Home Building Finance Ireland Bill 2018: Report Stage

I move amendment No. 1:

In page 10, line 13, after “interest” to insert “including lower interest rates and longer maturities”.

On Second Stage and again on Committee Stage we had a detailed discussion of whether Home Building Finance Ireland could be used in particular to target small and medium sized builders who are unable to access bank finance on the open market but have credible and viable projects. One of the issues we discussed on both of those occasions was whether one could have a facility whereby builders unable to access finance on the open market would be able to access lower cost finance or finance stretched over longer maturities via HBFI. We had some discussion at an earlier stage with officials from the Department who seemed to suggest that this might be in breach of EU state aid rules. We pointed out at the time that the Rebuilding Ireland home loan provides such a mechanism where the State is able to lend at lower interest rates over potentially longer maturities to those seeking mortgages in that instance, on foot of information showing that they were not able to access mainstream bank finance. It seems to me that there are no EU state aid rule prohibitions on ensuring that is the case. What we are trying to do in the amendment is to give HBFI the option, if it so chooses in the context of its lending, to consider whether offering lower but nonetheless commercially returnable rates at lower interest or longer maturities to those kinds of builders.

I have used this example in all of the discussions we have had on the issue to date. The local infrastructure housing activation fund, LIHAF, as originally designed, was intended to assist builders who were unable to proceed with housing developments because of the lack of funding for infrastructure. In exchange, the Government was to get some kind of affordability dividend. When HBFI was first announced in budget 2018 almost one year ago, Sinn Féin's response was that it could potentially be a good thing but that it needed to target builders who could not access finance elsewhere. Furthermore, there had to be an affordability dividend for the home purchaser and, ultimately, for the social good, housing policy and the State. The worry we have about the way HBFI is constructed in the legislation is a little like our concern about the LIHAF in that there is nothing to direct or guide HBFI into this kind of lending. The amendment provides that this could be an option. It is not prescriptive and it does not mean all HBFI lending has to be on this basis.

There is a reason this is important. I bring to the attention of the Minister of State, a recently published working paper by the Economic and Social Research Institute, ESRI, published by Eoin Corrigan, Daniel Foley and others, on precisely this issue of affordability. We hear constantly in housing debates that we have an issue with housing supply, which is the case, but it is not just housing supply in and of itself, it is about having the right types of houses, at the right price and targeting the right purchasers. If they are not part of the plan, we will not meet the need. One of the startling findings in the June ESRI working paper is the scale of the affordability crisis. It found that in lower income groups both in the rental sector and also in the mortgage sector there is a very large cohort of people who are now paying more than 40% of their disposable income on rental costs. That is not just a feature of the current housing market. The research identified that it has been a structural feature of the housing system as far back as 2003, which was the oldest data examined.

There is an urgent need for us to think about how we use Government policy and public resources to ensure that those people who need houses at lower prices are able to access them. The difficulty is that the other schemes the Government has in place, for example, the help-to-buy scheme, the tax rebate scheme and the Rebuilding Ireland home loan scheme, are not managing to provide assistance to working families on modest and average incomes, in particular in large urban areas such as Dublin and Cork, who are looking to buy but because of the unaffordability of prices of €320,000 and more are not able to get onto the property ladder.

Our proposition is very sensible. It has merit to provide that some or a significant portion of HBFI lending should target builders who are trying to provide these kinds of facilities. It is also important to note that the only affordable housing project developed in the city of Dublin in recent years is a partnership between the community in Ballymun, Dublin City Council and the Ó Cualann Cohousing Alliance. They brought together private bank finance in conjunction with the co-operative housing model and council land to deliver homes for purchase prices of between €170,000 and €225,000 for good quality two and three bedroom homes. There is a value in trying to find a way of using the HBFI loan facility to access those kinds of small builders and small co-ops in partnership with local authorities to ensure genuine affordability. Our worry is that unless the Bill is amended and there is some element of targeted affordability for small to medium sized builders, the houses that built will be of a price beyond the range of affordability for households, for example, on a gross income of €80,000 for two earners or below €50,000 for a single earner and they will simply be unattainable.

