Reclassification and Future Outputs of Approved Housing Bodies: Discussion (Resumed)

At the request of the broadcasting and recording services members and visitors in the Public Gallery are asked to ensure that for the duration of the meeting their mobile telephones are turned off or switched to airplane, safe or flight mode, depending on the device. It is not sufficient to put telephones on silent mode as this will maintain the level of interference with the broadcasting system.

I welcome Mr. Paul Lemass, Mr. Rory O'Leary and Ms Stella McKervey from the Department of Housing, Planning and Local Government and Ms Scline Scott, Mr. Robert McLoughlin and Mr. Stephen McDonagh from the Department of Finance.

I will outline the position on privilege before we begin. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it 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. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

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 invite Mr. Lemass to make his opening statement.

Mr. Paul Lemass

On behalf of the Department of Housing, Planning and Local Government, I thank the Chairman and members for inviting us to attend today's discussion on the topic of the reclassification and future outputs of approved housing bodies. I am the assistant secretary for the housing policy, legislation and governance division of the Department. I am joined by Rory O’Leary and Stella McKervey from the approved housing body, AHB, policy and regulation unit within this division.

It might be helpful for the committee if I set out briefly the background to the classification process. Traditionally, AHBs have been classified as non-profit institutions serving households. Following a meeting on social housing initiatives in October 2016, EUROSTAT requested that the Central Statistics Office, CSO, review the sectoral classification of AHBs. EUROSTAT expressed the view that under the European System of Accounting 2010, the role of government financing should be given greater weight in the sectoral classification. Over the course of 2017, the CSO conducted this review, focusing on the larger Tier 3 AHBs. A particular emphasis was placed by the CSO and EUROSTAT on the levels of State funding provided to AHBs.

During this process, the Department strongly put forward the view that AHBs are independent private bodies and emphasised that factors other than the level of State funding need to be considered in testing whether the Government exercises effective control over the operations of AHBs, namely: that AHBs decide their own strategic and management priorities; that the boards of the bodies make the decisions on entering contracts and taking out loans and bear the risk of developing new projects; that, by definition, to be approved as an AHB a body must be a limited company registered under the Companies Acts 1963–2001 or a society registered under the Industrial and Provident Societies Acts 1893– 978 or a trust incorporated under the Charities Acts; that AHBs register their tenancies with the Residential Tenancies Board in the same way as private for-profit landlords, which is unlike the situation applying to local authority tenancies; and that AHBs are responsible for all matters of management and maintenance, which do not fall to the State to address, and any action taken by the tenant for redress is taken against the AHB. Ultimately, the CSO published its decision in December 2017, concluding that there was sufficient evidence to indicate control by Government and, accordingly, that 14 AHBs should be classified as part of the local government sector and within the general Government sector.

The effect of reclassification means that any funding privately sourced by these AHBs to acquire social housing units will be added to the general Government debt, unless it has separately already been classified as such. It also means that the cost of purchasing or building units will have to be accounted for in general Government expenditure in the year of purchase or completion. In addition, all expenditure by AHBs, including staff costs, will count as Government expenditure and all revenue accruing to the AHBs will count as Government revenue. AHBs currently secure the majority of their financing through the Housing Finance Agency, HFA. The HFA reports strong growth in direct lending to AHBs in 2018 and indicates that activity remains high in 2019. This suggests that activity in terms of approvals will remain close to 2018 levels, while actual advances should be higher this year than last. This demonstrates that the sector is performing strongly.

It is important to be clear that the reclassification does not preclude AHBs from pursuing private sources of finance. The Department continues to work with AHBs in that regard. Such a collaborative approach will ensure the classification will not become a barrier to delivery or diversification of funding sources. The Department's assessment of the situation, as informed by discussions with the Department of Finance, is that there are no concerns at this time from a fiscal rules compliance perspective about the classification of AHBs as part of general government, but that is not to say there is any complacency in respect of this issue.

I would like to speak about AHB delivery and future output. The Department continues to see a central role for the voluntary housing sector in contributing to the delivery of social housing under Rebuilding Ireland. It is committed to using all mechanisms and schemes, including through the AHB sector, to ensure momentum towards meeting the ambitious 50,000 social housing target under the action plan is maintained. AHBs provide and manage social rented housing. They are independent and private not-for-profit organisations that are formed for the purpose of relieving housing need. They provide housing in response to a range of needs for families on low incomes, households with special needs, older people, people with disabilities and homeless persons. The delivery of social housing is made possible through collaboration between local authorities and AHBs. The AHB sector is committed to delivering one third of homes under Rebuilding Ireland through a blended delivery of build, acquisition and leasing. In 2018 the AHB sector was responsible for 38% of blended delivery of social homes. Last week the Minister, Deputy Eoghan Murphy, updated the committee on Rebuilding Ireland and published the social housing construction status report, which demonstrates the positive progress being made in advancing national local authority and AHB new build construction projects.

I wish to make clear to the committee, the AHB sector and local authorities that this classification will not affect the ambitious plans under Rebuilding Ireland. We are continuing to engage with the AHB sector. Constructive discussions have taken place with representative bodies in the sector on the issue. An important part of this exercise involves examining the measures that could be taken in the medium to long term to develop the AHB sector and lead to a reclassification. It has to be accepted that it is most likely to be a longer term objective. As the proposals may cut across a wide range of housing policy issues, they will require in-depth analysis. As part of this process, we are continually engaging with the Department of Finance and the CSO to fully understand the implications of the classification. The Government's policy is to support the AHB sector as it endeavours to provide and manage social rented housing and to continue to fulfil its full potential in the delivery of the targets set out in the Rebuilding Ireland action plan. The Government continues to see a central role for the voluntary housing sector in contributing to the delivery of social housing under Rebuilding Ireland. It is committed to using all mechanisms and schemes, including through the AHB sector, to ensure we maintain the momentum towards meeting the ambitious 50,000 social housing target under the action plan. The sector has engaged its own research and sought legal advice on classification. The Department is evaluating that research as part of its ongoing wider consideration of the issue. The options available to create the necessary conditions to allow this classification decision to be revisited in the future need to be developed and analysed to determine their implications and possible impacts.

I reiterate that AHBs are delivering. The Department remains committed to working with colleagues in the Department of Finance, the CSO and the AHB sector to ensure the capacity for AHBs to deliver is sustained. I hope I have provided a helpful summary of the issue. We are happy to take questions and provide any additional clarification sought.

I thank Mr. Lemass. I invite Ms Scline Scott of the Department of Finance to make her opening statement.

Ms Scline Scott

I thank the joint committee for giving me an opportunity to appear before it to discuss AHBs. I am accompanied by Mr. Stephen McDonagh and Mr. Robert McLoughlin. All three of us are based in the economics division of the Department of Finance. Mr. McDonagh and Mr. McLoughlin are based in our statistics unit which is responsible for the application of statistical standards in the Department's medium-term fiscal projections.

I will begin by setting out the institutional framework for official statistics in Ireland. As Ireland's national statistical institute, the CSO is part of the European statistical system, the primary objective of which is to guarantee that European statistics compiled in all EU member states are comparable, reliable, relevant and usable. EUROSTAT, the EU statistical office, does not collect statistics from respondents but compiles and quality controls national statistics collected and reported by each national statistics producer, which in the case of Ireland is the CSO. The CSO is responsible for implementing the European system of accounts framework, known as ESA 2010. In that context, it determines which bodies are on or off the Government balance sheet. ESA 2010 is legally binding across all member states. Therefore, the CSO is the national arbiter in the classification of entities and subject to oversight by EUROSTAT. It has complete independence in the exercise of its functions and makes decisions on classification matters.

The Department of Finance respects the statistical independence of the CSO, which is enshrined in national and European legislation. While the Department does not have a direct role in reclassification matters, its statistics unit may provide preliminary ex ante statistical advice for Departments based on the information submitted. Such advice is always deemed to be provisional and dependent on the proposal being implemented as described. The process allows for engagement with the CSO, if necessary. When a proposal has been implemented, the CSO will review all relevant information and make a final ex post classification decision. The Department has no role in ex post classification which is entirely a matter for the CSO and EUROSTAT. The Department's main involvement in statistical matters is to collect the necessary financial data to ensure the public finances are compiled and reported accurately. It is responsible for current year estimates of general Government deficit and debt that are supplied to EUROSTAT and other European institutions. It compiles and publishes technical forecasts of general Government receipts and expenditures in the Stability Programme Update, Ireland's medium-term fiscal statement and budget publications. The medium-term fiscal projections are in accordance with ESA 2010. In the light of this, there is ongoing close co-operation between the CSO and the Department in the area of Government finance statistics. It is encapsulated by the secondment to the Department of CSO statisticians who are based in our statistics unit. The Department and other relevant experts participate in a variety of groups dedicated to specific topics to provide for quality assurance in the reporting of deficit and debt figures.

