation fund, LIHAF, programme, where the infrastructure comes first and the housing comes thereafter, local authorities tendering for the delivery of housing. We expect a significant delivery of those in the next two to three years across all of those programmes. It has been confirmed that two of the 30 will not progress based on local authority decisions.

I thank Mr. Nicholson and Mr. Quinlan for the presentation and the work on the legislation. This is approximately two and a half years in gestation under two Governments, so I do not envy Mr. Quinlan and his team's difficulties in this regard. It is also important to point out that the serviced sites fund of €300 million was to deliver those 6,200 homes by the end of 2021. That was the ministerial commitment on the Dáil record. Only €2 million of it had been drawn down by December of last year. While €50 million has been allocated in budget 2021, that would only deliver 1,000 homes. While they would be very welcome, those 1,000 homes are not under construction.

In terms of the serviced sites fund, how many units of accommodation, including the 50 cost rentals on Enniskerry Road, will be completed in 2021? There will be 390 through the cost rental equity loan, but how many will be delivered and completed under the serviced sites fund this year?

Many of us were surprised there was not more detail in the legislation on the eligibility criteria for the serviced sites fund and the cost rental programme. Will the Minister and the Department consider releasing the draft regulations in parallel with the Bill, when it comes before us? All members would like to know, when we are debating and voting on the Bill in the Dáil later this year, who will be eligible and within what income and what will be the criteria. Publication of draft regulations would be very useful.

Is it significant that the income eligibility criteria in terms of percentage of household income has been removed and replaced by mortgage criteria for the serviced sites fund? Why is there no consideration of clear income-related criteria for what one is paying back on the mortgage for the serviced sites fund and on the rent as opposed to market discount considerations?

I refer to the shared equity loan. I will not bore people with my strong opposition to it. People know our party's position. Can Mr. Quinlan confirm what the entry level interest will be from year six or at least what the range is between what the Department wants, 1.5%, and the 3% proposed by the Banking and Payment Federation Ireland? Can Mr. Quinlan confirm that the interest will increase over time and if the proposition is to index link it to something such as inflation or have a step stair ladder?

Can Mr. Quinlan clarify how the shared equity loan will relate to the help to buy scheme? The Minister indicated one would get some level of help to buy to combine with that. Can Mr. Quinlan clarify whether or not the shared equity loan can be combined with the serviced sites fund in an affordable purchase with the Land Development Agency or a local authority?

I have other questions, so I ask that I be put on the list for the third round.

Mr. Barry Quinlan

I will bring Mr. Nicholson in again at the end on the detail on the serviced sites fund.

Regarding the regulations, I will bring that back. I can see exactly where the Deputy is coming from on that. There is a move to move it. As I said, it is the optimal in primary and regulations. The rationale for that is really around operations. We have had much interaction with local authorities in terms of people being able to access mortgages and so on in order to be able to buy. I take the Deputy's point that they are extremely important so I will bring that back. It is a fair point so we will endeavour to try to do that.

Regarding the change itself, it is very much linked, as I mentioned at the outset, to individual affordability and what is affordable for an individual in terms of buying a home that a local authority can make available. There are many inputs into that but it ends up with an individual who we want to help to buy and a local authority-led unit that it is able to deliver. There is much discussion around costs and so on and the Department is again looking at those closely following the SCSI report. The lower one can get the unit cost of delivery then people will be able to buy. We are trying to get the best value and the lowest cost for homes that are to be provided for purchase and rental.

Regarding the individual, it is very much targeted towards people who would not qualify or be eligible for social housing but would have an affordability difficulty in being able to buy or rent a home. That is the general approach we are taking in trying to make units affordable for individual households. We found that the legislation, as drafted, made it difficult, particularly when the macro-prudential rules came in after the 2009 Act. In fact, one could have a situation where somebody is eligible but is not able to access the mortgage required to buy the home. It is really about being able to operate in practice.

The final question was around the shared equity scheme. The Government decided to fund that for this year so that units could be delivered. That had to be done in budget 2021. I, along with Mr. Nicholson and the team, are mandated to work with other stakeholders. We work closely with the Department of Finance and the retail banks and engage with Homes England and others on various schemes. As regards the detail of that, much work has gone on and much interaction has happened. However, at this stage we have not brought those final proposals to the Minister for agreement in terms of interest rates, how they might change over time and the interaction with the help-to-buy scheme. The proposals are very developed and we want the scheme introduced as early as possible this year, so we will be bringing them to the Minister in the next number of weeks, but they are just not quite there yet. They are ongoing.

As regards interaction with the LDA, with the publication of the LDA Bill, we work very closely with the LDA in a number of ways on what it can do. It is very important that it understands the various schemes as they are developed and rolled out. We are making sure it does and will engage with the schemes. We facilitate as much as possible in the Bill that the LDA can participate with local authorities and others in delivery of the units under the various measures.

I will bring Mr. Nicholson in on the specifics of the serviced site fund.

I will ask Mr. Nicholson to come back in at a later stage to answer those questions for Deputy Ó Broin. We are out of time and I am going to move to Senator Cummins.

I thank Mr. Quinlan, Mr. Nicholson and all the team at the Department. The legislation is a long time in gestation. It is very welcome that the area is being prioritised. If we are honest, it is probably an area that has not received a massive amount of attention as the focus has been on social housing. The social housing output has been increasing considerably. It takes a long time to deliver houses. We cannot magic them out of thin air. It takes a lot of foundations being filled and building blocks to put them all in place. It is all very welcome.

On the schemes and who they are targeted at. The legislation focuses on first-time buyers, but there is a cohort of people who lost homes at the start of the economic crisis, before we introduced fantastic schemes such as mortgage-to-rent and the changes to personal insolvency. They have been stuck paying very high rents in recent years with no prospect of getting back on the ladder because they are unable to get a commercial mortgage again. Is there provision in the legislation to enable us to cater for those people and families? There are specific clauses in the case of marital breakdown but my point is more specifically related to those who lost homes at the start of the crisis.

The applications to the cost rental equity loan, CREL, scheme were oversubscribed. What is the situation with the other applications? Are we prioritising the other applications that were not successful? The Minister announced schemes in Dublin and Cork yesterday but schemes were submitted for other urban areas, including Waterford, Limerick and Galway. Can we prioritise those so that they can commence construction before the year end to deliver cost rental units early in 2022 rather than wait until the end of the year to get them going?

There has been considerable public criticism about the equity scheme for the provision of affordable homes in private estates. Will the officials comment on this, specifically on the argument that it will result in cost inflation? What has the Department stitched in to ensure that will not be the case? I understand there are specific provisions to prevent the cost inflation.

Mr. Barry Quinlan

On eligibility and priority, we have heard a lot of feedback on how society has changed and on the need for schemes to be able to cater for new household formation. As the Senator observed, there is some allowance for marital breakdown. We can consider further eligibility criteria. Predominantly, these schemes are aimed at first-time buyers. Capacity in output is limited but we would welcome the committee's feedback on targeting schemes beyond first-time buyers.

On the cost rental equity loan scheme, the Minister announced the first 400 units today, which will be the first cost rental units in the State, in the Enniskerry Road development, which is led by Dún Laoghaire-Rathdown County Council. That scheme was oversubscribed.

