I thank the Chairman and members of the committee for the opportunity to speak on a range of housing issues. I will give an overview of developments across a range of areas including the private housing market, affordable housing and social housing, including the voluntary and co-operative sector. Given the committee's interest in the matter, I will also provide an outline of the role of the Housing Finance Agency.
For the convenience of members, we are circulating a detailed breakdown of activity under the various social and affordable housing programmes on a county by county basis for 2007 and the first three quarters of 2008. There is a vast amount of housing data available on the Department's website which can be accessed at any time.
Like housing markets across Europe, in the US and elsewhere around the world, the Irish housing market has been going through a considerable cooling down process since 2006. This has been evident in terms of house prices, housing output and realised demand for home ownership.
Provisional house price statistics held by the Department, based on data compiled from lenders, show that, nationally, new house prices at the end of quarter four of 2008 had dropped back to levels last seen in quarter three 2005, with Dublin prices now back at quarter four 2004 levels. Prices for second-hand houses, both nationally and for Dublin, are now comparable to prices in the first quarter of 2005.
All the key housing output indicators have been showing clear evidence of a significant contraction in activity in the past two years. Completions, using the 12 month running total, peaked at 93,000 houses in 2006, a level which was widely recognised to be significantly ahead of the annual average 55,000 to 60,000 level required to meet demand in the medium term. Output had dropped back to some 51,000 units last year, although this may over-estimate actual building activity in 2008 given that completions are measured by ESB connections and a portion of the units connected in 2008 may well have been physically built prior to that.
Looking further back through the supply chain, commencements and registrations are also significantly down — by 71% and 82%, respectively. Looking at projections from a range of sources, completions in 2009 are likely to be in the 20,000 to 25,000 range. It must also be taken into account that there is a considerable quantity of newly completed and unsold homes, estimated to be of the order of 40,000. In addition, estimates of the quantum of second-hand properties for sale range from 55,000 to 70,000.
The prospects for the housing market in the period immediately ahead will depend on a range of factors, including the overall economic climate, sentiment towards housing and the availability of mortgage finance. Reductions in price have clearly led to the creation of much better value in the market. For households wishing to become home owners, this price reduction, coupled with other factors, particularly the significant reduction in mortgage interest rates and mortgage interest relief changes, have resulted in significant improvement in the affordability position of first-time buyers. The affordability ratio used by the Department for many years, which gives the percentage of household net monthly income required to service a mortgage, shows that, for the country as a whole, 24% of net income is required to service a mortgage. The equivalent figure for Dublin is 27.5%. This means, in reality, that the national ratio is at 2003-04 levels, with the Dublin ratio now back at 1996-97 levels. It remains to be seen how this position evolves further in the months ahead, arising from any further changes in interest rates and the net income position of borrowers.
Poor sentiment and a more restricted credit environment are now the defining features of the housing market. In terms of availability of credit the Government has taken steps to ease the situation for first-time buyers through the home choice loan scheme and the terms of the bank recapitalisation scheme. The home choice loan scheme, which is designed to facilitate rather than incentivise house purchase, is now operational, providing a line of credit to certain first-time buyers, operating through a small number of local authorities acting on a regional basis. Under the recapitalisation scheme, the participating banks have undertaken to make available an additional 30% capacity for lending to first-time buyers in 2009. It will be some months before the effects of either of these measures can be gauged in terms of their impact on facilitating the realisation of underlying demand.
I will now focus on social and affordable housing. Responding effectively to a range of housing needs remains at the top of the agenda for the Government and the level of resources directed towards social and affordable housing, improvement and regeneration measures amounted to some €2.4 billion in 2008, including some €1.73 billion in Exchequer funding. These record investment levels have enabled record levels of housing needs to be met. It is estimated that the needs of some 19,500 households, in total, were met in 2008 through the full range of social and affordable housing programmes.
The 2008 housing needs assessment showed an increase of some 30% in net housing need since 2005. As highlighted at the time, part of this increase is attributable to efforts to identify particular households who may have been under-represented in previous assessments, including households comprising older people or people with a disability. In deploying the available resources for housing in 2009, priority will attach to meeting the needs of these and other vulnerable groups. In that regard, the Exchequer provision for 2009 will be finalised in the context of the supplementary budget next month, and it is expected that within the more constrained financial environment, a very significant level of investment will still be secured to support activity under the range of housing programmes this year. However, given the difficult fiscal and economic climate in which we find ourselves, and the significant transition that the housing sector is going through, flexible and imaginative approaches are necessary to continue to respond effectively to the diverse housing needs that obtain.