As we set out in our submission to the committee on 1 July, the Department has no direct involvement with AHBs. Each AHB is a delivery mechanism for housing, which means that its output is outside the scope of the Department's responsibilities. In 2017 the CSO's review of the AHB sector focused on the largest of the bodies in tier 3. It concluded that there was sufficient evidence within the funding schemes to indicate control by the Government. Accordingly, it decided that 14 AHBs should be classified as being on the Government balance sheet. The Department does not try to influence this or any other classification decision. Before the decision was made, AHBs were classified as being off balance sheet. If an entity is classified as being off balance sheet, its revenue, expenditure and borrowing are of no relevance in the calculation of general Government revenue, expenditure or borrowing.

In February 2018 officials from the Department of Finance appeared before the committee to discuss the reclassification of AHBs. On that occasion, there was a focus on the implications of the CSO's decision in the context of fiscal rules. In January and June 2018 officials from the Department of Finance attended meetings with their colleagues in the Departments of Housing, Planning and Local Government and Public Expenditure and Reform to discuss the impact of the classification of AHBs on the fiscal position. Officials from the Department of Finance met the Housing Alliance to discuss this topic on 1 May 2018. They advised on the impact of the reclassification of AHBs on the fiscal projections set out in the Stability Programme Update. The reclassification of AHBs is not a Government accounting issue but a statistical issue, which means that it is entirely a matter for the CSO.

When the on-balance sheet conclusion of the CSO in 2017 was confirmed by EUROSTAT, the Department of Finance began its preparations to gather the necessary data. The Department designed a data collection form aimed at collecting the necessary details and minimising the burden, insofar as possible, on individual AHBs. The Department issued the form to the relevant AHBs for its spring 2018 forecasts. Contact details of departmental officials were provided, as is standard on the issue of such a data request. Direct contact details for the relevant CSO statisticians were also included. A limited number of AHBs made contact with the Department to discuss the details being collected. The queries centred on understanding the form and ensuring data were being submitted correctly. Such contact took place by email or telephone call, with no requests for a meeting. There was a 100% response rate in the initial collection round. As the Department produces two official macro-economic and fiscal forecasts each year, we are in the process of gathering the information for the fourth time. On foot of the CSO's decision, the reviewed bodies were placed within the general Government sector for statistical reporting purposes. As such, expenditure by AHBs will count in the local government sector. This will worsen the general Government balance. Revenues to the AHBs from third parties will improve the general Government balance. Any borrowing will count as part of general Government debt. The 2018 Stability Programme Update included the first set of fiscal projections to incorporate the CSO's decision. General Government statistics were restated to reflect the activities of the reclassified AHBs. At present, there are no direct Exchequer implications. In addition, the projections do not present a particular issue in the context of the fiscal rules. However, this could change if the scale of AHB activity increases through increased borrowing.

The CSO was to review all AHBs. Taking into account the structure in place in Ireland, the initial focus was on tier 3 bodies which comprise the largest of such bodies. The CSO has committed to reviewing the remaining AHBs not covered in the original exercise. If further AHBs are reclassified as being on-balance sheet, their data will be counted in Government finance and excessive deficit procedure statistics.

The AHB sector undertook its own analysis to explore how changes to their governance, funding and scheme conditions could facilitate a future re-examination of their status. A submission was subsequently forwarded to the Minister for Finance and Public Expenditure and Reform in late 2018. Given that the proposals made in that submission centre on changes to the relationship with local authorities and the Department of Housing, Planning and Local Government, the Housing Alliance was advised by the Department of Finance that the proposals to reclassify tier 3 AHBs off-balance sheet were ones for the Department of Housing, Planning and Local Government. The submission also highlighted that clarification of aspects of the original reclassification decision made by the CSO was required. As such, the Housing Alliance was advised the matter was more appropriate to the CSO. The submission stated:

[T]he power to decide the classification of an organisation under ESA 2010 lies with Eurostat. However, in most cases Eurostat employs the services of the relevant national statistical agency to provide it with an assessment and recommendation. In Ireland's case that agency is the CSO.

The submission set out a number of measures required to place AHBs in a position where they could apply for reclassification as being off-balance sheet. At a later stage, once the substantive policy aspects of their proposal such as contractual arrangements, organisational structures and funding mechanisms had been worked through with the Department of Housing, Planning and Local Government, the Department of Finance could review any of the workable solutions with regard to balance sheet implications. The Housing Alliance responded and referred to the classification of AHBs as being "at its core a financial accounting issue". That is not the case. It is a statistical, rather than an accounting, issue and, therefore, a matter for the CSO.

More recently, the Housing Alliance submitted a statistical query to the Department of Finance. Broadly, there were two main aspects to the query. First, the Housing Alliance was of the opinion that the CSO's 2017 review was incorrect. The second part of the query was about a counsel's opinion of the classification decision. This is under consideration in the normal manner and a response to the query will be issued in due course. I assure the joint committee that the Department of Finance remains willing to engage in a supporting role with our colleagues in the Department of Housing, Planning and Local Government which has responsibility for housing policy.

I hope this provides a useful summary of the issue. My colleagues and I will be pleased to answer questions members wish to pose.

I invite questions from members who will be taken in the order in which they indicate.

I will make some opening comments and then ask some questions.

I have a real concern about how long it has been since EUROSTAT's decision in March 2018. Notwithstanding the fact that both Departments have outlined the action taken to date, I am not hearing a coherent plan or strategy to get the approved housing bodies back off-balance sheet. While it may not be a problem today, our difficulty is if there is any change in macroeconomic circumstances. We have the ESRI speaking this morning in its bulletin about the possibility of a recession in the context of a no-deal Brexit. That immeidately has implications for capital expenditure by the Government and, therefore, AHBs to meet their targets. If everything goes well, we will be fine, albeit that will depend on the extent to which AHBs ramp up borrowing and spending. However, if something negative happens, as happened before, and capital dries up, AHBs will be sucked back to very low levels of delivery. We know that if there is a reduction in output, it takes a very long time, whether in the local government or AHB sector, to return to appropriate levels of output. Last year the approved housing sector delivered perhaps 2,000 units between builds and buys. It is a very important supply. My questions come in the context of frustration that we are almost two years in. Across the water in Britain it took about two years to get approved housing bodies off-balance sheet. I am not saying I like the way they did it. I have concerns about where its approved housing bodies have ended up, but still it has happened.

My questions are as follows. First, it is important that the committee get a sense of how much we are actually talking about. Therefore, I ask both Departments to consider whether they can answer these questions. What was the level of expenditure in the approved housing bodies sector across 2018 and what is the expected level of expenditure in 2019? What is the broad level of revenue in approved housing bodies, whether last year or expected this year? What was the level of borrowing last year and what will it be this year? Crucially - this may be a question that is more appropriate to the Department of Finance - how much fiscal space does all of it occupy in the context of the current budget? I do not have the level of expertise of officials in the Department of Finance, but I ask the question in the following context. Let us imagine the fiscal space in the context of where AHBs are on the balance sheet is currently €100 million or €200 million approximately. That might be tiny in the context of Government debt, but we are about to have a budget which the Government tells us will include a figure of only approximately €700 million in extra fiscal space. An extra €100 million or €200 million would be very significant in that context. As such, if the officials could provide clarity on that issue, it would be very helpful.

I am not hearing a great deal about meetings since December 2017 between the three crucial players, namely, the Department of Finance, the Department of Housing, Planning and Local Government and the approved housing bodies sector. Clearly, there has been engagement. I am not saying there has not been. However, if the amount of fiscal space occupied by the AHB sector is of the order of several hundred million euro, it is a big prize for the Government and, subsequently, the Departments to resolve the issue as quickly as possible, notwithstanding the fact that they are confident AHBs will continue to secure funding and meet targets in the next couple of years. Am I wrong in saying that? Have there been meetings held this year? The Department of Finance stated there were meetings with the Department of Housing, Planning and Local Government in January and June last year and May with the AHB sector. Are there other levels of engagement?