As Senator Cummins said, there are a number of other very good proposals within that, and I am in discussion with the Minister regarding them. I think he would be minded to try to support other proposals if possible. I think the intention would be to try to do that if we could, but at the moment it is fully subscribed. The €35 million that was allocated in budget 2021 has been fully allocated and is supported by a further €100 million in loan financing from the Housing Finance Agency.

The shared equity scheme is a market-based scheme. It is one element of the affordable proposals coming forward. It is designed to try to boost affordability and to help people to buy in the immediate term. As well as boosting realisable demand in the short term, it would lead to a future increased supply of housing, but that will not happen unless the people who can buy the homes are there.

We have done a significant amount of research on this, dealing with our own internal stakeholders in Ireland like the Housing Agency and the Housing Finance Agency, and we also met Homes England. We discussed in detail the experience in the UK, which was that the National Audit Office found that it did not hugely inflate prices on a like-for-like basis in terms of buying the same home before or after the scheme and it did lead to an increase in supply. As I said to Deputy Ó Broin, we are working on the final details of the scheme. We very much take those points on board. They are the key risks in a scheme like this. We are trying to work through the detail of the scheme to mitigate those types of risk in terms of putting a cap on the price of the homes that could be bought to ensure to the greatest extent possible that we mitigate against inflation. We have seen and heard that criticism and we have taken it on board as an important piece of feedback. We are endeavouring to mitigate against that in the detailed design of the schemes because, obviously, that is not the objective of the scheme.

I thank Mr. Quinlan. We are just out of time on that slot. Is it Deputy O'Donoghue or Senator Boyhan who is next? Will the Deputy please identify himself and confirm that he is within Leinster House? I cannot see him on the screen.

I am outside Leinster House.

I will bring in Senator Boyhan, and if Deputy O'Donoghue can make his way to the confines of Leinster House, then I can bring him in on the next round. I invite Senator Boyhan to go ahead.

I welcome Mr. Quinlan and his team. It is great to see them back before the committee. I wish to focus on the affordable house purchasing scheme. I will to refer to an article I read recently in the Business Post. It raised a number of questions in which I have a particular interest and I will tee up my questions around the article.

The main points relate to the potential breach of the Central Bank mortgage rules, the potential to drive up house prices, and the potential to increase personal debt. They were the three issues discussed in the article. I will tee them up as four or five questions. What assurances have been given or sought from the Central Bank that it will approve the scheme? If not, why not? What evidence or data does the Department have to ensure that the scheme will not increase property prices, given that we know it will do nothing to increase the supply of houses? Will the witnesses outline for us precisely what the buyer's responsibility is in relation to the State's equity share? That is an important issue that has been raised. How will councils be funded for their affordable purchases? That is also an important issue. What risk will councils carry?

I want to touch on recent statements in the media which refer to a costs-based model but then refer to it as a scheme, which will offer rents at 25% below the discount. Either it is a costs-based model or one which is based on reduced market prices. Those are a few questions I would like the Department to address.

I have two comments also. The scheme involves the buyer paying the State's equity stake in due course and it could be argued that he or she is not really getting an affordable home but will carry a burden of debt that may be more than he or she can manage, and that is something that has to be addressed.

It would be also good to know what data and model the Department has studied on a similar scheme, design or type of project. Apparently, in the UK, there was some success but it drove up the cost of property. I would like to hear the Department's views on that. I heard that the Minister suggested that this was not the case but let us hear the evidence around that.

Those are my few points. I would like to give my time to hear the answers rather than to me to keep talking on.

Mr. Barry Quinlan

I thank the Senator. In terms of the shared equity scheme and the Central Bank, we are working with the Department of Finance and, as I mentioned earlier, the various stakeholders. In terms of the engagement with the Central Bank to date, that has been led by the Department of Finance. While the Central Bank has made some comments so far, it really needs to see the full details of the scheme to be able to make its final informed judgment. We are working towards that but we are keeping them informed through the Department of Finance, particularly around the policy objectives of what we are trying to do, which is to help people to buy their own homes sooner than they would have been able to otherwise but, ultimately, to own their full home in as affordable a way as possible. The Central Bank also needs to see the final details to be able to make their final judgment on it.

As for house prices and supply, and the international evidence, I will make a couple of points. We have looked at the reports from the UK. I mentioned the UK National Audit Office and it reported a double-digit increase of 14.5% in supply and a 1% increase in prices. They were very much on a like-for-like basis. There were some other reports but the National Audit Office report was the one that we looked at in particular. We also met Homes England, which administers that scheme. In the UK, more than 200,000 homes have been delivered under its equity scheme. It is a very big scheme. It has some differences. We have been closely examining it in terms of what worked and perhaps elements of it that did not. We are very much looking at both of them.

In terms of supply, the Ministry is engaged regularly with home suppliers in Ireland. One issue in this regard is that we have a lot of planning permissions. There were 47,000 approvals last year and only half of those commenced. Our sense is that if we can help people to increase realisable demand, the supply will follow. Obviously, some of that remains to be seen. The plan would be to review the scheme after a year to make sure, for instance, that it was increasing supply etc., to check for inflation, to safeguard on those. A lot of work has gone in to inform the development of the scheme and then there are safeguards in terms of the final details. I mentioned some of those, such as price caps etc. that we are working in. It is only when we have the final detail of the scheme that people will be able to fully judge it.

As for the equity stake, the plan is that people would secure a mortgage to be able to buy a large percentage of the home and then be helped to buy that final element and that the State would take an equity stake, either through local authorities or central government, and the person would buy back that stake and own his or her home fully. In the UK model, 50% of households bought out the equity stake within the first five years when there was no interest rate on it. At the cheapest that one could, many people got in and bought their stake.

Consequently, the participants were really helped to buy. They got in and they got to own 100% of the home quite quickly. We are looking at all of those issues. We have tried to bring them all together in the design of the scheme here.

In terms of local authorities and funding, the serviced sites fund was mentioned earlier. That is currently available to local authorities to support enabling infrastructure that can then go on to be contributed towards the delivery of affordable homes for purchase or rental. That is a multi-annual scheme as it is but we are looking at it in the context of issues such as the review of the national development plan, NDP, and how the Exchequer might be able to support local authorities in the delivery of affordable housing moving forward. The serviced sites fund is available already with up to €50,000 per affordable home delivered.

The cost rental model is new to Ireland. The way the homes announced today will be delivered is through State support, in terms of the cost rental equity loan up to 30%. That is capital at the start to support the approved housing body to be able to acquire the homes. The Housing Finance Agency has provided long-term low-cost lending to match that in order that the AHBs are able to acquire the homes. By minimising costs, we are able to achieve - this was the minimum - 25% below market rents. It is really a cost minimisation model whereby those savings are passed on to the renters.

We are out of time on that slot but we can return to it.

Mr. Barry Quinlan

That is okay.

I thank Mr. Quinlan for the comprehensive reply.

On the cost rental aspects, if I could come in on head 22, there is a term in it, "equity return". First, if I could say, the cost rental is very positive. It is something that we have been looking for for a long time. Particularly, the Viennese model is one that we had proposed. The tenure security that is contained in it and the link in the rental review are excellent. If we could see that across the entire private rented sector as well, it would be marvellous. I know that is beyond our scope here. Could Mr. Quinlan explain what the term "equity return" means and what that equity return would be used for?

Mr. Barry Quinlan

I might bring Mr. Nicholson in here promptly to save time, if that is okay.

