Committee on Housing and Homelessness díospóireacht -
Thursday, 26 May 2016

Social Justice Ireland

Chairman

Before we proceed, I ask colleagues and witnesses to either turn off their mobile phones or switch them to flight mode.

I draw witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. The opening statements submitted to the committee will be published on the committee's website after 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 Houses or an official either by name or in such a way as to make him or her identifiable.

I welcome Ms Michelle Murphy from Social Justice Ireland to the meeting. The full submission from Social Justice Ireland has been made available to members. I invite Ms Murphy to make an opening statement, which will be followed by questions from my colleagues.

Ms Michelle Murphy

I thank the Chairman and the members of the committee. Social Justice Ireland welcomes the opportunity to make a presentation to the committee on the issue of social housing supply. Ireland faces an immense social housing challenge. It will be a major challenge for the Government to secure sufficient finance to provide the scale of social housing required. There is no possibility of providing the level of financing required to deal with the scale of the problem on the Government balance sheet within the current fiscal rules. Social Justice Ireland recommends that the Government should put in place an off-balance sheet mechanism that could access the low-cost finance required to address the lack of supply of social housing in a way that would be sufficient to eliminate current waiting lists.

In recent years, Government policy was based on the premise that the private sector would provide sufficient rental accommodation to meet the total need for accommodation. However, the private sector is not coming close to delivering the number of units required to meet current demand. Although the social housing strategy is welcome, even if it succeeds in providing the planned increase in social housing levels, it will be far from the levels required to eliminate housing waiting lists. The strategy is not going to meet the demand that exists unless a new approach is taken to secure the necessary finance. Further initiatives on a much larger scale are required. The key challenge is to increase the supply of housing in general and of social housing in particular. An increase in the supply of social housing units would take the pressure off the private rental market and supply in the private sector. It would also take families out of hotels and enable them to find homes, to build bases and to participate in community and society.

Social Justice Ireland recommends that the Government should fully resource the social housing strategy. The effect of an expansion on the scale of the strategy would be to eliminate the current waiting list of 90,000 households and to provide for increased demand for social housing in coming years. It would not be possible for the Government to finance this level of provision on the books because of the fiscal rules that have been adopted since the crash. Therefore, a viable means of financing this provision off the books is urgently required. Social Justice Ireland proposes that the Government should put off-balance sheet financing structures in place to generate sufficient capital to finance the supply of the new social housing that is needed to eliminate current waiting lists and meet the additional demand that will emerge as the population grows. We also believe the Government should explore the use of NAMA as a housing agency with the ability to access and distribute appropriate off-balance sheet funding while taking an active role in the direction and support of approved housing bodies.

Our proposal contains two components. First, we are proposing the provision of an off-the-books financing mechanism for social housing stock through a special purpose vehicle. Second, the provision of this mechanism should be followed by the introduction of a cost rental system for social housing where the differential rent ceiling is removed. For the purposes of this brief presentation, I will focus primarily on the financing component. It is clear that the Exchequer cannot provide the funding necessary to deal with current demand. We are proposing that the Government should put in place off-balance sheet mechanisms to access the low-cost finance required to address the supply issue. Ireland cannot continue to borrow using traditional methods because this adds to the Government deficit, which we are committed to reduce. At the same time, there needs to be an adequate supply of housing for those on low incomes. This is required to stabilise the rental market and enable a cost-based rental system to work within the market.

Social Justice Ireland is recommending an examination of the possibility of using a vehicle such as NAMA, which has expertise in developing a financing mechanism. Given that approximately 107,000 social housing units are owned by local authorities and rent is being regularly paid in respect of them, it should be possible to put together a proposal that meets the EUROSTAT conditions for an acceptable off-balance sheet initiative. One of the advantages of using NAMA is that it already has a special purpose vehicle that has been approved by EUROSTAT. It is worth noting in this context that EUROSTAT's classification of public private partnerships implies that this method is unlikely to be suitable to address the supply of social housing units as the Government would be required to take on the construction risk, meaning that the public private partnership expenditure would remain on the balance sheet. Social Justice Ireland proposes that when the stock of social housing supply increases to such an extent that waiting lists have been eliminated, the Government should move to a cost rental system for social housing stock and remove the differential rent ceiling.

Chairman

I thank Ms Murphy. A number of colleagues have indicated that they want to ask questions. I will take a couple of them together and Ms Murphy might answer them accordingly.

