Home Building Finance Ireland Bill 2018: Committee and Remaining Stages

Sections 1 to 12, inclusive, agreed to.
SECTION 13

I move amendment No. 1:

In page 10, between lines 15 and 16, to insert the following:

"(3) Such bonds, debentures and other securities may be used for the purposes of delivering social, cost rental and affordable purchase homes and for the funding of remedial works on multi-unit developments where latent defects have been discovered.".

The amendment seeks to amend the section that deals with borrowing by Home Building Finance Ireland, HBFI. It aims to include a clause under which funding raised by HBFI may be used to deliver social housing, cost-rental projects and affordable purchase homes. There is a significant deficit in the provision of genuinely affordable rental and purchased homes and anything that can help the delivery of these much needed homes should be supported.

There is a major problem with latent defects in multi-unit developments throughout the State. I am sure we have all heard of apartment complexes where serious fire safety issues have been uncovered. If passed, the amendment would enable HBFI to lend money to owners' management companies to deal with such defects.

Providing a borrowing facility for people who have discovered building defects thanks to bad building that took place during the boom would help them to carry out expensive but important remedial works. It would enable owners' management companies to immediately carry out the necessary remedial works, thus addressing the safety issues in a timely manner and reducing building costs. It would enable owners' management companies to recoup the money from residents over a longer period, thereby easing the immediate financial burden imposed on apartment owners.

I must oppose this amendment, which is the same proposal that was already defeated on Report Stage in Dáil Éireann earlier this month. It puts essentials of the HBFI scheme at risk while conferring no additional powers on the agencies and these circumstances have not changed in the short period since it was rejected by the Dáil. Accepting this amendment could restrict types of projects that HBFI may finance from capital raised in the market. These restrictions have the potential to result in HBFI's activities being brought on balance sheet and leave the agency vulnerable to state aid complaints. Such issues arise because of how this amendment is drafted. In drafting the Bill, the Department of Finance has been careful to ensure that the board of management has full flexibility to provide any type of funding which serves to increase the supply of residential development generally. Referring only to particular segments of the market, such as funding for affordable housing, social housing or remedial work on multiple development units, this amendment could be interpreted as excluding all other types of residential properties and developments financed by money borrowed by HBFI. I am sure that is not the Senator's intention. This would inhibit HBFI's ability to achieve its stated policy of increasing the supply of housing in the State.

This amendment could also detrimentally affect the balance sheet treatment of HBFI in line with EUROSTAT rules. Restrictions on the type of lending in which HBFI may or may not participate will increase the risk of HBFI's activities being classified as within Government, with a resulting impact on gross general Government debt. Such an outcome could have implications for the amount of money the Government has available for other necessary projects and may restrict the ability of HBFI to provide funding in any given year.

The potential restriction on the type of lending HBFI conducts could give rise to state aid complaints from other prospective borrowers also wishing to access this funding who may be refused access where preference is given to other projects. These potential pitfalls would have the combined effect of discouraging HBFI from using its powers to borrow more funds, inhibiting its ability to boost the supply of housing in the State. This will be especially detrimental in circumstances where demand for funding exceeds the €750 million provided by ISIF. It is important to recognise that there is little to be gained by increasing this level of risk.

This amendment does not grant HBFI any additional powers regarding the type of projects it is able to finance that it does not already possess in the current Bill. The additional powers of lending that this amendment seeks to introduce are also available under section 7 of the Bill. Section 7 provides HBFI with powers to lend for the purposes of funding residential development in the State, provided such developments are commercially viable. Section 7(2)(b)(i) provides that HBFI shall aim to "contribute to the economic and social development of the State" in its lending. The Government made an amendment on Committee Stage which further extended these considerations to require HBFI to have regard to Government policy on housing when lending. These safeguards underpin that HBFI already has full flexibility to fund affordable or social housing schemes, provided these schemes are commercially viable. For example, were the applicant for a similar project to that of the Ó Cualann Cohousing Alliance for a housing development in Poppintree in north County Dublin to seek finance, HBFI would be in a position to grant it.