Mr. Robert Nicholson

When we were developing this work on the cost rental model, we worked off National Economic and Social Council, NESC, and other reports about the most appropriate model to deliver at scale because what is needed in cost rental is to deliver at scale in a countercyclical way and to try to harness the potential of private sector investments, such as international pension funds that look for modest long-term returns. In the first instance, most of these developments would be explicitly on balance sheet and in some way subvented by the State. That, obviously, has a particular limitation in terms of the amount of funds that might be made available. What we want to do over the longer term is get proof of concept as to how the model works and then introduce, and make it attractive, to the likes of international pension schemes. At the same time, we want to put a limit on what those returns might be in order to prevent the resulting impact on rents and the required level of cost rents. Typically, internationally, there would be an allowance for a level of return and pension funds might look for 3% or 4% return on their level of investment. What we are trying to do in the legislation is to provide for the Minister, in the future, to put a cap or regulation on what that level of return might be to expand beyond purely the State sector into private finance such as international pension funds to deliver much greater numbers at scale.

What is built into this legislation to prevent a profit-driven motive in the provision of cost rental?

Mr. Robert Nicholson

It is intended that the Minister would set regulations for costs, which would be allowed to be considered for cost rents. Effectively, the Minister would designate a cost rental tenancy. There would have to be an agreement, obviously, under the legislation, with the Minister as to what those costs would be. The Minister could set a regulation, for instance, to say that any private funds put in to developing cost rental units would have a maximum return of 4% or 5%, or something like that.

The legislation, as we see it, is modelled to a significant extent on that in Vienna. We got translations of that legislation and we talked to our colleagues over there, and this resulting legislation is informed by the approach they have taken. It basically allows the Minister to temper private returns on long-term investment in cost rental units.

Once the overall cost of a cost rental dwelling has been covered, is that when the equity return starts? Does the rent become the equity return once the initial costs have been covered?

Mr. Robert Nicholson

The overall cost is comprised of the initial development costs, the management and maintenance costs and then a level of return on the finance, if the Minister decides that is appropriate. There would have to be an open book policy, similar to what we have just gone through regarding the cost rental equity loan, CREL, where the providers demonstrate all their costs and those costs are then vetted, effectively. In the case of the CREL, that would be the Housing Agency, and these loans would be vetted for accuracy and maintained then over a long time. When we identify the total costs involved in a development, therefore, we can then see what is coming out the other end in respect of the number of units being made available and the level of rent which must be set in those units to repay those identified costs. It is really an open book scenario, where designation for cost rental requires the provision of proof that all regulations have been adhered to etc.

As I said, the equity aspect is more a longer-term element in respect of trying to harness the private sector after we get proof of concept for all the ongoing projects. It is effectively, though, a case of trying to set the scene for that to happen. We will learn the best way of doing this as we go through CREL and some of the Land Development Agency units. We are working with the European Investment Bank, EIB, now on some of this material, and a report is due relatively shortly on the optimum financing model for cost rental. Once we get these initial units up and running, that report will inform us about how best to structure the system to achieve an economy of scale in larger numbers over what we hope will be a relatively short time.

I have one last question on cost rental. If people go through their lives with regular employment or income, whatever that may be, and then they reach retirement age and their level of income drops, can the cost rental model be adjusted based on that income differential?

Mr. Robert Nicholson

To be frank, that aspect is not accommodated in the legislation as it stands. It may be accommodated in regulations, but it is absolutely something we must think about. A broader question is contained within this issue that goes beyond housing and into the areas of pensions policy and the welfare system. It is a question which must be addressed. Most of our concentration from the outset, however, has focused on getting this initiative up and running and getting this system established so we can deliver units and house people. Some of those issues regarding the longer term direction of pensions, housing and welfare policy must be addressed in the round. I do not have an immediate answer to that question, therefore.

I thank Mr. Nicholson. I call Deputy Cian O'Callaghan.

I thank Mr. Quinlan and his team for all the work they have done on this Bill. I will read some quotes from officials in the Department of Public Expenditure and Reform regarding their thoughts on this shared equity loan part of the Bill. One official stated that the:

... key point is that this is a demand led scheme. [The Department of Finance] and [the Department of Housing, Local Government and Heritage] have spoken to banks and developers who apparently suggest that it will unlock supply. We think it will push up prices in a supply constrained environment, most likely at a time when prices are starting to rise anyway.

Another senior official wrote that:

Apart from the concerns we already voiced ... around the appropriateness of the shared equity scheme, which appears to us a demand side measure which is unnecessary in a market like ours which is chronically undersupplied, it does not appear that the policy proposal has been sufficiently analysed.

She went on to say that, "An effective affordable housing policy would deliver the right types of units in the right location at an appropriately affordable price". In addition, another senior official stated that, "The property industry want[s] an equity scheme because it will increase prices”.

In that context, where is the analysis for this scheme and can we see whatever analysis that has been done by the Department? This is important, because serious questions have been raised about this scheme. Can we see the analysis that the Department has done which justifies the equity loan part of this Bill?

Mr. Barry Quinlan

The Department has been looking at this proposal from our perspective, as have the Department of Finance and the banks from their side of things. We did significant work on it ourselves and in conjunction with the Housing Agency.

We were looking at it in the Department and the Department of Finance and the banks were also looking at it from their perspective. We were doing significant work on it ourselves and with the Housing Agency. We would have measures that would bring affordability in the medium to longer term, and what we were looking at from a policy perspective was whether one could boost supply in the short term on the basis of it being a demand-led scheme designed to turn potential demand into realisable demand and through that process then to boost supply. It would give assurances to the construction sector that if it builds homes that they would actually be sold. When we look at the planning permissions that have turned to commencements and been sold, they are based on a certainty around demand, whether that is demand from the private sector in terms of purchase or from the State in terms of social housing, student housing and other housing. The housing that has worked to deliver the supply tends to be based on a high certainty of demand. That linkage was a key policy consideration.

Significant analysis has been carried out. That is very much part of the deliberative process at the moment. The Minister has yet to finalise his proposals in terms of the underlying detail of the scheme. That is close to finalisation, but it has not been finalised yet. There would be commercial sensitivity in terms of the various elements. I do not think it would be appropriate to release those at this time, but that may change as time passes and decisions are made. The funding has been set aside so that this could be delivered, and units could be delivered this year. We are working now with the various stakeholders to put in place the details of the scheme, but the Minister has yet to sign off on them. This is designed as one of the overall suite of measures.

I thank Mr. Quinlan. It is important that there has been a significant critique of this aspect of the Bill, both from the perspective of the Department of Public Expenditure and Reform and also a significant critique on it in the UK. As we are doing pre-legislative scrutiny, it is very important that we would see the analysis from the Department of Housing, Local Government and Heritage that justifies this measure. It is very important for the committee to see that, so I would request that we could see the analysis. I do not see why there should be commercially sensitive information given that it is a public policy proposal, but if there is then we do not need to see that part of the analysis. The Department should let us see the rest of the analysis.

I wish to ask one final question. It has been said quite a bit today and also elsewhere that the 2019 report from the National Audit Office in the UK states that price inflation is only 1%. That is not my read of that report. On page 34 of the report it talks about the price premium paid by people who availed of the scheme in the UK, but it does not say that price inflation was just 1%. In fact, the report states that price inflation during the scheme from 2013 to December 2018 in England was 41%. Could Mr. Quinlan clarify what part of the report he was referring to in the context of his reference to price inflation being just 1%? I can only see a reference to a price premium of 1%, which is a totally different thing from price inflation.