In the previous discussions the Minister of State's counterpart was sympathetic to the principle of what we are trying to do but did not accept the way in which are trying to do it. I am interested, therefore, in hearing his response in terms of how he thinks the loan fund can be used to achieve what we are seeking.

Almost the entire House believes that Home Building Finance Ireland, HBFI, is a good project. Unless it is used to target and guarantee affordable homes, however, and this amendment is one way to ensure that, my fear is that, like the local infrastructure housing activation fund, LIHAF, money will go to developers who do not need it and there will not be an affordable dividend for home purchasers or Government housing policy. In light of this being funded by €750 million of taxpayers' money, that would be a missed opportunity.

The key question Fianna Fáil has is whether the legislation will be in compliance with state aid rules, for example, if the amendment is made. We do not want another long delay in setting up the fund. We welcomed it when it was announced on budget day in October of last year. Twelve months on, not a single euro has been provided by way of lending to the construction sector. Along with others, Fianna Fáil has consistently highlighted the growing affordability crisis. There is no doubt that funding issues are a key ingredient of that crisis. Any measure which makes available lower cost funding to help deliver projects at the lowest possible cost is to be welcomed. My question in regard to this Sinn Féin amendment is whether HBFI has the flexibility for to lend on terms more favourable than those available commercially. Does that raise any state aid issues? If it does not and the amendment can be implemented, it has merit. That is the key question from the perspective of Fianna Fáil because the €20 million in equity capital which will provide for the establishment of the HBFI will come from the Ireland Strategic Investment Fund, ISIF, which by its very nature can only be off balance sheet if it is underpinning commercial investment in that respect. I look forward to the response of the Minister of State. The amendment has merit, provided that it is workable and can be delivered promptly rather than causing further delays in terms of seeking state aid approval and so on.

This is a reasonable amendment given the scale of the crisis for those who wish to buy a home. The housing crisis as a whole is a far bigger issue. Several constituents have come to my office in a panic because they cannot afford to rent or buy and are above the threshold for the local authority housing list. That is backed up by the housing figures for Dublin. On the open market, such people are competing against landlords who wish to avail of high rents, pension funds and even local authorities in Dublin city and beyond.

While very few single people can afford a house on their own in Dublin unless they are on quite a substantial wage, it is also very difficult for couples, particularly young couples, to afford a home. Houses in former council estates, which at the lowest ebb of the economy in 2010, 2011 or 2012 were selling for €100,000, are now selling for in excess of €200,000 or €250,000. Compared with the average Dublin house price of well over €300,000, €250,000 does not sound excessive. However, a couple would have to earn over €80,000 or €90,000 to qualify for a loan for that amount. That illustrates the scale of the problem. Affordable housing is not about a discount of €10,000 or €15,000. That is worth buttons in terms of the housing crisis in Dublin.

The amendment is reasonable because it seeks to ensure that HBFI may issue bonds, debentures and other securities bearing such rate of interest including lower interest rates and longer maturities as it sees fit. That is key in trying to create a climate of affordability.

There has been much recent discussion of affordable rents. I refer to the confusion caused when it was announced that the rents on St. Michael's estate would be 10% to 25% below market rent. However, the market rent in Dublin is double what it ought to be. Unless leases of indefinite term are provided, reducing market rents by 10% to 25% may not attract those who should be encouraged to avail of affordable rent. Similarly, we must ensure that those who should be able to afford to buy a house or apartment in Dublin can do so such that they are not competing for accommodation provided for those less fortunate, taking a place on a housing list or adding to overcrowding in family homes.