Looking at affordable housing specifically, as a result of significant house price increases in recent years and difficulties encountered by prospective first-time buyers in accessing home ownership, particularly in urban areas of high demand, the provision of affordable housing has been a significant priority for the Government. It is an area that has evolved considerably in a comparatively short period, primarily through the introduction of the Part V mechanism with effect since 2002, and this evolution continues in line with recent major changes in the housing market and the wider economy.
In the context of rapidly increasing house prices in certain areas, the Towards 2016 social partnership agreement set out an ambitious target to deliver 17,000 affordable homes in the years 2007 to 2009. Local authorities responded strongly to this challenge delivering more than 3,500 units in 2007 and an estimated 4,500 in 2008.
However, little more than two years on from that agreement we find ourselves in a very different world. There has been a sharp downturn in the housing market generally, price reductions and expectation of further reductions, increased insecurity concerning employment and income levels and a more restricted credit environment. In terms of the affordable housing market specifically, to all of these factors the further issue of the erosion of the differential between the affordable price and the market price can be added. These developments, coupled with the very strong surge in delivery in 2008, particularly under Part V, have resulted in an increase in the stock of affordable housing units available. In looking at this issue, it is important to acknowledge that it would be normal for authorities to have a certain amount of completed affordable homes available at any given time, principally comprising units either being prepared for or in the course of sale. At the end of 2007 when units were generally still selling well this figure stood at approximately 2,200 homes available nationally. It is also important to note that there have been significant sales of affordable housing during 2008; some 2,750 across the country.
It is now estimated that the number of affordable units available nationally has risen to somewhere in the region of 3,700 units. These are not spread uniformly across the country; there are a number of high delivery areas where the stock levels have increased, while there are other local authority areas that do not have a significant stock. Despite the current difficulties, many of the units available are already in the process of sale or will be sold in the coming months. Local authorities estimate, however, that approximately 1,800 of the units already available may be difficult to sell in the current market. We expect that a further 2,270 homes will come into stock this year, some of which will be well placed and priced to sell even in the current climate, but others may be more difficult to sell.
As the economic climate and housing market changed in recent months, the Department in co-operation with the Affordable Homes Partnership and local authorities has been monitoring the situation closely. The holding costs to local authorities of unsold units are considerable in addition to the obvious undesirability, for many reasons, of leaving these homes unoccupied. At the Department's request, the Affordable Homes Partnership, AHP, has already examined the position in detail and met the local authorities in the ten highest delivery areas to identify actions that might assist in the sale of these units. The position in all authorities has been reviewed as part of the recent series of housing action plan meetings which have taken place between the Department and local authorities. In February, the AHP held a seminar for all local authorities to provide specific updated advice on the marketing and sale of affordable homes in the current climate. The priority now is to ensure that available affordable homes are utilised and the units available are brought into use as soon as possible in the most appropriate and effective way. The first priority of local authorities is to sell these units to those eligible for affordable homes and, in many cases, this is what is being done successfully throughout the country. However, the indications are that selling a significant number of affordable homes is difficult. This is happening particularly in areas where significant reductions in open market prices have eroded the discount on affordable units.
The Department is finalising a circular to all local authorities which will be accompanied by a sales strategy prepared by the AHP setting out the options that authorities should consider in addressing the matter. Local authorities are being asked to identify those units most likely to sell and refocus their sales efforts on these developments.
In tandem with the focus on sales, authorities are also being requested to consider alternative options for the use of affordable units which may not sell at this time. The other options to be included in the circular being finalised include sale at market value on the open market, the transfer of affordable properties to the rental accommodation scheme for a temporary period, sale to local authority tenants under the incremental purchase scheme and the use of affordable properties as a temporary social housing support under a leasing arrangement where appropriate.
In the coming months, the Department will continue to monitor and support local authorities' work to address these challenging issues, review progress on the priorities identified and adapt and develop the approaches involved as necessary in the evolving housing market and economic climate. Members of the committee will also be aware of the proposed changes to the sales of affordable housing to be provided for through the Housing (Miscellaneous Provisions) Bill 2008. This will provide for the introduction of a new affordable homes purchase scheme which, in the longer term, will facilitate the purchase through a single equity based mechanism of property under the various affordable housing schemes. Deputies will have an opportunity to discuss this matter further when the relevant legislative provisions are tabled by way of Committee Stage amendments to the Bill.
