John Paul Phelan
Question:139. Deputy John Paul Phelan asked the Minister for Finance his views on the role of institutional investment in the provision of housing; and if he will make a statement on the matter. [15959/23]
View answerThursday, 30 March 2023
Questions (139)
Written answers
The Irish funding landscape has undergone significant change since the Global Financial Crisis in 2008. In order to address the current imbalance between supply and demand of housing across all tenure types, the Government's Housing for All plan aims to significantly increase the supply of housing to an average of 33,000 per year over the next decade. This is an ambitious plan which will provide increased housing supply and affordability.
While the plan is backed by unprecedented State investment of over €4 billion per annum, developing these homes will require a significant amount of development and investment capital, and the Government cannot deliver on this programme alone. The only way we can deliver housing at the substantial scale we need is by also attracting private capital to the market, alongside our public investment.
This private investment is particularly required at the development stage to ensure the provision of social, affordable and private homes – homes of all tenures for families across the country at all price points.
Through updated modelling undertaken by the Department of Finance, it is estimated that €13.5 billion of development funding per annum, comprising both debt and equity, will be required to develop the Housing for All target of an average of 33,000 homes per year. Of this €13.5 billion per annum, an estimated €11.4 billion will be required from private capital sources. While a portion of this will come from our domestic banks, the majority will be required from international sources.
Given recent withdrawals from the banking market, there are fewer retail banks now lending for property development in Ireland than was previously the case. Domestic banks set risk limits around the type and nature of lending activity, resulting in selective and prudent lending practices. It is not desirable that domestic banks provide senior debt at unsustainable levels and levels of debt should appropriately reflect the risk profile of development projects.
As a result, we will continue to also welcome inward investment to our housing market, as we have successfully done with investment in other sectors of our economy. This private and patient capital coming from well-established investors, such as pension funds, is a normal facet of housing investment in many of our European neighbours and beyond.
That said, we have been clear that institutional investment should not displace home-buyers in traditional estates where demand and viability is not an issue, and the pathway to ownership for first-time buyers must be protected and the Government does not support the bulk purchase of residential houses by institutional investors. This is why the Government introduced a new 10% rate of Stamp Duty on such purchases, increased from the rates paid by other purchasers of 1% on values up to €1 million and 2% on values above €1 million.
In order to ensure these new homes can be built, we must support developers in accessing the finance they require to deliver homes at the levels we need. To support the homebuilding sector in building up their capital base, the establishment of a deeper and more robust domestic capital markets environment for homebuilding is a key objective.
We know that, in general, the Irish developer community has been equity constrained since the Global Financial Crisis. The availability of private and institutional real estate finance has played an important role in providing developers with access to this equity finance.
Through Home Building Finance Ireland, we are supporting access to debt finance for residential development. By the end of 2022, Home Building Finance Ireland had approved over €1 billion of funding, supporting the development of over 5,700 homes across 21 counties. A review of Home Building Finance Ireland is currently underway and the outcome of that review is expected to be published in May.
A substantial increase in the supply of new homes is the only route to solving Ireland’s housing crisis. This will require significant private investment alongside our public investment and is necessary to meet the targets set out in the Housing for All strategy.