Mr. Barry Quinlan

I do not have that report in front of me now, but I will get back to the Deputy on it. In terms of that point, we are very sensitive to this, and the last thing we would want to do is increase house prices and not have an impact on supply. That is not the intent. We discussed this in detail when we spoke to representatives of Homes England. They are the people who have delivered this scheme and Homes England has supported home purchase to the tune of more than 200,000 in the UK.

Their sense of it was that when the same unit is compared - a person buying a three-bedroom semi-detached house in Dublin, for example, where the median price at present is around €355,000 - the person buying the same unit supported by the scheme did not see any significant inflation on that unit. That is the feedback we received directly from Homes England when we spoke to its representatives.

However, there are many homes in it and many different things, so it must be safeguarded. We have made this point to home builders in Ireland who have looked for this scheme. Many of them did and said that supply would respond to the realisable demand. We have received many assurances, and some of them would be large plcs and so forth, that they would be willing to show that there was no price inflation if a scheme like this was put in place. That would be very important. As I said earlier, the plan would be that the scheme would be reviewed after perhaps a year of operation just to safeguard that those unintended consequences had not occurred.

What the scheme is designed to do is to boost realisable or actual demand. We are hearing that, given the house prices we have for new homes, particularly in places such as Dublin, people are being approved but perhaps not approved for a sufficient mortgage to be able to buy those homes. That is really the policy intent and we are going to put in every safeguard we can to the detailed design of the scheme, and then we, along with other stakeholders, are going to monitor the scheme's operation very carefully. There was a good and correct exchange across the Government in bringing this proposal forward. Those points have been taken on board and every effort is being made to safeguard against those potential risks.

Thank you, Mr. Quinlan. I must end that section there. I let it run on because the concern Deputy O'Callaghan raised on that is an important point. Senator Moynihan is next.

I am not in the confines in Leinster House so I am happy for my time to run over to answer Deputy O'Callaghan's question.

Okay, I will move on to the next person who is present. I am sorry, Senator Moynihan, but I must stick by the rules and the speaking slots.

I am due to contribute next but Deputy Gould said he needed to speak before he leaves, so I am happy to let him speak and come back in five minutes later.

The next slot is a Fine Gael slot after that of the Labour Party. I can move on to Sinn Féin if you wish.

I am suggesting that we swap or he will not get the opportunity to speak.

I am sorry. I did not notice that message from Deputy Gould. I call Deputy Gould, and thank Deputy Higgins for pointing that out.

I appreciate that. It is very kind of the Deputy to let me contribute. Affordable housing and affordable cost rental have been probably the biggest issues I have faced as a councillor and now as a Deputy. We want a robust and fair affordable housing and cost rental scheme, but there is a major lack of detail and information in the scheme here. The witness made a point about the Central Bank giving its judgment. For us to give our judgment, we would need that type of detail. There was mention earlier about the families who are trapped in the middle. These families cannot get on the social housing list because they earn too much and they cannot get a mortgage from a bank because they are not earning enough. We must deliver affordable housing for these people, because they are trapped and have been waiting. There has been talk about an affordable housing scheme for years, but we could be looking at months if not years more before this delivers houses.

I wish to raise a point on which Mr. Quinlan or Mr Nicholson can respond. Cork City Council owes €36 million on unsold affordable houses from the previous downturn. It also owes €36 million on land it purchased to build social and affordable houses. Cork City Council, alone, owes at least €72 million.

If the council owes that, I imagine most other local authorities have similar debts for either unsold social or affordable housing and land that they purchased to build housing. We want this to continue, but how can local authorities move ahead when they have this large debt hanging over them?

Can we get more clarity about the criteria for how people will qualify? Then there are the issues of what affordable houses will be, because I am from Cork and, obviously, Cork will be different from Dublin, Limerick and Galway. We need affordable housing that will work for everyone.

Mr. Barry Quinlan

In the first instance, we work closely with Cork City Council. The council has been to the fore in trying to deliver affordable housing, and we work closely with the team there on Boherboy and other sites. Boherboy will be one of the first sites that will come forward for affordable purchase under the new scheme. In addition, a great deal of support will be given to the council under the serviced sites fund and under LIHAF, as Mr. Nicholson mentioned earlier. One part of trying to help councils is the Exchequer funding towards delivery.

I take the Deputy's point regarding unsold affordable housing. It is not universal. There is quite a rump in Cork, but it was not the same everywhere. Part of that was because it was a very successful scheme there and there were many units. Obviously, when circumstances changed, the situation with those units changed. As I understand it, they are predominantly used at present for social housing, so they are being utilised for an important purpose. That is important.

I also take the Deputy's point about land. Again, land was generally bought by local authorities on the basis of it then being used for social or affordable housing. As things turned, some local authorities were left with land debt and land that was not capable of being developed at the time. A large amount of that land has now been worked through the various programmes in terms of social housing and so forth. There are some lands left. We also had the land aggregation scheme, which helped local authorities with the debt issue. There are some local authorities left that have significant land debt and no immediate pathway for the development of those lands for financial reasons. We are working on that with the CCMA at national level, so we are trying to work through some of those issues. However, I take the Deputy's point about them being legacy issues in the sector.

I will ask Mr. Nicholson to respond on the point about eligibility.

Mr. Robert Nicholson

As we said, the detailed criteria have to be finalised, but we can give the shape of our thinking. On both affordable purchase schemes, it is intended that they would be targeted at those who can afford the home with the equity stake. If one is in a position where one can afford any home that is made available, depending on the area, through a standard mortgage, one is not eligible. If someone is on an income level where he or she cannot afford to buy that home and it is a home that is suitable for his or her needs - they are all modest - he or she is in the space of being eligible, if the equity stake that is available can bridge the gap. They are the general criteria. Measures on affordability can be very blunt instruments if one gives a straight percentage, so what we suggest is that we try to develop the schemes around the individual. We say affordability is not a question of how much, but how much is too much for whom and in what circumstances. That is the broad model we are trying to use in the affordable purchase schemes.

On cost-rental, again the criteria are not finalised, but the likely lower threshold will be those who are not eligible for social housing, somewhere around the space of middle income earners just over the gap. We have not fixed on the higher threshold. Obviously, it is going to be informed by the ultimate rents, and the rents are informed by the cost of construction and the level of subvention provided. However, we can explicitly say that it will be hard-pushed middle income earners.

I wish to clarify the affordable purchase scheme and some of the references earlier to the UK. It is important to say that the affordable purchase scheme, at present, would probably only assume approximately 1% of the transactions in the market, and perhaps a little above.

Compared to some of the other schemes it is relatively low in terms of its capacity to impact on inflation more broadly. If it is only 1% of housing transactions per year or a little over, it is relatively low. I can comment more on the UK scheme in terms of the 1% figure. The people referenced were explicit around the inflationary effect being 1%. In fact, when they looked at it in detail, they referred to some of the other published reports that analysed the help-to-buy scheme. They commented that those reports referred to inflation rates of between 5% and 20%. They looked specifically at those reports and found that the estimates did not compare similar properties and so did not accurately assess any additional premium paid by those using the scheme.