What I am really interested in hearing about is the plan. One of my major concerns is that EUROSTAT added a significant additional concern in its conclusions on the CSO's determination. EUROSTAT added a much more profound commentary on what it believed was the non-market nature of the AHB sector in terms of both its principal aims and its rent setting approach, which is to say how rents react or, in EUROSTAT's view, do not react to market movements. Crucial is the issue of how all of that influences or does not influence the investment decisions of AHBs on supply. If one were to meet the requirements of EUROSTAT to get AHBs off-balance sheet, the core mission of AHBs - to be non-market operators and not-for-profit providers of subsidised housing - would have to change. One would then be on that pathway to where British AHBs have gone. In essense, they have become sub-market operators. My concern is that I do not see a plan and do not know how any plan would ensure the AHB sector would continue to do what it now does very well, namely, provide non-market housing at subsidised rates for people who would not be able to afford even sub-market housing, as is emerging in the United Kingdom.

Mr. Paul Lemass

I will take what I can and there may be questions Ms Scott and her team can take. I will take together the Deputy's first and last questions, for which I thank him.

We are conscious that the AHB market in the United Kingdom is very different. That explains in part why their reclassification process was somewhat smoother. There are some fundamental differences in the role local authorities play in AHBs in England than in Ireland. I believe Scotland and Northern Ireland have separate arrangements. We are committed to exploring them further as part of a resolution of the reclassification issue. We are happy to learn any lesson from what has happened in the United Kingdom and beyond. It has happened elsewhere in Europe also.

The broader context is provided by social housing policy. The major challenge EUROSTAT's decision presents for us relates to broader housing policy in areas such as the setting of differential rents, the allocation of housing, the configuration of housing and the types of housing we require. These are matters which are the cornerstones of social housing policy. While I appreciate the desire of the AHB sector to be reclassified as being off-balance sheet, we have to be mindful that in so doing we do not tear down the entire edifice of social housing policy, as it stands. That is why these are hard decisions to make and why it has taken a long time to get to a position on them. The Minister is on record as talking about an approach to social housing policy reform and looking at areas such as a national approach to differential rents, income assessment and so on. That is at an advanced stage of development. We are working on it and it must take precedence. Ultimately, it will inform any consideration given to classification.

We recognise that the CSO and EUROSTAT have made a decision.

If we can bring new information to the table on foot of policy changes, we will do that but obviously a policy change that affects the entire allocations process for all social housing applicants would be one to which we would have to give a lot of consideration. Also, to come to Deputy Ó Broin's point about whether things go well, as it stands, the projection is that we would build, through build, acquisition and lease, 12,000 units per year between 2021 and 2027. That is factored into the national development plan so, as matters stand, the figures provide for those 12,000 units. That is the highest level of funding we have ever had for social housing. It is important to remember that this is in the current national development plan figures. If things turn badly, the first step will be prioritisation. The Government has stated that housing is an absolute priority. There are other calls on funding. At the moment, the children's hospital is going through, but that will complete at some point, and then the draws on funding in that area will no longer exist. Part of this, then, is a matter of Government priority at the time. Clearly, however, the national development plan provides for 2,000 units per year between 2021 and 2027 and that is the basis on which we are operating.

I have already touched on the UK. As regards expenditure, funding to AHBs between 2009 and 2018 amounted to €1.745 billion. In 2018, expenditure was €337.69 million. That includes capital and current expenditure. For 2019, the capital allocation is circa €260 million and the current allocation is circa €210 million. That is funding from the Department.

I think I have dealt with the matter of the fiscal space, the €100 million issue in the context of what is hardwired into the baseline and the funding already available.

As regards the number of meetings, we have met the Housing Alliance and the ICSH a number of times and there has been substantial engagement with the Department of Finance as well.

Was that this year?

Mr. Paul Lemass

It was this year and last year. The fact that it is the broader consideration of social housing reform presents a challenge in that it is not just a reclassification issue we are working on. We are working on a suite of broader social housing reforms, many of which will have an impact on any future consideration by the CSO of the classification status. There is, therefore, a much broader agenda there than just the AHB sector, and we have to take that into account. That is the summary of my comments at this stage.

Ms Scline Scott

I assure Deputy Ó Broin that the Department stands ready to engage with our colleagues on housing. We would need a lot more detail on the proposals we have seen to date before our statistics unit could give some technical advice. Does Mr. McDonagh wish to come in on the issue of fiscal space?

Mr. Stephen McDonagh

Yes, briefly. To add to what Mr. Lemass said, as Deputy Ó Broin knows, it is income and expenditure that will impact fiscal space. I think he understands that. Again, the decision to reclassify was retrospective. With the Rebuilding Ireland plan and the national development plan, there is a clear pathway for capital expenditure, funding and delivery of social housing. I caution the Deputy that this is quite difficult to do. The simplest way of doing it is to remove the AHB data from the latest set of projections, the stability programme update, SPU, on which basis there is approximately €300 million of Government expenditure this year and again next year, declining to about €200 million in 2021. Using that concept, one actually frees up fiscal space, based on the current projections from the AHBs. Again, that is reflective of their portion of the 50,000 houses over that timeframe. The reason the numbers are relatively low is that there is a consolidation under way because there is funding from Departments and the local authorities. That was already captured in the expenditure numbers. That is offset, and what one then captures is what would have been statistically treated as current expenditure. What one gets is the actual capital investment by the AHBs, and again, as the Deputy knows, that is subject to the four-year smoothing.

May I ask one supplementary question on that? I know this is not a straightforward question, but if the AHBs were taken off the Government balance sheet today, what would that mean for the fiscal space available? What would be taken out? What would be the advantage to a Government of having it off-balance sheet in terms of how it could then use that fiscal space elsewhere? Can Mr. McDonagh quantify that?

Mr. Stephen McDonagh

In effect, there would probably be no advantage. It depends how one reclassifies. If the AHBs were not on balance sheet, there would be no impact on fiscal space because they would be taken out across the board such that they would not be in the base for last year. Again, it is a question of how much one can grow one's base in year-on-year terms. If, however, there were a policy change to remove the AHBs at some point in time, the question is basically one of their allocation within the overall pot of general expenditure. Again, that is a matter of policy choice for Government to decide. Does it want to continue to spend that on something? Does it want to spend less? It is a matter for Government at that stage.

I thank the witnesses for their presentations. We had a presentation from the approved housing bodies just before we rose for the summer recess. There was a general frustration among everybody around the table that we have not been able to resolve this problem, and I think it is a disappointment to everybody that the approved housing bodies have now been put on balance sheet. We need to find a resolution to that because, regardless of what anybody here says, unless we find an off-balance sheet model, we cannot invest in social or public housing to the degree that is needed to address the crisis we are in. In that regard, I will expand on a few issues based on the previous meeting and today's meeting and get some clarification on some matters.

My understanding, from both today and the previous meeting, is that any debt generated by an approved housing body, whether privately funded capital or State funded capital, is now all on balance sheet regardless of where it comes from. This is the nub of the problem that we must overcome. We have discussed the credit unions and talked about a figure of €3 billion, with €7 billion being available from credit union funding to invest in public housing. If approved housing bodies were to take that sum tomorrow morning and invest it in social housing, it would increase State debt by the same amount. As such, it would have a significant impact on fiscal space and on future delivery. While this change may not be impacting now, it is affecting the potential to use an off-balance sheet model to solve the housing crisis into the future. The priority is to find an off-balance sheet model if we are to genuinely address the housing crisis. The fiscal space is not big enough, no matter what way we do it.

Regarding the criteria, it is also frustrating that this can be achieved elsewhere in Europe but not here. Why is that the case? What is the fundamental difference between how we present our statistics and how the rest of Europe presents its statistics? The contractual arrangements, the financing and the risks are the three fundamental issues on which the Department is gathering data and presenting them to the CSO. I read in one of the reports that the borrowing of the approved housing bodies accounts for less than 1% of their expenditure. This means the State is funding the other 99%. That fundamental issue also needs to be addressed.

Is the capital debt a bigger factor in the decision than the fact that the local authorities decide who goes into the houses or the differential rent that applies? Is there any leverage in this regard? Which of the various criteria the Department is using have most impact on the final decision? Is capital the biggest criterion or is it the fact that local authorities have too much control over who goes into the houses and the types of houses that are built?

Do we fully understand how EUROSTAT and the CSO made their decision? If so, can we not just get on and address the issue? We can talk here all day, but unless we find an off-balance sheet model that can deliver social and affordable housing, we will not fix this crisis within our current fiscal space. We need private investment from the likes of credit unions to do it.

Ms Scline Scott

On the Deputy's first question, any borrowing will count as part of general government debt. What happened in the UK is quite different from what happened in our situation.