Deputy Eoin Ó Broin

I thank Ms Murphy for her presentation. In my previous role as a member of a local authority, I and others argued in favour of using the model outlined by Social Justice Ireland as a means of making more finance available to local authorities to build housing. On foot of the EUROSTAT decision on Irish Water, it has been argued that funding local authority and public housing off-balance sheet will be much more difficult in practice than in theory. Has Social Justice Ireland examined the EUROSTAT ruling and is the decision on whether Irish Water is off-balance sheet relevant in the context of public housing? This is an important issue.

On the use of the National Asset Management Agency, NAMA, as a vehicle for public housing provision, would the housing stock be owned by the agency or another entity such as an approved housing body? Has Social Justice Ireland examined the issue of ownership? Who would fund the building works? Would they be funded through borrowing from the Housing Finance Agency or the private sector or would NAMA's cash reserves and surplus be used for this purpose? Has Social Justice Ireland teased out the details relating to this issue?

Deputy Bernard J. Durkan

I welcome Ms Murphy's address and thank her for the constructive approach Social Justice Ireland has taken. We all agree that it is imperative to identify a means of providing for off-balance sheet funding for local authority housing. This is a major national, social and economic issue as it relates to the ability of families to obtain housing, which is a basic requirement in any society. The right to a home is a fundamental issue. People need homes and if we cannot solve this problem, we cannot solve any other problem. This is the primary problem we face and, notwithstanding the issues raised by EUROSTAT, it should be possible to resolve it.

I support the suggestions that have been made. NAMA may have a contribution to make. We all agree that we should achieve what we can through NAMA and by other means.

I am a great believer in the provision of local authority housing by local authorities, whether this is done by means of public private partnerships or an off-balance sheet funding framework that has yet to be agreed. It is imperative that this is done quickly because the longer we await a decision, the worse the problem will become and the more forlorn those on local authority waiting lists will be.

I support the submission in principle. As I stated, a number of entities are willing to work out the mechanics of achieving off-balance sheet funding for housing construction and have made submissions to the committee in this regard. Some of us have tried to do this through local authorities. It should not be a problem to work out a joint venture between local authorities and the banks or credit unions, representatives of which appeared before the committee, with a view to ensuring local authorities take responsibility for the provision of local authority housing in the first instance.

Deputy Ruth Coppinger

The issue of using off-balance sheet and special purpose vehicles will be critical to the committee. Departmental officials will appear before the committee next week to discuss this complex issue. I agree with Social Justice Ireland that NAMA should be used to address the housing problem. I have been arguing for two years that NAMA will be instrumental to resolving the issue because it currently controls one third of all development land in Dublin where the housing crisis is focused, albeit not exclusively. Furthermore, NAMA is a major operation in its own right.

The difficulty is that in 2009, when NAMA was established, different rules applied and it appears that EUROSTAT keeps changing the rules. Would NAMA not be in breach of the rules if it were to become involved in the development of social housing? I raised this issue recently with the Minister, Deputy Coveney, during a brief meeting he held with the political parties. We will raise this issue with the Minister again. He indicated that if NAMA were to become involved in this area, its role would not be one of an off balance sheet special purpose vehicle.

What is the witness's view on something I raised the other day? The EU fiscal rules do not prohibit spending if commensurate revenue is raised to pay for that spending, which is never really discussed. The Government rules it out and says it cannot do that off balance sheet. However, it could introduce a whole range of taxes, for example, housing crises taxes. We keep hearing that there is not a shilling in the country but the evidence would suggest otherwise. We have already said that the rich list would indicate that the 250 richest people in Ireland have one third of GDP and have increased their wealth by about 3%. For example, we could have a 3% wealth tax or we could enforce the 12.5% corporation tax rate. The Anti-Austerity Alliance estimates that would raise €2 billion this year but actually it would raise more because the profits of the top 1,000 companies in Ireland have increased this year by 25%.

It appears as if the off balance sheet thing is impossible. An official from the Department of the Environment, Community and Local Government said on the "This Week" programme that it was impossible to do anything off balance sheet now given the rules that exist. We have to tease this out. He is in the Department's new funding models area and he concluded by saying that no new model that would itself be capable of providing and-or financing social housing on an off balance sheet basis has emerged. It seems to me that must we breach the EU rules and say we will not abide by those rules as they are paralysing our country and forcing a housing crisis on hundreds of thousands of people and impoverishing many others paying rent. If we do not do that, this housing crisis will continue. However, we could also propose new funding being raised by progressive taxation on the wealth of those who can afford it.

Chairman

I thank the Deputy. I will allow Ms Murphy to respond. From the committee's point of view, this whole area of the off balance sheet is quite important. I remind colleagues, arising from a request from Deputy Ruth Coppinger, the Department of Finance will come in to specifically to tease out this issue further.