We have reached the end of this time slot.

I am sorry we cut off Mr. Nicholson. I will give some time at the end of my contribution because he was making an important point.

It is clear from discussions at the Joint Committee on Housing, Local Government and Heritage that probably all of us have a little scepticism around any measures that are coming in terms of interfering with the property market. That is totally correct given the experience so many of us have had at local authority and Government level with property developers in the past, perhaps with unfinished housing estates and the property market generally. It will be critical for us to get the information to give us a certain comfort level. When we get the detail of the scheme, it will put us all in a different position. I hope that when we get the EIB report, it will help us all as well.

A report from the London School of Economics is referenced. One of our concerns as parliamentarians is that there is no one source of information on the EU scheme that has not been in some way criticised. Of course, that is natural because that is what happens when governments bring in schemes. One statement Mr. Nicholson made that stuck with me was the reference to hard-pushed middle-income earners. This question is one all of us on the committee are here to help to resolve.

Mr. Quinlan has gone through with much detail the schemes we have been focused on, namely, the cost rental and shared equity schemes. I have two quick questions on each of these. Will Mr. Quinlan give a little more information around why HAP tenants are excluded from cost-rental? Again, there is a push to try to get to the middle-income earner who might otherwise be caught in the private rental trap. Will Mr. Quinlan give us a little more information around how the long-term tenure leases are going to be built into schemes? What level of information is available at this stage?

My next question is on the shared equity scheme. Is it possible for Mr. Quinlan to spell out the €75 million that has been allocated? How will that be drawn down? When will it be available to be drawn down? What is it likely to yield in terms of house buyers and home buyers who would be able, hopefully, to afford their own homes? Is there information around how the cap will be determined at local authority level? When will that information be announced?

That is important from my perspective. My thanks to the officials for going through this. It is highly detailed and there is so much information on it. Mr. Quinlan, Mr. Nicholson and their team have shown themselves to be real experts and I really value that.

Mr. Barry Quinlan

I will make some quick comments and then bring in Mr. Nicholson on some of the detail. I will comment on cost rental generally. This is a point I made at the start in terms of social housing and HAP. We really want to distinguish cost rental in particular at the outset as a new form of tenure. What is proposed is that this will not be social housing at the start. It will be separate and distinct and more targeted at the squeezed middle, the people who do not qualify for social housing but who have affordability challenges. At the outset, that is important to note. We have put in a safeguard so that if a person's circumstances change, and after a period he or she goes from private cost rental on to social housing where the rent was being paid through HAP, then it would be facilitated so that the person would not necessarily lose the tenancy. That is an important element of it. At the outset, we want the scheme designated for the people it is targeted at, which is a different cohort.

That is the rationale behind that.

There was a question about the €75 million. It was an important signal of intent for the Government and the Minister in budget 2021. It has given momentum and impetus to us in our work in trying to design the scheme and have it operational this year. It will depend on the amount of equity stake that the State would take in an individual property. It depends on how many home buyers can be supported. The scope is in the thousands. We see it beginning this year in the low thousands or perhaps hundreds - these are the numbers. As Mr. Nicholson said, that is the scope generally contemplated for the scheme at the moment. It is a targeted, immediate measure to boost realisable demand and supply in the short to medium term. A good deal of planning permission has not commenced. Mr. Nicholson may wish to address the other technical question.

Mr. Robert Nicholson

I will comment on a couple of items. Deputy Higgins asked about the shared equity scheme. What we are informing ourselves with around eligibility is effectively the first-time buyer new home median price for the past rolling 12 months. We are informing ourselves by geographic area. We are trying to ensure that development happens in the places where we want development.

I will bring in the point again around the suggestion that there are no income caps. By virtue of the handbrake of requiring that individuals avail of full eligible mortgages under the macroprudential rules, house price caps are set. If a buyer can afford a house at normal market prices, the buyer will not be eligible for the scheme. That is a fairly significant difference from the scheme in the UK. There is a handbrake relating to income caps and those income caps are discrete to the individual.

Again, the national planning framework influenced price caps. We intend to ensure that we have developments in the areas where we want them and that we do not have sprawl whenever we can prevent it.

I will come back to the cost rental question. A question was asked about HAP tenants. Effectively, there is a limited available budget for particular measures. Cost rental is explicitly targeted at earners, people who have the capacity to cover the cost rent and cover the development over the long term. Then, as it matures, it becomes more beneficial to the ultimate renter and more sustainable. That is the reason for the provision, in short.

There is also an element of ensuring we have a good blend of tenants across social, cost rental, private, affordable and whatever it may be. Indeed, some of the cost rental programmes we are working on will be approved. The 390 units referenced yesterday are in developments where there will also be social tenants.

I will comment on leases and the types of leases. We are working off security of tenure. Again, we will learn from this as we go in the roll-out of the cost rental equity loan. Part 4 of the Residential Tenancies Act provides long-term tenure for individuals. Typically, six-year leases would be the intent. Again, we will learn from that and it is our opening gambit in terms of ensuring we can get these schemes up and running and in place.

If we have a moment left, perhaps Mr. Nicholson would finish the point he was making to Deputy Cian O'Callaghan on the UK schemes.

Mr. Robert Nicholson

Deputy O'Callaghan was referring to the premium in the UK schemes. I cannot remember the exact figure but there was a particular premium. I think the premium referred to in the report was the fact that these were newly built homes as opposed to second-hand homes. Straight up, there is a new-build premium for new-build homes as opposed to second-hand homes purely based on efficiency and the increased standards that have come in over the years. It did not relate to an inflationary effect. The report referred to house inflation in the round over a long period when it referred to the higher percentage rather than house inflation for homes that were bought with an equity stake as compared to equivalent homes that were bought without an equity stake. Our reading of it, backed up by our conversations with officials in the UK, was that there was a like-for-like increase of 1%. As Deputy Ó Broin has said, there are various reports available that give different takes on that, and the matter is open for debate and discussion and so on.

What we have learned from it is we have put as many handbrakes in the system, if I could call it that, to make sure that, in the round, the system does not lend itself toward house price inflation, while trying to deliver on those two goals of increased supply - the UK scheme increased supply by 14.5% - and increased levels of home ownership. However, as all present have recognised, there is a necessity to make sure we include the appropriate checks and balances.

I thank Mr. Nicholson. I have no doubt there will be more questions on that issue. There will be time for such questions.

As I am coming in so late in the debate, many of my questions have been answered. In some ways, that gives me an opportunity to reflect on some of the suggestions being made, in particular members of the committee who are in opposition. Effectively, what the affordable housing Bill and the Land Development Agency Bill are doing is giving tools to local authorities to develop mixed-income and mixed-tenure estates for the first time in a long time. Significant amounts of public money have been put in to allow land owned by local authorities to be developed. Where that is not possible, the LDA has been given the opportunity to develop other public lands.

Part of the issue is that it is a significant departure to allow public lands be developed for public housing. Part of the reason some Opposition members are focusing on the shared equity purchase loan, which forms a very small part of the Bill, is that it is a significant departure and a substantial attempt by the State to provide affordability. The shared equity loan scheme accounts for 2% of the total housing budget for next year. On the affordability element, the elements not related to that scheme account for 84% of the total spending to provide affordability. In reality, the shared equity scheme is a short-term measure with a review clause and regional price caps, which is limited to first-time buyers and is not comparable to the UK scheme, yet much of the debate on the Bill has focused on that rather than on the 84% of spending that provides affordability.