Mr. Stephen McDonagh

It is a different situation. EUROSTAT is responsible for applying the rules in a harmonised fashion across Europe. That is evidenced by how EUROSTAT took in the specifics of each country in the context of each representative national statistical institute's decision. Housing markets differ across Europe. As such, not all providers of social or affordable housing in other EU countries are on-balance sheet. This is the case for many reasons and would require a comparative review of how affordable housing was delivered in each EU member state.

In terms of debt, funding and what is on the balance sheet, anything that is borrowed from the private sector is general government debt. At the moment, that is in the order of €100 million. This is reflected in the fact that the borrowing is predominantly from the Housing Finance Agency, HFA, which is already on-balance sheet. Therefore, that debt is already captured when the HFA borrows.

That is the current debt, but my point is that the potential-----

Mr. Stephen McDonagh

I will come to that.

-----future delivery is restricted because of the fiscal space. We have to find something outside of that.

Mr. Stephen McDonagh

I do not know whether it will give the Deputy reassurance, but the HFA has provided for just under €2 billion for the----

It is not enough. That is the problem.

Mr. Stephen McDonagh

It goes to 2023. In terms of whether it is enough, the Deputy is raising a policy choice.

Yes, it is a policy choice.

Mr. Stephen McDonagh

General government expenditure this year is €85 billion. If it cannot be accommodated within that, then that is a question that needs to be addressed.

As to understanding the CSO's review, there is no amending it or any simple answer. It was quite a complex review. The Deputy has seen the depth and breadth of the material that has been published. No one issue tipped the balance. Rather, it was down to a combination of issues, and it is now a question of working through those in a sensible manner. We need to consider the medium and long-term implications. The representatives of the Department of Housing, Planning and Local Government might wish to comment.

Mr. Paul Lemass

I will pick up on a few points. We have looked carefully at the off-balance sheet question and how it impacts behaviour. We have tried to learn how behaviour has changed since the introduction of the capital advance leasing facility, CALF, in 2011. It provides for a 30% unsecured fund, effectively from the Government via the local authority, with the remaining 70% to be raised by the AHB. Under CALF, the AHB is free to source private financing if it wishes to do so. Before CALF came into existence in 2011, we had the capital assistance scheme, CAS, and the capital loan and subsidy scheme, CLSS, which were at 100% funding. Since 2011, the avenue has been open to AHBs to raise private finance.

In 2011, we did not have the reclassification issue with which we are challenged currently. There was a period from 2011 to the end of 2017 during which the door was open to AHBs to access private finance. In reality, the actual amounts drawn down through private finance rather than via the HFA were very small. We must learn from that. Part of our engagement with the AHB sector will be to try to do so and to understand more about that significant period of time. As someone mentioned, nearly 99% of funding in that period and beyond has come from public rather than private sources. Something we need to understand more is what the barriers to drawing down private finance are. Between 2011 and 2017, reclassification clearly was not a barrier, yet private finance was not drawn down. The danger is that removing the barrier now will not have the desired effect. We just need to understand the situation a bit better and to engage more with AHBs. We are committed to doing so.

Regarding the source of funding, colleagues have identified that there is provision through the HFA to provide funding. However, an AHB is not obliged to go through the HFA. If an AHB were to identify another source of funding, it would be possible to reduce the drawdown from the HFA and divert that to the other source. That is a feasible outcome if there is a desire to explore available sources of private funding. That option is on the table.

We have done what we can to support credit unions and AHBs in developing a special purpose vehicle, SPV, to enable investment by the credit union sector in AHB developments. That has included changes in the regulations from the Central Bank to allow credit unions to invest. I believe that the figures are in the order of €700 million. The investment is based on the size of the credit union and its reserve, with larger credit unions able to invest more than smaller ones. That facility is in place. Ultimately, however, it is a matter for the two independent bodies - a credit union, the Credit Union Development Association, CUDA, or the Irish League of Credit Unions, ILCU, and the respective AHB - to decide to take the final step and set up an SPV. The framework has been put in place and the Department has provided funding to the Irish Council for Social Housing, ICSH, to develop that framework. My understanding is that it has gone pretty much as far as it can go without actually reaching the point of making an SPV happen.

I will give some scale to this issue. The goal under the national development plan is to build 12,000 housing units through building, acquisition and leasing - building and leasing are the main components and are growing faster and faster - between now and 2027. At that point, we will have added to the housing stock to the tune of 112,000 units. The current housing list as per the scheme for social housing assessments, the headline figures of which have been released but the details of which are yet to be released, is in the order of 68,000. The projection in the national development plan of 12,000 units per year from 2021 will enable us to build, acquire or lease 112,000 units. Given that there are 68,000 households currently on the list, and accepting that people join and leave lists, we will broadly be in the right area in terms of the scale of the response.

A question was asked about contracts, finance and risk. I will not go into detail on all of those, but a key aspect of the CALF contract is a continuation agreement. This has been cited in correspondence from the Housing Alliance as something that it would consider. Our duty of care in a continuation agreement is to the tenant. We need to know that, in the event of a difficulty with the contract, the tenant is protected. That is why we must insist on there being a continuation agreement. There have been proposals for alternative assurances to financiers and so on, but there must also be assurances to the tenant that if anything happens with the source of finance, there is security for him or her. The current arrangements with the HFA are working well in that regard.

EUROSTAT has taken a wider view on financing. That seems to be the direction of travel. However, there is also a practical constraint. In the event of a downturn, someone might suggest that it would be great to go to private financing to raise the capital. If that capital were raised by an AHB, it would have to be paid down somehow. That is the other side of the equation. The capital is the input, but that finance would need to be paid from some source on an annual basis. To consider access to private capital in isolation is only to deal with the input side of the equation. The output side is that, once an AHB has its €100 million or whatever, it must find funding or charge rents to enable it to repay the amount. This, as well as the broader range of elements at play, show why the situation presents a more challenging picture for us.

I thank Mr. Lemass.

Deputy Pat Casey took the Chair.

Mr. Lemass said there was a desire for the AHB sector to be reclassified. He will find that there is a desire among most political parties in the Oireachtas to reclassify AHBs and to deal with the situation. It is not just the approved housing bodies which want it to happen. I take it from the statement of the Department of Finance that it is neutral on the question, that it is crunching the numbers but does not have any policy or decision-making role in the matter. That is useful to know because we have been trying to find out whether it was housing, finance or CSO until now, and it has been like trying to pin a tail on a donkey. The donkey in this instance is the Department of Housing, Planning and Local Government and that Department is responsible for moving the situation forward.

I am trying to get a handle on the level of engagement on this. My feeling, which could be incorrect, is that the senior level of the Department of Finance does not want this resolved. The policy decision for a reclassification to an on-balance-sheet status suits Government policy on housing, and keeps control over the sector for the Department of Housing, Planning and Local Government and the Minister. It was said that, even if we were to borrow privately, it would have to be paid back but we know that. Is it not the case that, at ministerial level in the Department of Finance, it suits Government policy with regard to the delivery of 12,000 housing units per annum? They are saying we are going to get to that level anyway so we do not need the approved housing bodies to ramp up delivery. Deputy Casey and others have raised the concern we have, which is around the fact that while it may be okay to think like this now, it may not be okay to do so in two or three years' time.

What is the level of engagement? The Department of Finance said the proposals received to date from the Housing Alliance would need a lot more detail. Does that refer to the August document submitted by the alliance? If we need more data, have we sought them from the Irish Council for Social Housing or the Housing Alliance? I get the sense that this will be allowed to drift. We will be told the decision has been taken and that is the way it is. We do not need to deal with this issue so we are not going to do anything about it. There was talk of a working group being set up involving the Departments and the AHB sector. Has that happened? Is there a real desire to rectify this problem? It could be a valid position to take that the status quo is the preferred option of the Department of Housing, Planning and Local Government. If that is the case, the Department would be better to tell us, lest we go around in circles trying to resolve an issue the Department does not want to be resolved.

Ms Scline Scott

In the interests of transparency, any public expenditure should be reflected on the State's accounts. The Housing Alliance made a submission to the Minister for Finance and for Public Expenditure and Reform in October last year, setting out a number of measures that could possibly see the bodies brought off balance sheet some time in the future. We told the Housing Alliance that we would need to see a lot more detail before we could provide technical advice around that.

Has there been a response?

Ms Scline Scott

The alliance said it saw it as a Government accounting issue but we do not. We see it as a statistical issue and a matter for the CSO. Earlier this month, we received two pieces of correspondence, one of which was legal advice around the decision of the CSO while the other was a submission seeking a meeting with the CSO to consider the latter's decision around reclassification.