Deputy Ruth Coppinger

Yes.

Chairman

The point has been made that NAMA already has a special purpose vehicle which is off balance sheet in terms of the properties it is providing.

Ms Michelle Murphy

I will start with Deputy Ó Broin's questions. In terms of the EUROSTAT decision on Irish Water, there was no actual collateral. The way we would see this is that NAMA would be reconfigured as a housing body or housing agency, as recommended by NESC in its 2014 report, because NAMA has a special purpose vehicle that was approved in 2009 specifically to deal with property development. The key issue is that this SPV will have a majority of private equity. We would see the reconfigured NAMA taking the expertise from local authorities and using at least half of the money available from the Irish League of Credit Unions and then going to the markets to borrow at very low rates. The fact of the matter is this SPV has already been approved. The issue is how to reconfigure NAMA as a housing body to go out and borrow the money required to address the issue.

The question of who owns the stock is the issue. If the public private partnership model is to be used and if one is considered the economic owner, then the risk has to remain on balance sheet. Therefore, one would have to be considered not the economic owner. Therefore, the housing body which would have to be a separate entity would own the stock through the local authorities. We would see the local authorities being rolled into this.

Deputy Eoin Ó Broin

Does that mean the SPV would own the stock?

Ms Michelle Murphy

Yes.

Chairman

Would it be the special purpose vehicle rather than the approved housing body?

Ms Michelle Murphy

It would not be an approved housing body as such, that is separate, but the housing body or the housing trust that would be set up would control the SPV. There is a housing agency, so it would have to be renamed.

Deputy Bernard J. Durkan

Would the stock revert to the local authority at the end of the process?

Ms Michelle Murphy

That is what we would see happening, because that would move it to a cost rental system and remove the differential rent.

Deputy Ruth Coppinger

I believe it is very dangerous to talk about removing the differential rent system from council or other tenants. Currently, most people pay approximately 30% of their income on rent. We do not want to see that happening to social housing tenants.

Ms Michelle Murphy

That would not happen until we had sufficient supply, at the point where we would have a huge amount of mixed housing stock. The differential rent would be removed once we had sufficient supply. We could still move to a cost rental system which is below market rate, but the approved housing bodies managing those properties would generate enough income to both maintain and develop the properties. The problem currently is that when the Government funding and capital expenditure people are totally reliant on disappears, local authorities do not even have the money to maintain their stock.

On the point made by Deputy Durkan, the local authorities do have expertise in terms of building social housing units and this needs to be brought into play. We have always advocated using some of the money available from the Irish League of Credit Unions and to use that money in the markets to generate the funding required.

Deputy Coppinger asked about the fiscal rules. It is correct that the fiscal rules do not prohibit spending if commensurate revenue is raised. There is also a possibility to tweak the fiscal rules in terms of spending on social infrastructure and there is nothing to stop the Government from increasing revenue in order to generate expenditure to fund social housing. The issue is the scale of the problem. If we are to eliminate the waiting lists and build the units required, we need expenditure of approximately €10 billion. It would be very difficult to raise revenue of that amount over the lifetime of the Government just to fund social housing. We fully support the idea of increasing Government revenue to fund current expenditure and the ongoing expenditure related to social housing - HAP, rent supplement, maintenance of the stock, the education and health systems - but it would be very difficult to generate that amount of revenue to build the units required in the timescale we have.

Deputy Bernard J. Durkan

Would it not be possible to alleviate the worst situations? The issue of people in emergency accommodation must be a priority.

Ms Michelle Murphy

Absolutely.

Deputy Ruth Coppinger

The strategic investment fund has approximately €4 billion and NAMA has approximately €3 billion in cash reserves.

Ms Michelle Murphy

The issue we have is that there has been "inertia", for want of a better word, in terms of dealing with the problem. As Deputies Durkan and Coppinger have pointed out, there are reserves and funding that should be used for this purpose because we have a crisis. In general, when we discuss revenue raising, we have an issue as to what our reserves should be used for. Public and social infrastructure are funded by revenue and there is a case to be made in the long run for increasing our tax take. We need a stable and broad tax base if we are to continue to fund all of our public services.

Chairman

I apologise to Ms Murphy, but I am going to suspend our sitting at this stage as there is a vote in the Dáil and we have no pairing arrangements. We will resume immediately after the vote.

Sitting suspended at 10.59 a.m. and resumed at 11.20 a.m.