My questions are on managing delivery because local authorities now have no excuses to fail to develop lands in their control. They cannot now argue that mixed-income or mixed-tenure is not provided for, that the financial models are not there or that it is not on a statutory footing. What will the Department do in terms of managing its expectation for local authorities to deliver using all of these schemes?

Mr. Barry Quinlan

There have been some important immediate milestones, not least the publication of the Bill. Significant work has been done by Mr. Nicholson and his team, working with the serviced sites fund. Many of those schemes are now much closer to being able to start to deliver. It is actually very timely. We recently met the CCMA, whom we meet all the time, regarding the publication of the Bill in particular. The feedback we are getting is that, as was mentioned throughout the discussion today, affordable housing is in significant demand across council chambers, particularly in the greater Dublin area and other cities where housing affordability is an important issue. My sense is that local authorities are absolutely committed to delivering and being the key delivery partner and facilitator of affordable housing. We are now working through that with them, building on the pipeline that is there in the serviced sites fund. We are working on that with reference to what could be delivered over several years. Much of that is being factored in to the work we are doing on the Minister's detailed housing for all plan, which will, as I stated, come on stream in the summer, while, in parallel, looking at the funding streams. It is obvious that local authorities have a very important role.

We will also work closely with AHBs on the new cost-rental scheme. There is significant commitment across the AHB sector to deliver affordable housing.

We regularly meet the LDA. It is and will be increasingly important for it to understand in detail the various schemes and the role of local authorities as housing authorities and planning authorities, as well as how it can contribute in terms of, for example, the 400,000 homes that are available from its immediate land bank. As the Deputy stated, it will also be increasingly important for the LDA to be able to aggregate land, including public land, and develop into the future in that regard. As we now have the tools in the toolkit, as the Deputy put it, and given the funding that is and will be available, we will be working through those detailed plans with local authorities, AHBs and the LDA.

Part of the problem is that there is often a lack of transparency in the context of what council officials submit to the Department and how long the Department sits on those proposals. Local councillors often do not have transparency in that regard. The argument is sometimes made that a submission has been sent in and the Department is approving it. We need to make sure that there is more transparency in that regard so that the real ambition of local council officials is actually tested.

I thank the Deputy for sticking within the timeframe.

I thank the representatives of the Department for their written statement and the work they have done to date on the Bill. It is fantastic to see these provisions for affordable housing. I am especially happy that the Bill will, for the first time, enshrine the definition of cost rental into Irish law, which is most welcome from the perspective of the Green Party. I do have some clarifying questions relating to cost rental and the shared equity scheme. Some of them have probably been covered to some extent but I will go at them again.

With regard to the definition of cost rental tenancy and the term "equity returns" which is included in the Bill, do the witnesses agree that this makes or may make cost rental indistinguishable from the private rental sector? If so, can the terminology be amended to mirror the limited profit regulation under the Vienna model, if that is what the European model is, such that we are not pushing it and making it a private sector kind of model but, rather, more going down the line of the Vienna model?

My next question may have been answered already. Once the up-front cost of cost rental delivery has been repaid, what will happen to the rental price? How will that money then be used?

Can the witnesses provide any examples of the new shared equity scheme? How do they think it will work on private and local authority lands, respectively? In what way will it improve housing supply? Has the Department worked out models of how this will play out?

Will the cost rental equity loans and other supports for cost rental only be made available to public bodies, AHBs and non-profit housing providers?

Mr. Barry Quinlan

I thank the Deputy. At the outset, cost rental is designed to be a completely new form of tenure rather than just being market-based private rental sector, PRS. Whatever safeguards are needed within the legislation for that to be clear will be provided. As Mr. Nicholson outlined earlier, the intention is very much to be clear to funders about the level of returns that will be tolerated. The intention is to put the shape on that. As the rents are so linked to the costs, it is critical that the allowable costs are clearly defined. Whatever is needed to be clear in that regard will be provided and we will definitely take the feedback from the committee into account.

I might bring in Mr. Nicholson on the longer-term financing piece around cost rental. Part of that relates to the Vienna model. We have given the Vienna model a significant amount of consideration. It really is an incredible model, not just because the cost rental there is so effective, but it is often voted as one of the best places in the world in which to live. Much of that has to do with the fact that they got housing right to a large extent. It is a very successful model, but the authorities there have been pursuing it for a long time. As such, there is a significant amount of stock for which the costs would have been divvied up. The front-end costs would have reduced over time. There is a whole piece around the long-term sustainable financing element.

It is possible when one builds up scale over time. The income from the cost rental projects will allow for the funding of new projects. I will bring Mr. Nicholson in later on that point.

In regard to the shared equity scheme and supply, the concept is a simple one at its base in that, as I said, supply tends to respond to demand, but a realisable rather than theoretical demand. In terms of the launch of various schemes, there are schemes around Dublin that are delivering, but not the types of numbers that we need to be able to reach the output levels that we require. The proposal is that to the greatest extent possible we seek to facilitate people to buy those new units. As mentioned by Mr. Nicholson, these are, or can be, more costly units because much of the time they are premium units built under the new standards. The median price in Dublin for a first-time buyer is approximately €355,000. As I said, the objective is to facilitate more people to buy and realise their homeownership sooner. As supply responds to realisable demand - also known as definite demand - the response would come. The supply response is capable of being delivered because the planning permissions are in place. There are schemes that are delivering. We will deliver 21,000 homes this year. The estimated need is approximately 33,000 homes per year, so there is a gap. We are trying to bridge that gap by bringing realisable demand to the market.

I will bring in Mr. Nicholson at this point to address the longer-term financing piece around cost rental.

Mr. Robert Nicholson

We looked at the Vienna model. We had its regulations translated to inform us and we also spoke to the relevant people. The Vienna model has a couple of different delivery streams. Broadly speaking, it allows for a return of approximately 3.5%, in the same way as we are catering for some form of percentage of a return. To a decent degree, we are mirroring what Vienna intends to do, but are open to reviewing the regulations as we go in terms of the work we are doing with the EIB.

On the question regarding what happens to units in the longer term, as things stand we have a few different delivery methods or potential delivery methods. We can deliver through the LDA, through local authorities via the serviced site fund and through approved housing bodies with CREL. Each of those would have characteristics of its own. However, we are intending that these would be long-term units. For example, on Enniskerry Road there is a long-term covenant. I cannot recall the exact details, but I think it is 150 years. The scheme at, say, Shanganagh would go to the LDA for 150 years. In short, developments that are supported either by CREL or other Government funds will stay in the system for a long time. Typically, as those systems mature all sorts of scenarios such as cost subsidisation and more competitive rents develop and this allows the bodies involved to generate more equity or loans for them to develop more housing based on the returns they get from the units. They would be getting a level of rent over and above what it is costing to manage particular units. That is a long-term transition. It is 30 to 50 years hence, but we are factoring in that those units that are supported stay in cost rental for a significant period of time and, in many cases, in perpetuity.

I thank Mr. Nicholson. I call Senator Fitzpatrick, followed by Senator Cummins. We will then be moving to the third round of questions. I invite members to indicate to me now if they want to questions in the third round.