Mr. Paul Lemass

I hear the Deputy loud and clear about the desire in the Dáil, across many parties, to reclassify. I was trying to demonstrate that the reclassification exercise is likely to be a long-term development. The UK context is quite different and we are comparing apples with oranges. The UK body was not previously a not-for-profit organisation and was a private institution, although I forget the precise categorisation. The most important thing is that the delivery pipeline is not affected by reclassification. We have had some five or six meetings with the Irish Council for Social Housing and the Housing Alliance since I have been involved and I meet them regularly on the interim regulatory committee, on which Dr. Donal McManus also sits and where we discuss issues relating to reclassification, regulation, etc. There is engagement but there needs to be more and we are committed to ramping it up.

The EUROSTAT decision called into question issues such as the setting of differential rent, the allocation of housing and the configuration and type of housing that is being built. These are fundamental to overall social housing policy. We are happy to consider how changes in that area might affect reclassification but we do not want to throw the baby out with the bathwater and we do not want unintended consequences. The fundamental thing about Rebuilding Ireland is to deliver social housing for social housing applicants, which we do at the moment through an allocations process that is understood and a differential rent system that is understood. The Minister is on record as saying he is looking actively at a national approach to differential rent and income eligibility, etc., and we have to carry that work forward, for the entire sector and not just as regards AHB participation. It is a slower-moving development than it may have been in the UK, where there were one or two quick fixes they could put in place.

I recognise Mr. Lemass's acknowledgement that more engagement needs to take place. When was the last formal engagement between the Department and the AHB sector on the classification issue? Are we actually trying to deal with this? Does the Department want this to be resolved? Does it see this as a problem? The national development plan was mentioned on a couple of occasions. Is it not the case that reclassification to on-balance-sheet status effectively suits the policy direction of the Department? If that is the case, it is a valid position, though not one I agree with.

Mr. Paul Lemass

When the CSO and EUROSTAT were conducting investigations we lobbied hard and presented a strong case for AHB remaining off balance sheet.

Does that remain the position?

Mr. Paul Lemass

That is what we are working towards now. As we internalise the EUROSTAT decision, we would like to see that situation pertain, although we have to see how practical it is in the context of the changes required to the allocation system and to differential rent. It may be possible and the ongoing social housing reform work will help to inform the situation. I met the Housing Alliance in July and the Minister met with its representatives as recently as last week.

We are having a chat with them.

I listened carefully to the Vice Chairman's proposition and the manner in which he articulated it. It is food for thought yet the Department of Finance said that, ultimately, it does not make any difference whether it is off or on balance sheet. The witnesses might develop that school of thought. What is the difference? Will it make a difference?

Mr. Stephen McDonagh

I am not sure we said that but to address the question of whether they are on or off balance sheet, and to go back to what I said earlier, speaking in terms of the fiscal numbers, the general Government debt would be largely unchanged. It would be €100 million lower, in the context of €200 billion. As I outlined for Deputy Ó Broin, the expenditure will be €300 million or €400 million lower per year. The impact on the balance sheet, because there is some revenue included, is a little lower. Theoretically, for 2019, the general Government balance would be €250 million to €300 million better if the approved housing bodies, AHBs, were off balance sheet and not hitting it, so to speak. Simply put, the fiscal projections are compiled based on the system of classification. It encompasses all on balance sheet bodies. If they are on balance sheet they are counted and if they are not, they are not so to a certain extent the fiscal numbers are largely agnostic. There is the sense that a significant amount of public expenditure is being devoted to capital investment for the delivery of social housing. Effectively, that is public money under public control to deliver public policy so it should be on the balance sheet and not delivered via some off-balance sheet mechanism potentially creating a contingent liability for the State at some point in the future.

Mr. Lemass said it was more a long-term objective and that this is an issue that will not be resolved overnight. I get that because it is a significant recalibration. When he talks about a long-term objective, what incremental steps does he envisage taking? What timeframe is he talking about? Do we have to arrive at a particular legal situation at a particular time?

Mr. Paul Lemass

In terms of a timeframe, there are a couple of different dimensions to that. The first aspect is that, independent of the reclassification exercise, social housing reform is on the agenda. The Minister is developing proposals in that regard and hopes to bring them to Government reasonably soon regarding issues such as differential rent, income manageability and such like. That is at an advanced stage and the Minister is hoping to move on that.

Separate from that, we need to engage in more detail with the Housing Alliance regarding its proposals. It has put forward detailed proposals. We probably need to get more of the detail behind them. It has a proposal to do away with the payment and availability system and replace it with a differential housing assistance payment, HAP, system. We would need to understand fundamentally how those two are different and how that would have the desired impact of demonstrating less control by Government.

We would also need to get into some more detail about its proposals on choice-based letting, which is an important part of the allocations process but is very much the tail end of the process. There is a suite of steps in allocation before one decides whether to let a property through choice-based letting. We would need to understand that in more detail. One might say there is a twin-track process that we would have to work through. Once we get a definitive position out of either of those that we can act on, that will enable us to bring new information to the CSO that would enable it to consider whether a reconsideration of the classification was appropriate.

We are looking at a twin-track process. On the one hand, the Minister is developing a policy position and, on the other, the Housing Alliance has articulated a policy position. In terms of engagement with the Housing Alliance, what structure is Mr. Lemass proposing to develop that engagement? It seems there would need to be a detailed, technical engagement between him and the Housing Alliance as opposed to just meeting once every quarter?

Mr. Paul Lemass

We will develop this with the Housing Alliance. We will work with it. We will also work with the Irish Council for Social Housing because the Housing Alliance applies only to the six large approved housing bodies. There are others that need to be incorporated as well. I do not have a detailed structural arrangement to propose to the Senator today but I can commit that we will increase the level of engagement considerably to work through the details that it has proposed.

The Housing Alliance represents the big six AHBs, and there are others, as Mr. Lemass correctly pointed out. Are both the Housing Alliance and the others in the more loose structure? Are they in unison in their position on this?

Mr. Paul Lemass

I could not comment on the detail of their positions but my understanding from the Irish Council for Social Housing, ICSH, is that it is supporting the reclassification exercise in the same way as the Housing Alliance is supporting it. We would have to work through the detail of the individual proposals with it but, directionally, they are both in favour of reclassification.

I would like to know the number involved in the smaller outfits because it seems to me that many of the smaller housing bodies might be better off if they merged.

Mr. Paul Lemass

There is a very large number of AHBs in the landscape at the moment. In truth, it is the bigger ones that drive the growth agenda. Of the ones that come looking for funding, 15 to 20 of those would probably take the lion's share of any funding available. Many of the smaller AHBs do not have any particular growth or development plans and are just managing the stock that they have, so it is likely that the large ones will be the most active on this particular agenda item.

In terms of getting recognition, from Mr. Lemass's perspective, if a group wanted to set up an approved housing body, is that structure complicated?

Mr. Paul Lemass

If someone wants to set up an approved housing body there is a process they have to go through, which includes consultation with and a recommendation from the ICSH. There are provisions on demonstrating that it is additional to what already exists because if there is a similar approved housing body in the neighbourhood, it would not make sense. That is the current arrangement under the voluntary code of practice. Once the regulatory system is introduced, hopefully, with the committee's support, early next year it would then be a matter for the regulator and they would register through the AHB regulator.

That would be much more appropriate.

I thank the witnesses for being here. Unfortunately, I had to step out of the meeting as I had to deal with an item in the Seanad. I do not have the advantage of knowing the questions that were asked but I take it from the comments of the two Senators present that securing meaningful engagement with the sector is an issue. When I attend Oireachtas joint committees, I tend to notify agencies or relevant people that a particular subject is being raised. Needless to say, I have spoken to a number of approved housing bodies and the common issue that came across consistently was their lack of meaningful engagement on what they read about this legislation, the reclassification process, the role of EUROSTAT and the impact of that on or off balance sheet. I believe there are too many approved housing bodies. Can Mr. Lemass confirm how many are in existence? I have heard the crazy figure that there may be up to 500 but that may not be true. He might be able enlighten us on the number of approved housing bodies. Some of them are very small and some are very big. Some of them are driving the process and some are clustered in groups.

