Seanad Éireann debate -
Tuesday, 21 Dec 1982

Vol. 99 No. 4

Housing Finance Agency (Amendment) Bill, 1982: Second Stage.

Question proposed: "That the Bill be now read a Second Time".

Minister of State at the Department of the Environment (Mr. Quinn)

I am pleased to be in the Seanad with this Bill. The purpose of this Bill is to remove doubts as to the power of the Housing Finance Agency to issue index-linked bonds with a ministerial guarantee. It could be argued that if bonds were issued by the agency on the basis that all payments made to investors in addition to the amount originally borrowed were classed as "interest" the bonds would appear to be consistent with the Housing Finance Agency Act, 1981. The Attorney General considered, however, that where schemes of a novelty nature are proposed, as in the case of index-linked bonds, the legislation should reflect the intention to implement such schemes.

Furthermore, the board of the agency considers that it is desirable to provide in the prospectus for the first bond issue that the amount due on redemption per £100 nominal of stock will be £100 multiplied by a ratio based on movements up or down in the consumer price index number. Doubts were expressed as to the power to issue guaranteed bonds on this basis having regard to the limit of £200 million on borrowings provided for in section 10 (3) of the 1981 Act.

Section 2 of the Bill refers to the issue of bonds on the basis that the amount due on redemption may be calculated by reference to the consumer price index number or in some other specified manner. Any increase in the value of the bonds after issue will not be reckoned for the purpose of complicance with the borrowing limit in section 10 (3) of the 1981 Act.

Under section 2 of the Bill any ministerial guarantee under section 11 of the 1981 Act of bonds financed from domestic or foreign currencies would also cover any such increase in value.

Notwithstanding the inevitable teething problems with a novel housing finance scheme of this kind, individual loans valued at over £40 million have been approved under the 1981 Act while the agency has advanced £15 million to local authorities to meet payments which have matured under the scheme. Requests from the authorities for funds are being met by the agency within a matter of days.

Now that the scheme is operating fairly smoothly in most areas, the board are considering the question of introducing improvements in the scheme. I would hope that improvements will be implemented fairly soon in order to assist potential house-purchasers who are disqualified under the present scheme. This would also generate building work which, in turn, would provide much-needed relief and activity for the building industry.

Money spent so far by the agency has been funded by short-term borrowings from commercial institutions. It is desirable that the agency's operations should be funded mainly on a long-term basis by way of index-linked bonds. I am anxious to have the Bill passed by the Seanad to enable such bonds to be issued next month. The preparation of the prospectus for the bonds has already reached a very advanced stage. I commend the Bill to the Seanad.

Mr. Lanigan

I should like to welcome the Minister of State to the House and I sincerely hope that we will see him introducing Bills of this nature on a fairly regular basis. Eventually it will be of benefit to people who have bonds with a ministerial guarantee. The fact that anybody involved in a purchase or borrowing of any kind can have an index-linked ministerial guarantee seems very useful to me. In the short time I have been in the House I have never read a Minister's speech in which it has been suggested that schemes of a novelty nature were being introduced. I sincerely hope that the novelty is to be taken in terms of being new rather than in a Christmas atmosphere. A novelty nature is a dangerous concept.

Teething problems were mentioned. The Minister said: "Requests from the authorities for funds are being met by the agency within a matter of days." I wonder is that true. My feeling is that they have not been met within a number of days. Perhaps that is the case at present. The Minister said the agency was funded by short-term borrowings from commercial institutions. How many commercial institutions have money to invest in any type of building? Generally you feel that if you invest in building the pay-back is long term. It is interesting that people can now invest in building and get a guarantee from a Minister which is index-linked and that people are considering it in terms of short-term loans. I am interested in the concept and I wonder what the eventual turn-out of this agency will be. The Minister also said that it was desirable that the agency's operations should be funded mainly on a long-term basis. Anybody who gets involved in house building or in building of any description is looking for a return on a long-term basis. Anybody who thinks he will get a return on a short-term basis from a building project is living in cloud cuckooland.