I urge the Minister of State to consider the amendment put forward by my colleagues, Deputies Ó Broin and Pearse Doherty. They have argued this case inside and outside the House for quite some time. The amendment is reasonable. Given the duration of the housing crisis, it does not go beyond what should be delivered under home building finance proposals that come before the House. Any other country in Europe dealing with a problem of this scale would be much further down the road of ensuring the delivery of a measure such as this which addresses one aspect of the housing crisis. No one is saying that it will address all of the problems but, added to other measures for which Sinn Féin, other parties and many of the housing groups in Dublin have advocated but which have not been delivered in the past ten years, it might go some way towards tackling the dire crisis which has been created by the lack of investment in social housing, the open nature of the rental market in Dublin for many decades and, in particular, the lack of Government action in recent years. In spite of some tinkering by the Government, rents have skyrocketed to a level such that it is almost impossible for a single person or a family to rent a property in this city.

A consequence of the crisis will be the re-emergence of urban sprawl, which may already be taking place. As houses are built further away from where jobs are located, people will have to commute huge distances at significant financial and social personal cost.

I hope the Minister of State will accept the amendment and does not force it to a vote because at this stage all parties need to come together to show unity on the issue and that we are serious about tackling the housing crisis.

I apologise for the absence of the Minister for Finance, Deputy Donohoe, who is preparing for the budget.

I agree with much of what has been said. I welcome the broad agreement on the Bill on Committee Stage and the constructive nature of contributions made on Second and Committee Stages.

Some of the points the Deputies raised can be addressed when we are dealing with the second amendment, which is also in the names of Deputies Ó Broin and Pearse Doherty.

Amendment No. 1 seeks to insert the words "including lower interest rates and longer maturities" in line 13 of the Bill. Line 13 states: "... HBFI or any HBFI group entity may create and issue bonds, debentures and other securities, bearing such rate of interest and subject to such conditions as to repayment, redemption or otherwise as HBFI or the HBFI group entity, as the case may be, thinks fit". What the Deputies are seeking to achieve in their amendment, therefore, is catered for in the Bill.

Section 13 provides that HBFI may borrow money for residential development in any currency through any type of debt it sees as appropriate. This section limits the amount of borrowings HBFI can have outstanding at any particular time to €750 million. This figure does not include any loans provided to HBFI from the Ireland Strategic Investment Fund, ISIF, pursuant to this legislation, which was one of the points raised. Other points will be raised in the second amendment. The purpose of this section is to allow HBFI have access to market funding in the event that the demand for lending is such that the funding provided by the State from ISIF is insufficient.

At present, it is not expected that HBFI will need to borrow additional funds as the funding provided by ISIF is expected to be sufficient to meet its business plan forecasts. However, the ability to borrow funding in the market will allow flexibility for HBFI to grow in the future without Government support should the demand exist to do so. That is important because on Committee Stage, and in some of the sentiments expressed here this evening, reference was made to the position if demand exceeds the amounts available. It is important to note that any debt issued by HBFI will not be guaranteed by the State.

Section 13, as drafted, places no restrictions on the rates or conditions that may attached to debt issued by HBFI, which was the point raised in the amendment tabled by Deputies Ó Broin and Pearse Doherty. It is clear, therefore, that the HBFI can issue debt at lower interest rates and longer maturities if it so wishes. Ultimately, however, the terms and conditions of any debt issued by HBFI will be dictated by the market. If HBFI does not issue such debt on terms and conditions that are competitive, it will struggle to find investors in any issued bonds, debentures and other securities and to raise additional funds. I understand the sentiments expressed but it is on that basis that I cannot accept the amendment.

I thank the Minister of State for that reply. In an ideal world, I would have liked to table these amendments to section 4, but because of the Ceann Comhairle's ruling, I was not able to do that. In some sense, placing them in this section of the Bill allows us to have the debate but also to go a step further. If I understand the Minster of State correctly, his indirect answer to Deputy Michael McGrath is that there is nothing in the amendment that would breach state aid rules, because under the initial wording of that section as per the legislation, what I am proposing is permissible. First, in his response, will the Minister of State confirm explicitly that providing, for example, lower interest rates, albeit at market rates or longer maturities, would not be in breach of state aid rules? My understanding is that it would not be but that point of clarity would be very useful.