As for providing finance for remedial works for multi-unit developments, I fully understand and appreciate the stress and difficulties experienced by owners of homes which require remedial works. There is nothing in this legislation which prohibits HBFI from engaging in this type of lending, providing it is on commercial terms. In providing such lending, it is important to note that HBFI would not be able to do so at cheaper rates or for longer maturities than are already available in the market. Under state aid rules, it is simply not possible for HBFI to lend on terms that would not be acceptable to other market operators. Any deviation from this principle would jeopardise the scheme and would likely require state aid approval. It is envisaged that HBFI will conduct a number of market engagement exercises later in the year where it will meet prospective borrowers and industry representatives to provide clarity on the application processes and eligibility criteria. I suggest that any prospective borrowers seeking funding for the type of remedial works outlined in this amendment should engage with HBFI at that time to explore potential options.

This amendment increases the likelihood of a number of key risks to HBFI's operations without providing any tangible benefit. I therefore oppose it.

Will the Minister of State outline what lending facilities exist for people who discover building defects as a result of bad building that took place during the boom?

The lending facility will not be made available for individuals. It is for developers. If somebody has a scheme that is built and there is a requirement for remedial works, the developer who owned the full development and may still have public areas and a liability relating to remedial works can apply to HBFI for funding for remedial works, but they must be on a commercial basis. We cannot deviate from that. The developer has the opportunity to make that application to HBFI as the Bill stands without this amendment.

Can HBFI lend to management companies?

Not to management companies but to the owner of the development, the person who built it who still has a liability.

Amendment put and declared lost.
Question proposed: "That section 13 stand part of the Bill."

The Irish League of Credit Unions appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, to discuss credit unions being able to make members' funds available through a special purpose vehicle for the provision of housing. Does HBFI fall within that ambit? I note the State is putting in €20 million of funding in the form of share capital. It is 100% owned by the State. The entity has borrowing powers under section 13(3), which states: "The total aggregate amount of principal which HBFI and any HBFI group entities are at any time liable to repay on foot of any liability incurred as a result of the exercise of a power under this section shall not exceed €750,000,000." Could this provide a vehicle where the credit union movement could provide members' funds towards an investment?

Nothing is stopping HBFI from participating with a credit union which may participate in development, should it choose to do so.

The Irish League of Credit Unions has stated that it has members' funds at its disposal that are currently on deposit in mainstream banks in most cases. It would like to be able to use those funds in a relatively risk-free investment. It has €7 billion at its disposal overall. Could it provide some of that funding for a special purpose vehicle run by the State to provide housing? HBFI is a lending body. Could this provide such a vehicle?

There is nothing to stop that from happening but it is important to understand that some credit unions have established a special purpose vehicle for development.

I am aware of that.

There is no such thing as a risk-free option. There is a risk when money is put into such vehicles and lent to developers. Is the Senator referring to co-funding into an SPV with a credit union fund?

No. Some €20 million is provided by the State and HBFI will leverage funding from various other sources. I am asking if it could access funds in this way.

The credit union movement could come together to provide several million euro in long-term debenture loans to HBFI.

I assume it would be able to do so.

Bills of this nature can be very technical. The Bill before us is very important. How does HBFI differ in structure from the Housing Finance Agency? Why is HBFI being established when we have the Housing Finance Agency, which can also provide funding?

The hope and expectation is that this funding stream will be for the smaller developer. We do not want two very large entities having two developments of €320 million each. It is for the small builder who will build ten or 15 units.

There is no lower limit on funding.

There is a lower limit of ten units. We hope that the guys who build ten units in small rural towns will have the opportunity to avail of this. If they go to a bank they can get up to 60% if the site is paid for but the remainder has to come from equity or mezzanine finance, which is particularly expensive and can be more than 15%. The Senator and I sat on the banking inquiry and the big criticism was that the banks took all the risk and that all commercial real estate development was on their balance sheets.

If someone is building 20 units and gets 40% of the funding from his local bank, can he look for the balance of the funding from HBFI?