The reform of approved housing bodies may be a debate for another day. It is no secret that the Minister and the Government are keen to see rationalisation, organisation and structure around this area. I am not in the business of supporting a large number of approved housing bodies with plush offices and top chief executives making loads of money. I am not saying they are all like that but there is a perception that many people are reinventing the wheel and that we are all over the place in this area. Questions are being asked of elected members who have mandates and are part of councils, which are housing and planning authorities that have many other functions. They are close to the ground in terms of the administration of their respective housing lists. The approved housing bodies take tenants from the social housing approved lists. That is extremely important to ensure transparency.

There are a whole load of issues about reforming the sector which may not be part of today's deliberations so I want to point that out but I also want to acknowledge there are very good and successful approved housing bodies. My understanding is the Government is keen to use AHBs as a major source of housing and in the provision of social housing. There is always a conflict with what the local authorities are meant to be doing. We know from looking at land inventories that there are substantial public lands in the ownership of these housing authorities and we know there is a demand for housing. One has to ask why we cannot harness all that energy and do it? Why are we reinventing the wheel and handing so much of this direct build of social housing to authorities and organisations outside local authorities? I just want to say that because it is important. The Department might tell us how many approved housing bodies there are.

I refer to the differentials system. Mr. Lemass can correct me if I am wrong but he suggested there might be a two-tier differential rent within the HAP system. Maybe that is being considered but Mr. Lemass might enlighten us on that. I appeal to the Department to have more engagement with the approved housing bodies. I accept there are clusters and maybe the Department is engaging with the groups - and they are not engaging down - but that is a big issue and it is a recurring theme here today.

Can the Department detail the interactions with EUROSTAT on getting AHBs off the balance sheet? We do not have all the documentation. I am not suggesting the Department should go back and take its filing cabinets apart and come back here with a busload of stuff but what is the Department's engagement with that? What is its preferred option? We need to know what the Department's preferred option is. We do not want to hear that the Department will wait and see wherever the dice falls. What is the Department's preferred option in an ideal world?

We need to reassure people that with overruns on the children's hospital and a whole load of other overruns, the financial difficulties the State will face post Brexit and all the other financial challenges the State faces, this will not impact the level of delivery expected in Rebuilding Ireland and beyond, depending on the reclassification. I am a bit tired of hearing about delivering targets for Rebuilding Ireland. I want us to be ambitious to get way over the objectives, commitments and targets we have set in Rebuilding Ireland. I thank our guests from the Department for coming in.

Mr. Paul Lemass

I thank the Deputy.

I am a Senator. Mr. Lemass should not promote me over my station.

Mr. Paul Lemass

I will deal with the numbers initially. There are two different sets of numbers on this. The number of registered AHBs is 552.

So it is 52 short.

Mr. Paul Lemass

To be clear, that is the number that got registered status. Many of those would not be active. A de-listing exercise has been undertaken and we need to do more. The numbers participating in the voluntary code, which is set up through the interim regulatory committee, is more like 260. However, those 260 AHBs represent the lion's share of the activity and the housing stock. We are comfortable that we have captured most of the housing stock and most of the growth with those 260. Growth is linked to working with the voluntary committee and getting a satisfactory assessment through it. We recognise it is a busy sector and we have supported the ICSH and others to look at ways of rationalising the sector and facilitating the transfer of assets. That work is ongoing and it will become more pressing as time goes on because 560 AHBs is too many for a country of 4 million or 5 million people.

A critical aspect of reform will be the introduction of statutory regulation, which we hope will be in this committee soon. That will be a significant support to the development of the sector.

On the use of AHBs, the plan in Rebuilding Ireland is that they would deliver one third of the units. In reality they are over-delivering and they are closer to 40%. We are happy with that. The policy in Rebuilding Ireland has always been that it will be flexible. If it is apparent there is an AHB that is ready to take the lead and develop, and there is a need in that area that is signed off by the housing authority, we will be flexible. The committee has seen that because AHBs have gone from 33% to close to 40% of the deliveries so far.

To be crystal clear on the differential rent, the Housing Alliance has proposed that as part of the reclassification exercise, we would move from the current SHEP proposed operation of the payment and availability scheme to a new scheme, which would involve a differential HAP being paid in addition to the differential rent a tenant would already pay. That is a Housing Alliance proposal. It is not our proposal. We will refer to it in that context and that is something we need to work through with it to understand how it would practically be different from a payment and availability arrangement.

On the reclassification of AHBs, I reiterate that we supported their retention off-balance sheet. We made a case to the CSO and EUROSTAT at the time that they should remain off balance sheet and we pointed to their independent appointment of officers and to the fact they have their own boards and set their own strategies as justification for them remaining off balance sheet. The ultimate decision was they became on balance sheet but it was not our preferred outcome and we are happy to work with the sector to examine ways to reverse that. Earlier on I emphasised that notwithstanding the reclassification, the delivery of social housing continues apace and there is nothing in the reclassification that will impact negatively on our plans to deliver. Those plans include moving up to 12,000 build acquisition and leases per year, while will be mainly build and lease, by 2021, and continuing at that rate until 2027. That is already factored into the national development plan so we have a high degree of confidence those numbers will be delivered. To put that in context, that means that by the end of 2027, we will have put out 112,000 new units. That compares with the social housing list which was completed a month or two ago, which indicates we have 68,000 people on waiting lists. We feel that is an acceptable proposal in terms of the scale of ambition and a response to the challenges presented in the context of a housing list with 68,000 people on it.

Mr. Lemass referred to the transfer of assets in relation to the AHBs. I presume these are the AHBs outside of the 260 he is talking about. What does Mr. Lemass mean by that? Is there a substantial inventory of all of that? I presume the Department is on top of all that.

I mention the over-delivery by AHBs. Mr. Lemass should remember the targets were too low. Many of us would have thought the targets right across the sector were too low. Would the Department be in a position to furnish the committee with the outputs for the AHBs for 2018 and 2019 to date as soon as possible? I do not like comparing the outputs of AHBs with those of the 31 local authorities. If we could have this information on the basis of the 31 local authorities it would be helpful because we can look at that against other statistics. We are talking about over-delivery and that is positive. We want to see that, track it and examine why it is happening. I welcome any additional delivery of houses. Wherever houses are delivered they are houses. It does not matter who is building them. We are talking about homes for people so we should not get hung up on the ideology of the private sector or public sector providing them. I made the point earlier that the local authorities have so much capacity, local knowledge and skill. They do not have the capacity to raise funds as easily as the AHBs for a number of reasons Mr. Lemass would know all about, and maybe that is why local authorities are under-delivering, coupled with the four stage bureaucratic process that takes months to get through sections of. That also frustrates local authorities. If the Department could assist the committee by providing a delivery spreadsheet on the 31 local authorities with delivery targets, the over-delivery of those targets and the breakdown, that would be really helpful to the general work of the committee. I thank the witnesses again for coming here today.

Mr. Paul Lemass

On the transfer of assets, it would not be restricted to the 260 AHBs that are not registered. It is more of a broader provision if an AHB decides it might be better off winding up, and there are such situations with elderly people in AHBs.

They are not in a position to continue. We would like to facilitate a process whereby their assets would be transferred to another AHB that would take over ownership and control of them. We support that and we recognise that it will probably be the way out for a number of AHBs. We do not quantify that precisely but that is the kind of thing we have in mind. Our concern would be that the tenants are protected through any transfer. That is the main thing.

Regarding over-delivery by AHBs, I reiterate that Rebuilding Ireland is flexible. If one sector can over-deliver, we accommodate that. I must defer to my colleague, Mary Hurley, regarding what statistics are collected on individual delivery by county by AHB but I will raise it with her and we will revert to the committee between us to see what we can give the committee in terms of the actual delivery numbers by county by AHB. I am not sure what is collected so I do not have the answer.

Given the focus on Rebuilding Ireland, I take it these statistics are there. It is just a question of us having them because they are there. As Mr. Lemass is telling us that AHBs are over-delivering, we must have some way of backing up this statement. If Mr. Lemass could relay that message to the relevant people, I would appreciate it because it is so important for the committee to track the progress on a housing association and local authority basis.

Mr. Paul Lemass

I certainly will do so. I could not but reply regarding the last point about the four-stage process. The four-step process envisages a 59-week turnaround. In some places, including a couple of developments in Wicklow, the period has been as short as 43 weeks, so we feel this process is quite lean and manages to balance the need for delivery and the need for value for money. There have been a high-profile examples of how very expensive projects might have got through were it not for the four-stage process.