We introduced the Bill and we agree with it. There are a number of conceptions of return on capital involved in building. I hope the Minister will explain them to me before the Bill goes through the House. I welcome the Minister. I wonder how long it will take for individual loans to go through and when people will be repaid on their investment. I wonder whether a short-term or a long-term investment is desirable or is achievable.

Mr. Reynolds

I congratulate the Minister of State on his appointment to the Department of the Environment. I have no doubt that he will hold that position for the next five years. Listening to Senator Lanigan one is inclined to ask why did his party oppose this Bill when it was introduced. It got a very rough passage through both Houses.

A sum of £40 million has been approved for house building and £15 million of that amount is in the process of being paid out. That money would not have found itself in the building industry if the Housing Finance Agency did not exist. When the bonds are issued with the necessary guarantees that means that more money will be injected into the building industry. Everyone will agree that that industry needs money because it is in a complete mess. Local authorities are not building houses except in rare cases for people who are destitute. There is little housing work being carried out in urban or rural areas. Anything that allows money to be injected into the building industry should be welcomed.

I congratulate the Minister on his appointment. I should like him to tell the House the kind of improvements he intends to introduce in the near future.

Mrs. Bulbulia

First, I should like to congratulate the Minister. As a native of Sandymount, which is in the heart of the Minister's constituency, it gives me special pleasure to congratulate him and wish him well.

I am pleased to speak in support of this Bill, which is the amendment to the Housing Finance Agency Act, 1982. I understand from the preamble and from the discussions that the necessity for this legislation is to ease whatever teething problems might arise on a legal basis for the issue of the necessary finances and bonds and to help the agency to float the bonds in the coming months with confidence and without any legal impediments.

I should like to take this opportunity of expressing my thoughts about the concept, development and progression of the agency in the past nine or ten months. As a member of a local authority it has been my task to promote it where I thought it proper to do so, to encourage it and to ask people to examine it closely to see if it met with their needs in the area of housing. I am sure most members of local authorities will agree that one of the most pressing problems with which they have to deal is the necessity to help young couples in the area of housing which, after all, is the basis for secure, happy homes and deep-rooted happiness, which is the right of all young couples embarking on marriage and a future together. Housing is the basis of this area of life.

Members of the Seanad will recall that the original Bill passed through the Dáil at the end of 1981 and passed through the Seanad in the early part of 1982. It came into force in February, 1982. At that time there was much cynicism abroad about the measure and there was much misunderstanding. Many people, including Members of this House, had extreme misgivings about how the Bill would operate. To many, practicalities appeared to be be a problem. I should like to pay tribute to all concerned in the Housing Finance Agency because there has been a rapid development in the past nine or ten months in bringing this infant organisation to the mature state at which it is now.

I was pleased to learn recently that the amount of money actually lent and paid out to the end of December 1982 will be in the region of some £15 million. That is a most welcome development. When Senator Lanigan was speaking he made heavy weather of the term "novelty". I should imagine that in the preparation of his speech the Minister meant "novelty"—nova— in the Latin sense rather than in the sense of something light, frivolous and inconsequential. Certainly the agency is none of those things. It is with great confidence that Members of the House should look forward to a massive expansion in 1983 of the figure of £15 million.

When the organisation was founded obviously it had teething problems, but what organisation has not suffered teething problems while getting off the ground? Despite the cynicism I referred to and the scepticism of some people at higher level, it developed into a strong organisation. Its infant months were troubled by the matters I mentioned. However, I must pay tribute to the previous Minister for the Environment who, when he came to grips with the problems of the agency, gave it every encouragement and support that enabled it to reach its present stage. I mean my tribute in a wholehearted way. The Housing Finance Agency came from a previous Coalition Government: the former Minister found himself landed with it but he rose to the task and gave it the necessary support and encouragement.