I do not want to be as prescriptive as that. When it is established, HBFI will set its own criteria. I anticipate that it will not be making the 60% available in the Senator's scenario but I would anticipate builders going to HBFI for some of the 40%. There is an expectation of some equity being involved, and this is the case in other construction sectors. I do not refer to pretend equity, as was prevalent during the boom in the form of personal guarantees. That was not equity. We want equity from developers and we want funding from institutions but if there is a gap between the equity and the borrowed amount, this will help to fill it.

Question put and agreed to.
Sections 14 and 15 agreed to.
SECTION 16
Question proposed: "That section 16 stand part of the Bill."

Am I correct in stating that this body will be audited by the Comptroller and Auditor General on an annual basis? Will the statutory auditors referred to in section 16 be an outside firm?

There will be an audit but HBFI will, in addition, be audited by an outside independent auditor.

Sections 16 and 17 are interrelated.

Section 17 is a standard provision requiring a senior member of staff to appear before the Committee of Public Accounts to answer questions in respect of HBFI's accounts, the efficiency with which it uses its resources or any report produced by the Comptroller and Auditor General relating to HBFI or a group entity. The section also incorporates a standard provision requiring a senior member of HBFI staff not to comment on Government policy when giving evidence.

In reference to section 16, will a statutory independent auditor be appointed as well as the Comptroller and Auditor General?

What does the Senator mean by a statutory independent auditor?

Under section 17, HBFI will be audited by the Comptroller and Auditor General but section 16 states:

Where, following prior consultation with the Minister, the board of HBFI considers it appropriate to do so having regard to its functions (including the obligations imposed on HBFI under section 7(2)), HBFI or any HBFI group entity may appoint a statutory auditor

I am asking if it will appoint a statutory auditor. The Comptroller and Auditor will definitely perform an audit. Will an independent auditor be appointed from one of the big accountancy firms?

That may be the case and a statutory order may be required in the event that HBFI issues debt on a traded market.

Question put and agreed to.
Sections 17 to 23, inclusive, agreed to.
SECTION 24
Question proposed: "That section 24 stand part of the Bill."

This is obviously a standard clause in the establishment of any new body. Who will carry out the review and how often does the Minister of State expect it to be done? To whom will the review be provided?

Section 24 provides that HBFI must, upon a request from the Minister for Finance, report on the achievement of its objectives with reference to section 7(2). This section also requires the Minister to produce a report as soon as possible after 31 December 2020, and every subsequent two years, setting out his or her assessment as to whether HBFI should continue to operate. In making his or her assessment, the Minister may solicit the views of the board of HBFI or consult the public. A copy of each report will be laid before each House of the Oireachtas. HBFI has always been envisaged as a temporary measure to stimulate increased financing for residential projects. This section is designed to ensure HBFI's temporary nature by providing a mechanism through which its performance can be assessed. Once HBFI has achieved its objectives in reference to section 7(2), it can be discontinued to ensure that its ongoing operation does not distort the market.

There is no formal sunset clause but there is a mechanism that can be triggered.

Question put and agreed to.
Sections 25 to 38, inclusive, agreed to.
SECTION 39
Question proposed: "That section 39 stand part of the Bill."

The Act will come into play in January. When does the Minister of State anticipate that the HBFI will make its first loans?

We hope the HBFI is established as soon as possible. The process has been a bit slower than we would have liked.

Have a chief executive officer, CEO, and staff been appointed?

When does the Minister of State anticipate it will make its first loan? What is his intention?

No one would think the Senator and the Minister of State were in the same party.

Occasionally I like to get back to my roots. I asked the official for the Bill and felt I needed to put the Minister of State through some of his paces. He is doing well so far.

With colleagues like Senator O'Donnell who needs the Opposition?

The proof of the pudding will be in-----

Senator Warfield was much more gentle with me.

The Minister of State is doing well. I just want to ask my final question.

It is a Thursday afternoon and I am indulging Senator O'Donnell.

When does the Minister of State anticipate the first loans will be made?

We will be seeking applications for staff by the end of January.

Question put and agreed to.
Title agreed to.
Bill reported without amendment, received for final consideration and passed.
Sitting suspended at 1.15 p.m. and resumed at 2 p.m.