Second, it is about the Government's intention here. The Government's intention, as this loan facility has been presented, is to lend at potentially slightly higher commercial rates to builders than they would get from the mainstream banking finance, but because it would be a larger portion of the overall loan, they would not have to pursue the more expensive mezzanine finance and, therefore, in the round, the cost might be a bit more competitive for them. What we are proposing is something in addition to that. That is the reason we believe there is a value in stipulating it in this section.

I go back to the Rebuilding Ireland home loan because it is a good example. I refer to a developer who has a viable project but is not able, for example, to borrow from a bank at 7%. If he comes to HBFI under the current proposals as I understand them, he could be looking at an interest rate of approximately 8% on the mainstream loans. What we are looking for is for those builders who could not access that mainstream finance at 7% to have an offering, where they demonstrate they have been turned down for mainstream finance but HBFI deems their project is viable, to provide them with a lower rate. It is to establish the principle in the legislation of potentially two different rates of loans, perhaps a standard 8% for one group of builders but also something structured, in a similar way to the Rebuilding Ireland home loan scheme, for those who have been turned down but still have viable projects to get something at a lower rate. The Minister of State is saying that is permissible already. Why will he not accept the amendment because it makes that explicit as something HBFI can do? That signals intent from Government and from the Oireachtas as to the direction in which we would like HBFI to go and, on that basis, I am still pressing the amendment.

I will call Deputy Michael McGrath and then Deputy Ó Snodaigh. I remind the House we will be adjourning the debate at 8 p.m.

I ask the Minister to try to be a little clearer on the question of what HBFI can and cannot do. I understand the terms of the funding must be competitive. Otherwise, it will not do any business, but is it also the case that it needs to be on commercial terms? Is there any difficulty presented by the explicit recognition that it can provide borrowing at lower interest rates and at longer maturities? On Second Stage, the Minister pointed out that the specific rates charged by HBFI will be bespoke and will reflect the credit risk of each particular project, the quality of collateral, the creditworthiness of the borrower and the track record of the borrower in delivery of residential development projects to date. The Minister of State needs to clarify if there is a problem with the amendment. Does it create a difficulty?

We are trying to be helpful. We want to get this fund up and running. It will not be a silver bullet for the woes in the construction industry but it could play a useful role in providing funding at reasonable rates to enable construction projects to hit the ground running and to deliver the units we all want to see, whether they be social, affordable or other. We will come to that by way of the second amendment. I am not altogether clear on the position of the Government in regard to the reason the amendment is not desirable from its point of view.

I listened to what the Minister of State said. In some ways, he is suggesting we should not press this amendment because we should take people on trust. I have found over the years that if something is not stated in legislation, it can be ignored, although perhaps not initially. We are asking that the Bill would specifically state that lower interest rates and longer maturities can be taken into account. It is not prescriptive, but it is something that should be provided, given the difficulties builders have stated they have had in accessing finance to build some of the many schemes we have seen, both private and public, but in the main, some of the private ones. The excuse they have given me in my constituency is that they cannot access funding. They say they have the planning permission and so on. I do not know whether that is the real reason. I doubt it in some cases because I believe what they are doing is flipping the land, once they get planning permission, to increase the value of the land and sell it on or hold it for a period while the values increase. They cannot be hit by the vacant site tax because they are actively pursuing issues or the planning permission is live on it.

There are companies that do not have creditworthiness and should never have been given social housing contracts or any contracts. There are others in difficulties. If this measure had been available for those companies, they might have been able to get longer maturities loans, which are now being called and is causing them difficulties. There is a company in receivership in my area. I do not know the exact financial reasons it is in receivership but it has caused mayhem in terms of the social housing projects and some private projects that company has undertaken. It has a primary healthcare unit but also two major social housing projects, one in Dolphin Park and the other in Cherry Orchard, which are now in difficulty. They will come out the other end of that, but if the finances were available at a different level, that company or other companies might have been able to bid for the tenders for those projects. There is a logic to inserting these words in the Bill to make sure longer maturities in particular and the lower interest rates can be taken into account.

Debate adjourned.