However, there are many people in local authorities and in the Houses of the Oireachtas who are not aware of the benefits of the agency. Perhaps they do not even understand the philosophy of the agency. When one realises that in nine months more than 1,000 people were helped to acquire and to pay for their houses, one realises the attractiveness of this type of operation when it is properly understood. Many people — and I must include here members of the legal profession — are not yet fully aware of this nor do they understand the legal operations of the agency. I find this is so when talking to people at constituency level who come for advice. The Minister and the Minister of State must make a major effort in 1983 to get the scheme across in the simplest terms to the general public and particularly to those in a position of advising people. This is of paramount importance. There is not much point in having an effective agency in theory if, in practice, it is stymied by a lack of information. I appeal to Members of this House and to members of local authorities to explain to people clearly and simply what the scheme is about. We can see from the price of houses today, as published by the Department of the Environment, that people dependent on the SDA loans would never be in a position to finance the gap of deposit between the loan and the price of the house. This scheme will help them to do that. It reduces dramatically the amount needed through their savings for a deposit.

I am aware that difficulties exist in the early years of repayment where sometimes the amount paid will not equal the interest on the amount borrowed but I am confident that when the property market becomes revitalised, which all of us hope will occur, and when property values keep in line with inflation or exceed that rate, the cost of the house owned by the couple, subsidised through the £1,000 subsidy and the £3,000 mortgage subsidy, will keep more in line with the value of the loan outstanding at that time. That point must be made.

If I must make a plea on these difficulties, I suggest that the Housing Finance Agency be encouraged to look sympathetically at the position of people who, through circumstances, find themselves in a job mobility situation. Without any choice on their part they must change abode for job purposes or are forced to relocate from one area to another. I should like them to be accommodated in the sale of their house and in the purchase of another house in the new area. I should like to see the scheme applicable to all people. In view of the high rate of redundancies and our unemployment problem, more and more people are likely to find themselves forced to move to other areas for job purposes. I should like to think that the terms of the Housing Finance Bill would apply to them.

I am confident that the Minister and the new administration will look at the progress of the agency. Despite our tremendous record in house ownership, of which we are all proud, I am sure they will encourage the agency to expand their activities.

I was taken aback recently when I saw that the subsidy on local authority houses at today's prices is about £87 per week. That is a very startling figure. It is an extract from the recent Government economic plan, so of course I have no reason to doubt its accuracy.

Mr. Lanigan

The Government's economic plan. I like that.

Mr. Bulbulia

I meant the previous Government's economic plan. The rapidity in current political events and the volatility allows one to make a slip like that. I am sure the Senator will be generous about it.

Mr. Lanigan

Rapidity might be the name of the game.

Mrs. Bulbulia

I exhort that money be made available more readily and cheaply and over a longer period to those people who are in the marginal position of deciding whether they will buy their own house or be dependent on public housing. More and more people are falling into this interim situation. I would like to see concentration on their plight.

I am pleased that the amendment is before the House and I recommend it for speedy adoption. I do not think it is contentious in any way. It will help many thousands of young couples in the coming year to acquire their houses in a planned budgetary way which is vital for their economic well-being and indeed, for their mental state and their happiness. When we look back at the birth, infancy and growth of the Housing Finance Agency I hope we will realise that we have started and encouraged something which has been more than worthy of support and has become a fixture of Irish life. I recommend this Bill and I commend it.

Mr. Lanigan

Before the Minister concludes the debate, I would like to ask one question. What will be the effect of a decrease in inflation rates on the repayments by any borrower at a particular time?

Minister of State at the Department of the Environment (Mr. Quinn)

I would, first of all, like to thank all who have welcomed me into this House. I was a Member of it for some time — perhaps not a very willing Member but nevertheless a Member — and I have fond memories of it. In summing up I will try to answer all the questions that have been put to me, starting with Senator Lanigan on behalf of the Opposition.

The purpose of the Bill is to tidy up a legal anomaly that was read into the original Act which raised the possibility that the Housing Finance Agency would not be able to get the long-term finance by way of index-linked bonds that they were originally set up to get. Therefore, the bonds will be ministerial-guaranteed by virtue of this Bill being passed by the House and they will be linked to the consumer price index or as the prospectus for the bonds would otherwise suggest.