Chairman

Before the interruption for the vote in the Dáil, Ms Murphy had completed a series of-----

Ms Michelle Murphy

Let me make one point. I refer the members of the committee - it is a footnote in our submission - to the EUROSTAT ruling on the NAMA special purpose vehicle because a lot of what the committee has mentioned and what will be discussed at the meeting with representatives of the Department of Finance is and will be based on the interpretation of this ruling. It is important for committee members to be aware of the ruling prior to the discussions that will take place with the representatives of the Department of Finance because it gives specific details of how the special purpose vehicle should be run and the role of the Minister in determining its duration and that of NAMA and how it has been jointly created with a 51%:49% split between private investors and NAMA.

Deputy Fergus O'Dowd

I welcome the Ms Murphy's comments.

Officially, under the Government's building programme, there will be 25,000 units a year. If that figure can be increased by whatever formula, it will happen and we can borrow to do it. The Housing Finance Agency can borrow at a rate of 1.2% and lend to local authorities. Therefore, getting more funds is not an issue. Others will decide whether it will be off or on-balance sheet, but we must maximise whatever we can get.

My question to Ms Murphy is about the 200,000 houses which are vacant throughout the country. The Government's position is that 70,000 are to be supplied in the next three or four years by the private sector, essentially, for HAP applicants. I do not see any sign of this happening because no houses are being released onto the market, even though there are houses empty. Even if there is a problem with two thirds of them, we must still be able to get one third of them. I wonder what Ms Murphy thinks of the following suggestion and I expect Deputy Ruth Coppinger to give out to me. We need to have a strategy in place to encourage the owners of these houses to enter into a three, four or five-year commitment to provide them for local authorities or housing agencies in order to give them to tenants who urgently need housing. In the meantime, when we ramp up the building programme, we can look at the provision of tax incentives. It would be far cheaper for us to get, through the provision of a minor tax incentive for an owner, a house already built rather than spending €100,000 to €200,000 to have one built. We would get a much bigger bang for our buck. I wonder whether Ms Murphy has a view on the matter. It seems that is the crucial and critical way forward to increase supply which would happen more or less overnight.

Chairman

Does Ms Murphy want to address that point?

Ms Michelle Murphy

Vacant units have been slow in coming on stream for HAP applicants. There are a number of reasons for this - either the developments are unfinished or in the process of being finished or perhaps the units available are not suitable.

One proposal that we made last year, in terms of the provision of empty units and making use of underdeveloped land, was that a tax be levied on a monthly basis on houses fit to be occupied to encourage the owners to use them, to contact the local authorities and allow them to be occupied by those on social housing waiting lists while we waited for the housing stock to improve.

We have considered this issue. Something we encourage local authorities to do is to ensure units included in the figure of 200,000 that do come on stream are suitable. The process of making them habitable seems to be slow. Given the numbers of construction companies and construction workers, I cannot understand why the process is taking so long.

There is obviously a blockage in the system in this regard. One of our proposals is to impose a levy on suitable empty units that could be occupied. We had suggested a figure of €200 per month and that the revenue from the charge be collected and kept by local authorities until such time as the units are put into use.

Chairman

Since the units are not coming into use, there is obviously a blockage somewhere. The demand is enormous. Has Ms Murphy identified the blockage?

Ms Michelle Murphy

Official statistics issued by NAMA and various other agencies show that, of the 668 unfinished developments, 447 have no active construction activity. Some 2,300 of the units are still under construction and a large number are vacant. These are the housing agency figures. There is no indication as to why it is taking so long. The last figures were from 2014 and 2015. There was €8.7 million given from the special resolution fund to complete or refurbish the developments and ensure they can be occupied, yet it is unclear why it is taking so long for this to come on stream.

Deputy Fergus O'Dowd

We disagree. Perhaps I misunderstood Ms Murphy, or maybe I did not. She is talking about a tax penalty as opposed to an incentive.

Ms Michelle Murphy

Yes. I suppose we have a different view.

Deputy Fergus O'Dowd

It is a very significant difference. It would be far easier to bring reluctant owners into the market if there were an incentive as opposed to a penalty. While I appreciate what Ms Murphy is saying, I believe the biggest problem now is that some landlords do not want to take the housing assistance payment. If they do, the tenant is restricted to a maximum lease period of two years. On the point of sale, or alleged sale, the tenant is put out. A formula should be developed that would encourage the establishment of a longer period — such as five years, which would be reasonable — with a fixed income for the landlord and fixed tenure for the tenant. This should be encouraged. In one sense, Ms Murphy is talking about a use-it-or-lose-it tax in respect of those who are waiting for the market price to increase. We need to offer incentives also. Incentives will work. If I had a house to let and my incentive involved a five-year deal in which I knew what I was going to get, namely an arrangement with the local authority guaranteeing the structure and condition of the house, I genuinely believe it would work.