I will be brief because Deputy McAuliffe is coming in after me. My question is on behalf of Deputy Flaherty, who has recently joined the committee. He has asked me to thank the Department for the work it has done. He is particularly interested in hearing feedback from the witnesses on how the shared equity scheme will work to stimulate the provision of affordable homes in rural counties such as his home county, Longford. The issue, as he has explained it to me, is that there is a real challenge with the sale price being below the cost of building locally.

That is a real barrier to the delivery of housing. Deputy Flaherty would like the witnesses to advise on how the Bill and the initiatives therein will address that issue.

On the cost rental model, I think we need a lot more development of it. I am concerned that cost rental is not exempt from the principle of mixed income and mixed tenure. Obviously, mixed tenure would not apply. We cannot allow middle-class enclaves to develop for cost rental. It is not in spirit with any other element of development. It is very important for senior citizens, retired persons within schemes or nominations by local authorities of tenants into schemes that the principle of mixed income is adhered to within any cost rental scheme. I accept it is the overall model that we are seeking to approve here but we need to ensure the principle of mixed income applies in the same way as it does in a private housing estate, a social housing estate and an affordable housing estate.

Mr. Barry Quinlan

I thank Senator Fitzpatrick and Deputy McAuliffe for their questions. I will start with the question on cost rental. I accept Deputy McAuliffe's point. From a policy perspective, I have worked in social housing for a long time and I have a lot of experience in that area. Everything we are trying to do around affordable housing would be complementary to social housing. We are seeking to build sustainable long-term communities. The cost rental projects that are being brought forward include significant elements of social housing as well. More broadly, we will be working with local authorities as housing and planning bodies to ensure cost rental is part of thriving, sustainable communities. In the first instance, it is important to get the cost rental model up and running. One of the points made to us by people in Vienna that have worked in cost rental for years is that it is really important to get started and build up the stock. Over time, cost rental units should be part of thriving communities.

In terms of older people and people with disabilities, this matter also comes within the remit of my new division within the Department. I know from working with local authorities that they want to integrate all forms of housing into the communities of the future. I take on board the point made. It will be a key part of the schemes as they come forward that to the greatest extent possible they bring all forms of housing together in communities.

On the question of rural counties, if I am not mistaken County Longford has the lowest median and mean house prices in the State. The all-in median figure is €108,000 and for first-time buyers it is €130,000. In that type of scenario, it is difficult for new-build products to compete with the existing housing available. In the first instance - we touched on this earlier - it is important that the State targets its affordability measures towards the parts of the country that are experiencing the most extreme affordability challenges, such as the greater Dublin area and the other cities. There is an understanding within the Department that other measures are needed over time to support new home building in parts of the country where that is not currently viable. It is a slightly different issue from affordability. In terms of current rural house prices, affordability is not the issue. It is more about the viability of building a new unit versus what is available from the market.

Mr. Quinlan is correct in his response.

The intention is that the cost rental model would be part of wider social housing development. We cannot forget that the goal should always be to have mixed tenure. We saw the problems which existed in the past when we focused on one type of tenure. Let us not forget private development in that context. The mantra that seems to be put forward all the time now is that the approach taken must be the construction of social and affordable houses. Private housing is also an essential part of the mix, however. This endeavour cannot just have two elements in operation. We should try to ensure in everything we do in the area of development that we have social, affordable and private housing. I do not buy into the narrative being painted by some people that development must be focused on just two of those three aspects.

In that regard, there are areas in the country, especially in my constituency of Waterford, where the collapse in the housing market meant we only had social housing developments, because that was the only housing being built in recent years. We have excellent infrastructure, such as roads, schools and libraries, but we just have social housing. Private housing has not followed. I see the affordable housing product as a way of stimulating private development and ensuring we have a mix of those three strands in areas.

If we are in search of such a circumstance where ownership is in the hands of private owners, how do we stimulate that aspect, aside from the equity side of things? Will the county councils be able to work with private developers to ensure we get mixed and varied developments? I am also acutely conscious of those areas of the country where the local authorities do not have land banks. How do we address that situation?

The cost rental model has got a good bit of airing from Mr. Nicholson, and he has explained it quite a lot in respect of the goal of getting to the pension funds and expanding these schemes. We cannot scale up this scheme and the product solely on balance sheet through the AHBs. We are trying to prove the model, as has been said, but the only way we can really get scale in this regard - and it can be achieved quickly - is via attracting finance through pension funds examining a 40-year term of investment and in turn giving people security of tenure for 40 years. This approach can and will work in Ireland, but we must look at loosening the rules in this context and our sole focus on the AHBs, although I appreciate that we are first trying to prove the model.

Mr. Barry Quinlan

Private development is going to be a key element of our endeavours overall. When we look at this situation in the context of housing policy, we look at it from the perspective of citizens and social housing, and people who require assistance in that regard. Those eligible for affordable housing are a different group of people who would not be eligible for social housing, but who can have difficulty accessing the market. There is also an element of housing provision where the market can respond and people have sufficient incomes to enable them to buy or rent a housing product.

Overall, from a planning perspective and in the context of the national planning framework, the vision is for mixed communities which really work. As I said, we must ensure some special areas of housing, such as housing for people with disabilities and older people, are integrated. These are exactly the types of conversations that we have with our colleagues in planning and with the local authorities concerning the implementation of these various mechanisms to build communities. The private part of this policy, therefore, is encompassed in two ways. First, in the area of planning, there is a role for the local authorities in planning overall development in an area. Second, the approach that has been successful in social housing is an element that will be available in this context. I refer to local authorities having multiple mechanisms to make affordable housing available. Those mechanisms can work, and if the local authorities have problems with land, they can have various partnerships to deliver the same product. Consumers get affordable houses sooner, and the local authority has a mechanism which it can access more quickly and which allows it to deliver housing more quickly.

Turning to the development sector, the homes are generally built by the same builders. Much of this approach involves giving certainty in respect of demand and that the product will be taken up. That is what we are trying to do in working with the local authorities, AHBs and the LDA.

There is a very co-ordinated approach in the Department, and all the policies and programmes seek to complement each other. We were really careful, in respect of cost rental and other things, to ensure cognisance is taken of the other policy objectives regarding social housing, private development more generally and, ultimately, the planning requirements for areas.

There has been much discussion regarding pension funds, and there are two sides to this issue. The Senator is correct about the issue of capacity and that it becomes an issue when there is a deficit in the provision of the numbers of homes we need. We must in that context open as many channels as possible for that delivery. On the other hand, as we discussed previously, we must also carefully manage those approaches so the costs do not render the cost-rental model of housing as unaffordable as it would have been if we did not manage this area. There are two sides to this issue, therefore, but I take the Senator's point regarding overall capacity.

I thank Mr. Quinlan. I think we have covered everybody due to speak in that round. I will follow up briefly on the point made by Senator Cummins on the public-private mix in trying to achieve the target of building the 33,000 units we need each year, initially anyway. Where the State invests significantly in the provision of infrastructure, and especially in public transport, it also provides an economic benefit to private landowners. We must ensure that the value added in that context is captured by the State and not the landowner, through mechanisms such as a site value tax and-or special contribution levies. I call Deputy Ó Broin, who is first up for the third round of questions.