To clarify another point, the reason why the short-term moneys were borrowed in the first instance was that until such time as the bonds could be issued and the long-term money got into the accounts of the agency they had to operate on short-term money. The original concept of the agency was always in terms of the agency acquiring long-term funds by way of bonds and then in turn lending them out to the applicants for loans in the same sort of way, in marked contrast to building societies who have to operate on long-term loans on the one hand and short-term deposits on the other. Senator Lanigan's question about novelty relates, as Senator Bulbulia has pointed out correctly, to the commitment to introduce reform and change into this country in all aspects where required.

Mr. Lanigan

That was not my best subject.

Mr. Quinn

I have heard Senator Lanigan on better subjects, let us say. However, that is the point and the novelty is used on the basis of the correct Latin origins, as Senator Bulbulia has pointed out.

I agree that there were difficulties at the beginning. All of us on local authorities are aware that there were difficulties in getting the administration and legalities of all this sorted out, and there was the question of available finance because of the change of Government. Senator Bulbulia has referred correctly to the final enthusiastic endorsement by the former Minister for the Environment, Deputy Burke, in relation to the operations of the agency, but the first loans were not granted until 31 August. Since then the agency have been working, with the co-operation of the 41 local authorities, very efficiently and effectively. Indeed, if any Member of the Seanad comes across problems in relation to administration I would be very glad to hear from them. I am given to understand and I have no reason to doubt that the system is operating effectively. But this is where Senators as public representatives can perform a very effective role. If they come across problems they should contact the agency directly and if they do not get satisfaction they should come back to me.

The final point Senator Lanigan raised, which was raised also by Senator Bulbulia who suggested one area where the changes might be made, was in relation to changes in eligibility for loans. The agency themselves want to be more flexible in the way in which they can arrange loans and regarding the qualifications for loan entry. For example, Senator Bulbulia has talked about people who, through no fault of their own, have to move house and cannot afford to buy a house in the new area where their job is located or whatever and under the present terms would be debarred from qualifying for a loan in this instance because they would not be considered first-time house purchasers. Many other people perhaps have got into difficulties financially and would be in a position, with assistance from the agency, to rehouse themselves and to meet the repayment costs under the HFA scheme if they were allowed to get to a HFA loan but if they did not qualify for the HFA loan possibly would end up on the local authority housing list when otherwise they would be capable of housing themselves in the first instance. That kind of flexibility is aimed at helping the people caught in the interim sector — I think that was the phrase used — the middle sector where the difficulties of getting into the housing market are a little too much for them.

Senator Reynolds talked in terms of the scheme generally and the way in which the HFA have got off the ground and been accepted by most people. The return from the various local authorities — 41 of them — operating the scheme indicate that it seems to be better received in some local authorities rather than others. It is the intention of this Administration to promote the positive aspects of the HFA on a nationwide basis and we hope that local authority members, public representatives and Members of the Seanad will be made fully aware of the benefits of the HFA scheme so that people who come to them looking for housing assistance are also made fully aware of those benefits.

In relation to the speech made by Senator Bulbulia, who is a good fan and proponent of the HFA, I welcome her comments very much. In particular I share her views that many people, particularly in the legal profession and the conventional housing market, are not sufficiently aware of the real benefits of this scheme. In the previous Coalition and now in this Administration by a novel way of arranging finance we have reduced substantially or in some cases eliminated totally for some people the entry or threshold costs to get into the housing market and we have introduced what in effect can be described as either a pay-related mortgage scheme or a differential mortgage scheme, which in essence is what this HFA is about. To that extent they will enable very many people to house themselves with sensitive financial assistance by way of this kind of loan who otherwise would simply not be able to accumulate a deposit on a house in sufficient time to be properly housed with a traditional local authority loan or a building society loan.

For those reasons I believe that the Seanad should pass this Bill and that the HFA in the coming years will be targeted into the middle sector — the interim sector in Senator Bulbulia's words — in such a way that many people who simply cannot afford the entry costs of housing at present will get very sensitive and well-targeted financial assistance from the State. I have nothing further to say on Second Stage.

Question put and agreed to.

Agreed to take remaining Stages today.