We keep coming back to the differential rent, allocations and design. I am getting the impression that Mr. Lemass feels that this is the larger element that needs to be thrashed out as opposed to the capital or funding element. The Department of Finance might have its opinion on that. Mr. Lemass spent a lot of time on CALF funding, which involves a 30:70 mix. If most AHBs used the 30:70 model and there was some tweaking of the other three items, would we be in the ballpark where we might get a reclassification regarding the on-balance sheet model?

How is the debt calculated with regard to AHBs? There are issues like capital deficit, operational deficit and income expenditure. How is that debt presented when the Department of Housing, Planning and Local Government is presenting the statistics to the CSO? Does Deputy Ó Broin need to come back in?

I have a few supplementary questions. I apologise to the witnesses. The Chairman and I had to do a radio interview but I will go back over the transcript.

I hope I am not facilitating a new coalition.

Absolutely not. It concerned rent pressure zones and all the great difficulty renters are having. I have three supplementary questions. I am sure Mr. McDonagh winces every time politicians clumsily try to work our way through stuff around the fiscal space because getting our heads around it is genuinely very challenging for many of us. I will relay back what I think Mr. McDonagh was saying and might put another question. If the AHBs are taken off-balance sheet, because that is retrospectively applied in the baseline, the Government expenditure bit of it in terms of capital or current has no impact. If the Government continues to spend the same amount, all things are equal. A question arises on private borrowing and the spending of that private borrowing for capital construction because with the exception of the small special needs AHBs, 70% of the capital spend by AHBs is Housing Finance Agency, HFA, or private sector borrowing. Because the HFA is Government-backed, that will be on-balance sheet no matter what so the key question is private sector borrowing. Is there visibility in terms of the extent to which that private sector borrowing occupies a fiscal space? If it was reclassified off-Government balance sheet, how much fiscal space would that save? For example, if the borrowing last year was in the region of €200 million, that is obviously quartered because it is smoothed out over the four years so it is a quarter of that. Am I right in saying that whatever their borrowing requirements are or their actual borrowing is and the spending of that annually from private source, a quarter of that is the fiscal space that would become available to Government if it is off-balance sheet? If that is wrong, could the witnesses put me right on that?

An interesting point by Ms Scott in respect of the propositions that have been put to the Department of Finance by the Housing Alliance was that the Department would need more detail from the alliance before it would go to the Department's statistical people. For the benefit of the Housing Alliance, which is probably paying quite close attention to us today, could she tell us what kind of detail the Department is looking for? If the alliance or those of us who are concerned about this are to be helpful, what more does the Department need from them because it would be interesting?

In response to Mr. Lemass, I have always been a bit nervous about the debate on securing off-balance sheet because if it comes at a cost, I would much prefer if it stayed where it is in terms of housing policy. It really does get down to the issues around rent setting and reviews, allocations and nominations but also investment decisions because this is one of the things EUROSTAT highlighted in a way the CSO did not because today, the investment decisions of the AHBs are really proxy decisions of Government because it sets the overall targets and the AHBs play their role in that. Is it unfair for me to read between the lines of what Mr. Lemass said to say that part of our difficulty and part of why this is taking so long is because in respect of the challenges of maintaining the kind of policy focus the Government has chosen and the AHB sector has chosen to date in terms of that not-for-profit subsidised housing ethos, getting them off-balance sheet could require very significant policy changes that would have significant policy implications? That is what I am hearing from Mr. Lemass. I have not heard anybody from the Department say it as frankly before.

With regard to the Housing (Regulation of Approved Housing Bodies) Bill, which we discussed yesterday and which relates directly to this issue, I asked a question yesterday and while in fairness, the Minister of State, Deputy English, did his best, I do not think he got the point I was making. My point concerned the inclusion in the standards of the Bill for issues around tenancy management, nominations and allocations because it was a surprise to many of us that this was there. Is that an attempt to put some of those policies at one step removed from the Department and the local authorities and to create that sense of independence? Is that related to this discussion? If not, given that this Bill predates the reclassification issue, has there been any stress-testing of the provisions of the Bill in the context of the desire to get the AHBs back off-balance sheet? For example, was there consultation with the CSO? Is that even permissible under the rules? Was there consultation with the Department of Finance on whether the provisions of the Bill would make it easier or more difficult to achieve reclassification? I am thinking in particular of all of those areas where the new regulator will have to refer back to the Minister for consent, such as setting standards and the strategy.

Deputy Noel Rock resumed the Chair.

Mr. Paul Lemass

Our colleagues from the Department of Finance can speak about the fiscal space. Our understanding is the actual quantum of borrowing and lending from the private sector is in the order of €100 million. I think about three AHBs are involved. Our understanding is that this is a facility that is in place. I am not sure how much of that has been drawn down to date.

Is that annually?

Mr. Paul Lemass

No, that is just-----

Mr. Paul Lemass

Yes. That is the kind of money involved. Investment decisions are underpinned by a housing authority assessment of the need so if an AHB comes in with a proposal, it must be approved by the local authority in the first instance. It then comes into the Department because we have a broader housing policy remit but there must be a need. That is what drives it.

Regarding major policy changes, the bottom line is that they have called out allocations, differential rent and the configuration of properties.

We have to internalise that and determine the changes required and how those changes can be reconciled with the need to manage allocation and differential rent systems that are fair to everyone.

In parallel with reclassification, the Department is working on the social housing reform package. We were looking at this anyway, independently of that exercise. We will try to find a way that one can collaborate with the other or at least not derail the other. We are very alive to the issue.

Regarding the Housing (Regulation of Approved Housing Bodies) Bill 2019 and the question of tenancy management and allocations, I note that this is happening already. The voluntary code is working very well. It has taken us a while to go from 2013 to having a Bill published and in the Dáil in 2019. The benefit of that is that we have had six years to build awareness, raise standards and get compliance with them. The sector has worked extremely well. The oversight of performance provided for in the Bill largely exists already on a voluntary basis. Obviously we need to move to a statutory basis; that is accepted. However, much of this oversight already exists on a voluntary basis. As regards whether it is a policy, the idea is that if a certain approved housing body, AHB, is asked to allocate houses to a number of people on the list, a regulator will be able to satisfy itself that those people have been allocated houses off that list. That is the level of oversight at issue. Alternatively, there may be a communications issue concerning whether an approved housing body is communicating effectively with its tenants. That is the kind of oversight we are considering. It is entirely separate from the role of the Residential Tenancies Board, RTB, which manages its area. There is a very clear division there. It is not inappropriate for a regulator to examine those areas.

Reference was made to the Minister. The Minister must have a reasonable level of oversight to understand what is happening in the sector and how it is responding to the challenges, and potentially to learn from the sector, which is racing ahead in terms of delivery. There is no one-size-fits-all model for regulation but given the level of investment in the sector and our reliance on it to deliver, the Minister would have an appropriate level of oversight.

Finally, before I yield to colleagues in the Department of Finance I wish to address stress-testing. It is really important to be clear that the Bill was initially developed in 2015, before the issue of reclassification had materialised. It is important that each of the two initiatives stands on its own merits. I would be very uncomfortable if we were reconsidering regulation to facilitate reclassification happening or not happening. We need to keep a clear separation between the two. Regulation is there to ensure that the sector is well regulated and to give confidence to the public in that regard. Reclassification is there to enable AHBs to participate and access private financing. That is a separate exercise. However, I sit on the interim regulatory committee which reviewed the legislation. It was satisfied that nothing in the Bill would hinder a reclassification exercise. In fact, its general finding was that the ability to demonstrate that the sector is well regulated would help in any reclassification initiative. That is much as I can say. Perhaps the Department of Finance can respond to some of the earlier questions.

Ms Scline Scott

Mr. McLoughlin will talk about the additional detail we need concerning contractual arrangements etc. and Mr. McDonagh will speak about the fiscal space.

Mr. Robert McLoughlin

Regarding the detail we need, I note that when a proposal is submitted to a system unit it will contain a business plan with a very rigorous approach is proposed. As was probably mentioned earlier when discussing EUROSTAT, the fiscal framework is concerned with whether an AHB is a market or non-market entity. This concerns various criteria regarding economically significant prices and whether a body operates based on commercial interest or non-commercial interest. Without that level of detail, it is very hard to provide comprehensive analysis to give the best advice possible. As such, it would be very hard to provide good advice or analysis using high-level thinking about structural changes that does not consider the degree of financing or the risk exposure and the small details of the proposal. That is what we are looking for.

Mr. Stephen McDonagh

I will start with Deputy Casey's question on debt, which will lead me to Deputy Ó Broin's query. We present the debt in the medium-term forecasts. It is presented in nominal terms and we also provide the ratio of debt to GDP, which is the requirement under the Stability and Growth Pact requirement. We also provide information on the ratio of debt to GNI*, given the limitations of GDP in an Irish context.