Chairman

To be fair to the Deputy, he has made his point. It is a matter that we will need to tease through when formulating our report.

Deputy Fergus O'Dowd

I am just asking the view of the witnesses on having an incentive along with penalties. They are not necessarily mutually exclusive.

Ms Michelle Murphy

There are not necessarily mutually exclusive. If one were to introduce an incentive, there would have to be some sort of penalty if the incentive were not used. A sunset clause would be very important in the design of the incentive. If the incentive were applied for only a certain period, the design and sunset clause would come into play.

Deputy Fergus O'Dowd

Would Ms Murphy have a problem if there were a sunset clause and penalties? I am trying to find a consensus or formula that Ms Murphy could support.

Deputy Ruth Coppinger

There is no consensus on it.

Deputy Fergus O'Dowd

I am asking my question to the witness, not Deputy Coppinger.

Deputy Ruth Coppinger

The Deputy is trying to find a consensus on something there is no consensus on.

Deputy Fergus O'Dowd

I am not asking Deputy Coppinger for her views. I know them and she knows mine. I am asking the witness.

Ms Michelle Murphy

With regard to incentives or penalties, what is required is careful design to ensure the incentives would not further distort the market. They would have to be designed very carefully. There should be annual reviews if incentives are introduced. There should be a review by this committee or another housing committee annually to ensure incentives have the correct impact. If they are not having the correct impact, one option would be to redesign the scheme. There should be a sunset clause for a minimum of five years. At the same time, there should be a levy on empty homes. We suggest a monthly levy. There should also be a levy on undeveloped land. The Government is to introduce this in 2018 or 2019 to ensure such land is used.

Deputy Fergus O'Dowd

That is fair.

Deputy Maureen O'Sullivan

My question is about vacant sites and the levy. When the Minister was here, I asked him about this and he had various reasons it could only be 3%. He also indicated that on the advice of the Attorney General, it could not come in until 2019. What is Ms Murphy's opinion on that? What would Social Justice Ireland have done or what can be done in terms of vacant sites?

Ms Michelle Murphy

What we proposed last year was that local authorities should be empowered to collect site value tax on underdeveloped land. We would levy it at a rate of €2,000 per hectare or part thereof per annum to encourage landowners to utilise the land they possess and to prevent speculation. Until such time as that is done, people will sit on land banks until the price rises. It is unclear to me what the difficulty is in implementing it this year. If it was announced in budget 2016, I find it difficult to understand why it could not have been implemented in 2016. I find it difficult also to understand why the levy is just 3%. While the Minister may have given particular reasons for this, the levy as it is designed will not encourage people to use the land they are sitting on.

Chairman

Does anyone else have a question? No. Before we conclude, will Ms Murphy go back to a point she made earlier? I acknowledge that Deputy Coppinger followed up on it but Ms Murphy might just explain it again to the committee. She talked about moving from the differential rent to a cost rental base. Will she explain her thinking on that again?

Ms Michelle Murphy

We see this moving to a cost rental system. It was one of the proposals in the NESC document on housing in Ireland. We see this as a much more long-term goal because it will be impossible to implement a cost rental system until there is sufficient supply. We see the initial objective as getting sufficient housing stock, consisting of both public and private housing units, before then moving to a cost rental system whereby the housing provider develops the accommodation and charges the rent on the basis of covering capital and maintenance costs only. While this cost will probably be higher than the differential rent initially, research by Threshold shows that a huge number of rent supplement and HAP recipients are already paying a top up, particularly the former. They also have very insecure tenure. The cost rental system is not just a question of removing the differential caps. One must be within a system where there is security of tenure and sufficient supply and it is not just a question of tax incentives for private landlords. One would be looking at approved housing bodies managing some of these developments. It is a much longer-term goal and would involve moving towards the system which NESC outlined that not only should one be developing housing for occupancy but the State should be able to ensure that we have a sufficient amount of housing available for long-term tenancy. These units would be suitable for single persons, families and older people or people with disabilities. This is a much longer-term goal and would require consensus around what sort of housing policy and housing strategy we have but prior to even moving towards a cost rental system, one would need the supply.

Chairman

That concludes this section. I thank Ms Murphy for her presentation and for her answers to the questions. The written submission will be published on the website. We will invite in the next witnesses.