I would like Mr. Nicholson to answer briefly my first question regarding how many homes he expects to be completed this year under the serviced sites fund, which is obviously separate to the issue of cost-rental equity loans. There has also been some confusion regarding what is known as the help-to-buy premium, which is part of the British scheme, and the impact of shared equity schemes on inflation. Mr. Nicholson has outlined that the help-to-buy premium is the difference between two comparable properties, one of which was bought with a shared equity loan and one which was not. As Deputy Cian O'Callaghan rightly pointed out, that is not an aspect that we are concerned about; we are concerned with the overall impact of shared equity loans on house price inflation. Those are two fundamentally different things.

I have furnished the committee with a reference to a report by the London School of Economics because it is the most up-to-date empirical academic study on this topic. It concludes that the impact of shared equity loans on house price inflation in London, where demand is highest, is 6%. Across England and Wales overall, the rate of inflation is between 3% and 5%. While the study found that while the shared equity loan scheme in Britain increased supply, it also explicitly states that the resulting increased supply was provided in the wrong areas. In many cases, it was on the Welsh-English border and not in the major urban centres, where affordability was most difficult. The report went on to say that hard-pressed working families, which it calls "cash-constrained households", did not benefit from the scheme, and "Only developers or landowners, not new buyers, benefited from the policy". I appreciate that Deputies and Senators supporting the Government must defend its policy in this committee. I understand that, but all I ask them to do is to read this report, because it shows that in areas of high demand house, price inflation is driven up and those people we all want to help do not benefit.

I will make one small correction to what Deputy McAuliffe said. Of the three schemes we are dealing with today, the shared equity loan scheme is the largest, at €75 million of public expenditure this year. The serviced sites fund will have €50 million in expenditure this year and cost rental is €35 million. The shared equity loan scheme, therefore, accounts for almost half the affordable housing expenditure in this year.

He is right that we should look at all three but shared equity is much bigger than the other two on their own. That being the case, perhaps Mr. Nicholson can give me a direct answer on how many serviced sites fund homes will be delivered this year.

Mr. Robert Nicholson

On the serviced sites fund, as the Deputy has suggested, the delivery this year is going to be relatively small in terms of affordable purchase.

Do we have a number?

Mr. Robert Nicholson

Based on submission from local authorities, there would be 51 in Boherboy and in Dun Emer, Lusk, there would be 39. I must add that that was pre-Covid so obviously there has been an impact from the pandemic but we know for certain that homes will be delivered in Boherboy. I would caveat that by saying that, in a similar way to LIHAF, when initial proposals come in, they are largely concepts. The Minister has kind of flagged this frustration with the speed of development himself. The proposals go from concept to detailed design, planning, procurement and then there is the construction period. Typically, infrastructure comes first and houses second but to be frank delivery has been slower than everyone would like. The Minister has said-----

Will Mr. Nicholson confirm that Enniskerry Road will come from that fund as well and they should completed this year?

Mr. Robert Nicholson

Yes, we believe Enniskerry Road will be in quarter 2. Just to flag future development, local authorities are telling us at the moment that there will be about 700 in 2022 and close to 1,500 in 2023. We have approved, overall, funding for approximately 4,000 units. In terms of a very similar scheme we are now seeing payback from LIHAF in the form of homes being delivered. Again, it is slower than everyone would have anticipated and wanted but at the moment we have homes available in Adamstown for between €300,000 and €320,000, somewhere around 300 homes. Meath, Glanmire, Cherry Bank and a number of programmes are due to be delivered and that will increase over the next year or two. A number of those homes, and a significant number in some cases, will be cost-reduced. Some will be relatively modest cost reductions and some more significant. They will be sold under the provisions of the 2009 Act and the shared equity scheme. On another point------

I apologise to Mr. Nicholson but we are almost out of time and I need to bring in Deputy O'Donoghue and possibly Deputy Cian O'Callaghan, if there is time.

I welcome the officials. Deputy Ó Broin asked about delivery with the serviced sites fund. How much has been delivered in County Limerick through the fund? Since I came in I have heard a lot about Dublin and Glanmire but what about County Limerick?

Mr. Robert Nicholson

The Deputy has caught me on the hop there a little.

Mr. Robert Nicholson

To the best of my knowledge five have been delivered. There are some very significant ones around Guinness Lands and Curragower. I must say we have strong engagement with Limerick City and County Council and both the National Development Finance Agency, NDFA, and the Housing Agency in terms of supporting them. There are either four or five in fairly brownfield sites in the middle of Limerick which the council is trying to progress at the moment. I think they are a mixture of cost-rental and affordable purchase but again, as always, plans and development rest with the local council for that detailed design and planning.

I apologise, I got caught in traffic but I was listening on the way up. All the examples Mr. Quinlan has been using are Dublin, Dublin and more Dublin. The examples in counties Limerick and Cork are very different and we have the same issues in counties Limerick and Cork. If one wants to build houses, one needs infrastructure. I welcome the serviced sites fund, it is a way of helping things move forward. However, we need to move out of cities. People are moving out of cities. We have seen this during Covid, they want to get out to rural areas and move into towns and villages. On that basis I welcome the fund because it will help as services are lacking. Mungret is another site which is ideal for the serviced sites fund and will bring more housing to County Limerick. I would prefer it though if, when the officials are doing presentations, they move them out of Dublin and look at the figures around the country. There are a lot of TDs from around the country who represent different counties and I would like to see County Limerick mentioned the next time the officials are presenting figures.

Mr. Barry Quinlan

I apologise to the Deputy for that. A lot of it is around the greater Dublin area and the cities. We are working very closely with our colleagues in planning around the national planning framework, NPF, and the importance of the cities. I spent a lot of time, in my local government days, down in Limerick with the guys in the council so I know the area very well. I should have mentioned it more, I am sorry.

I call Deputy Cian O'Callaghan. It would be great if he could keep to two minutes.

I agree with Deputy Ó Broin that price premium and price inflation have been conflated and they are very different things. The Department might provide us with a short note citing the source for the comments made about price inflation, as opposed to price premium. Everything I read in the audit committee report was about price premiums. If that could be done it would bring this to a conclusion. If we can get agreement on that it would be great.

Mr. Barry Quinlan

We will come back to the Deputy with a note on that. We took note earlier of his request for the analysis. We will try to provide whatever we can to the committee.

I thank Mr. Quinlan.

Deputy McAuliffe is indicating.

I want to clarify my earlier comment which Deputy Ó Broin referenced in part. It is very clear that the overall budget provision in 2021 is €468 million. That is where the figure of 84% not being related to the shared equity loan scheme that I referred to comes from. While Deputy Ó Broin is correct to say €75 million is one of the larger figures, it does not take into account the €50 million for the serviced sites fund, €35 million for the cost-rental equity loan, €210 millon for the Rebuilding Ireland home loan, €60 million for the Land Development Agency, LDA, and the €38 million for LIHAF.

We are not going to solve the housing crisis with one scheme. It is about housing for all, it is about having a number of measures that respond to different sections of the market.

That more or less brings us to a close as we are out of time. I thank the officials for their time this morning and for assisting us with this scrutiny of what is really important legislation. We are going to have several other pre-legislative scrutiny sessions on this, where we will be meeting the likes of the National Economic and Social Council, NESC and the Economic and Social Research Institute, ESRI to look through their analyses of housing figures and to look through some of what is in this Bill.

The joint committee adjourned at 3 p.m. until 10 a.m. on Tuesday, 16 February 2021.