Simply put, we collect the amounts directly from the bodies involved, in this case the AHBs. We ask them to differentiate how much they are borrowing from local authorities, the Housing Finance Agency, HFA, and third parties, that is, non-government bodies. The latter is the part that adds to general Government debt. The HFA, local authorities and any other Government borrowings are already captured elsewhere in the system. Consolidating these figures provides the figure of €100 million, which the approved housing bodies currently report is provided to them by the Department of Finance.

That leads me on to the question of how that links up with capital financing. The two issues are somewhat separate when the fiscal space is calculated. The debt is the debt. That is what we borrow. The relevant question is when it is spent. When it is spent we do not link it to the source of the financing, although obviously the financing provides the space to spend. When it is spent we determine whether it is current expenditure or capital expenditure in this fiscal context. As has been said, if approved housing bodies borrow €100 million from private capital, that would logically give them €100 million to spend. It is a question of the timing of that spending and whether it took place in one year, in other words, what is the relative change in the expenditure. Assuming that the primary engagement of AHBs is in the area of delivering capital, it is most likely to lead to additional capital expenditure. We determine the amount of additional spending in the area of capital and then apply quarterly smoothing to that. I hope that addresses the questions. I appreciate it is somewhat vague, but as members will be aware-----

I would not say "vague". I would say "esoteric". That is not Mr. McDonagh's fault. He did not create the rules.

Perhaps Mr. McDonagh could expand a little on what he said. He is concerned with capital debt. It has nothing to do with-----

Mr. Stephen McDonagh

It is simply a question of how much the AHBs have borrowed.

Money from the HFA is Government money in any event. Only the private sources of funding add to the fiscal space. According to one report I have read, those currently stand at only 1%. Am I reading that wrongly?

Mr. Stephen McDonagh

Perhaps I did not explain clearly. The debt is one thing. That is independent of fiscal space. Fiscal space is based on expenditure, that is, when the money is spent and how much is spent. To some extent it is distinct. In calculating fiscal space and the impact on the balance sheet, it does not matter where the money came from. What matters is when it is spent and what it is spent on.

My point is that because the approved housing bodies have such low levels of private funding that increasing that private funding by a significant margin would have an impact on the fiscal space because the AHBs are on balance sheet. Am I correct in-----

Mr. Stephen McDonagh

That is correct. That would happen if they increased their spending, irrespective of where the funding comes from.

Mr. Paul Lemass

I would like to come in on that point if I may.

This goes back to the point about the funding split of 30% and 70% under the capital advance leasing facility, CALF.

Mr. Paul Lemass

I absolutely agree with Mr. McDonagh, but in the context of the policy objective to deliver 12,000 houses a year from 2021 onwards, if more of the fiscal space was taken up through private lending, it would simply offset the requirement to borrow the equivalent funding from the HFA because it is all provided for in the 12,000-----

That is in Mr. Lemass's figures. My figures are completely different. I want much more money and I want to deliver much more housing.

Mr. Paul Lemass

That is fair enough.

I am just saying that an off-balance sheet model gives us the potential to deliver more. That is why I think it is vital that we get there. I am not arguing with what Mr. Lemass is saying. However, if we had an off-balance sheet model, we could invest a lot more and not affect the fiscal space. The fiscal space holds us back in what we can do.

Mr. Lemass indicated that there are 68,000 on the housing waiting list. Does that exclude those in receipt of HAP?

Mr. Paul Lemass

If they have HAP, their housing need is addressed.

How many are joining the housing list every year?

Mr. Paul Lemass

It has been going down in the past three or four years. It was in the mid-90,000s, if I am not mistaken, and then it came down to 71,000. It is 68,000 this year.

It is a downward trend.

Mr. Paul Lemass

Yes.

Are the qualification criteria for social housing adequate?

Mr. Paul Lemass

They are under review but that is also in the context of the affordable housing work. When that has washed through the system, it will also inform the review.

Could both Departments inform the committee when they meet or have any outputs in respect of this process in order to keep us in the loop?

This will be the last time I mention fiscal space, I promise. If, for example, the AHBs were to spend in a given budgetary year €100 million on private borrowing, that would take up €25 million of fiscal space. Does the Department know how much of the €100 million private borrowing facility was spent by the AHBs? What would be the advantage to the Government in terms of that available extra fiscal space if they were off-balance sheet? From everything Mr. McKenna says it seems that would be a small sum of money. If it has not spent the €100 million or has spent only €50 million in a given year it is a quarter of that. Do we know how much of that private borrowing has been spent? Post-rebuilding Ireland this is fictional because we do not know who will be in government or what the plan is. It is in the development plan but many of those things are questionable. Even to the end of rebuilding Ireland do we know how much of the capital spending by the AHBs in 2020 and 2021 will come notionally from private borrowing?

I agree with Mr. Lemass that if it is a question of good quality or off-balance sheet regulation, we go for good quality. Likewise, if it is a question of good-quality, subsidised, not-for-profit housing within the context of Government policy versus the British sub-market model to get off-balance sheet, I am for the first option. Notwithstanding that, I would have thought the Department would like to know - not from the regulator but from the CSO and the Department of Finance, because they have a level of expertise the rest of us do not have - if the provisions of this Bill a help or a hindrance? It is not a question of removing them from the Bill but it would be good to know if they were a help or hindrance in the context of reclassification because if it is the view of the Department not to opt for reclassification because the policy costs are too high and its recommendation to the Minister or the view of Government is that they are not policy changes it is willing to contemplate, we should just say that. I am not stating that this is what Mr. Lemass is saying but it does sound as if that is the direction this conversation is potentially taking. There is no point in our talking about reclassification if from a policy point of view the Department is saying the loss from the social housing provision is too great to bear.

We know how many new households come onto the housing list every year because that is published by the Housing Agency and there were approximately 14,000 households last year and the year before, which is twice the output of real social housing. I absolutely respect the fact that Mr. Lemass must outline the Government's policy decision on HAP and people’s housing needs being met. If, however, we take all the people on the housing list and add the people on HAP and RAS, the number is 140,000. The problem is that the NDP targets are based on an assumption that the long-term housing needs of households are met by HAP and RAS, but they are not. I am not looking for a response from Mr. Lemass but he should feel free to respond if he wishes. Short-term housing needs, two years for HAP and four for RAS and all the 50,000 on HAP are entitled to social housing. The NDP targets only work if we assume nobody comes onto the housing list even though 14,000 have come on each year for the past two years and the Department is assuming that the people in receipt of HAP will not want to take advantage of the transfer list. When those are added in, it is producing approximately half of what it needs over the course of the NDP. That is why those figures are kind of tricky but that is for another meeting.

Mr. Paul Lemass

The drawdown of private funding in 2020 and 2021 is probably more for a colleague from the Department of Finance. We are not suggesting that quality regulation and reclassification off-balance sheet are mutually exclusive. If it is possible to do both we will work to do both. We need to conduct more investigation into possible solutions to the reclassification issue that we can then bring to bear on colleagues in CSO and the Department of Finance. That is probably the direction of travel, that we agree and identify a possible way forward, then take it to Finance rather than have it comment on our proposed legislation and saying if we do this, that will happen. It is better that we proactively study the legislation and see where we can take it.

The Deputy would not expect me to say anything other than that a housing need has been met when a person has been awarded HAP.

It is only for two years and families live longer than that.

Mr. Paul Lemass

That is certainly the position. The transfer list is available for those who want to transfer. I do not have the precise numbers of those on the transfer list.

Mr. Stephen McDonagh

No, I do not know how much of the spending is related to private financing. The nature of the way of these recordings I do not need to know that. It is only when the body outside of the sector that is where we capture a transaction. The Comptroller and Auditor General dealt with a case last year. Once it is spent irrespective of where the funding comes from that is what I need to know. It may be that in their accounts the AHBs may give that level of information but we never needed it so we never asked.

We have spoken about the UK model. Have we considered any other models in Europe that work?

Mr. Paul Lemass

We have more work to do in that area and we absolutely will be looking beyond the UK to see how people have got reclassification throughout Europe.

I thank all of our guests for attending and for engaging with the committee. We will adjourn until 9.30 a.m. Wednesday, 2 October, when we will take pre-legislative scrutiny of the general scheme of the Land Development Agency Bill 2019.

The joint committee adjourned at 11.48 a.m. until 9.30 a.m. on Wednesday, 2 October 2019.