As with affordable housing, the response in recent years to the very ambitious social housing targets set out under the social partnership agreement has been very strong. Under the Towards 2016 agreement, a target was set for the delivery of 27,000 social housing starts over the period 2007 to 2009, including 2,000 units in each of the three years from the voluntary and co-operative sector. That target was met in 2007 with almost 7,000 local authority starts delivered — the highest level of output under the local authority programme in more than a decade — adding to the 2,200 record voluntary housing starts. The final data for the number of local authority starts in 2008 is expected to show a reduction, but it is estimated, nevertheless, that some 7,600 housing units were completed or acquired under the main local authority and voluntary and co-operative housing programmes last year.
Activity under the rental accommodation scheme has been increasing steadily with 6,900 households transferred from rent supplement in 2008, significantly exceeding the 5,000 household target. The total number of households now accommodated through the scheme either directly in RAS or in other social housing options was 18,011 at year end 2008. It is estimated that local authorities will achieve another 7,000 transfers in 2009 and it may be possible to extend this further, given the current market conditions and the potential for deploying unsold affordable housing units under RAS type arrangements.
The period ahead will present many challenges in the housing area. Most significantly, we have seen, on the one hand, a considerable increase in social housing need and, on the other, we are seeing the level of resources available to tackle that need coming under pressure. This demands that we continue to make every effort to make more efficient and effective use of the finite resources available to us. Specifically, it requires that the social housing supply programme is, in the short term, refocused away from construction in recognition of the more constrained state of the public finances and the good value presently available in acquisitions and other market-based arrangements. Through the careful implementation of the new leasing arrangements being introduced this year, the Exchequer can avail of the opportunity to meet increasing social housing need in the most cost-effective way available. It is hoped that this initiative will deliver at least 2,000 new homes in 2009 alone and we would anticipate it actually has the potential to allow for a significant increase in social housing supply in the next few years notwithstanding shrinking resources. However, these arrangements will take time to bed in and are seen as a long-term, cost-effective solution to social housing provision.
The Housing Finance Agency plc, HFA, is a company limited by shares under the terms of the Housing Finance Agency Act 1981, as amended. The principal objects of the company are to advance funds to local authorities to be used by them for any purpose authorised under the Housing Acts and to borrow or raise funds for these purposes. All of the issued share capital of the agency is beneficially owned by the Minister for Finance. The agency operates as a company and is therefore subject to usual accounting disciplines. The legislation under which it was set up enjoins it to at least break even in its operations and it operates without Government subvention.
The agency lends to local authorities primarily for the purposes of carrying out their functions under the Housing Acts. In that regard, local housing authorities use the funds they borrow from the HFA for the various housing schemes that are available to assist low-income households to achieve home ownership such as the shared ownership and affordable housing schemes. They also borrow from the HFA for on-lending to various approved voluntary bodies to enable such bodies to provide rental accommodation under the capital loan and subsidy scheme and towards the acquisition of land to enable them to provide accommodation to meet their own social housing needs.
The HFA's powers were extended in 2002 to provide loans for local authorities for purposes authorised under the Sanitary Acts and Waste Management Acts and to lend directly to voluntary bodies. However, state aid clearance is required from the European Commission to use these powers. While the Commission approved the HFA's lending to voluntary bodies in July 2004, the agency is in consultation with the Commission on lending to local authorities for water and waste purposes.
In 2008, gross loan advances amounted to €1,062 million. Advances net of repayments and redemptions were €621 million and at year-end the loan book reached a total of €4.44 billion. The Housing (Miscellaneous Provisions) Bill 2008 contains a provision to increase the agency's borrowing limit from €6 billion to €10 billion.
It is clear that the world around us has changed very rapidly in the past 12 to 18 months. All areas of the housing market have been profoundly affected by those changes and the challenges presented are considerable. The Department is committed to working in collaboration with our partners in local government and in the voluntary and co-operative housing sector to ensure we position ourselves to be able to continue to respond flexibly and effectively to new challenges. At the same time, we are mindful of the need to keep an eye on the future so we can continue to adapt our approaches as fiscal and economic conditions evolve.
I thank the Chairman for the invitation to attend this meeting. My colleagues and I are happy to respond as fully as possible to questions from committee members and will follow up later with responses to queries we cannot deal with today.