I propose to take Questions Nos. 748 to 752, inclusive, together.
A range of housing options are necessary to ensure a supply of accommodation to meet different types of social housing need. Harnessing the off-balance sheet potential of private investment in social housing is an important objective of the Government and the social housing targets set out in Rebuilding Ireland over the period to 2021 reflect the ambition in that regard.
Of the 50,000 social housing homes to be delivered under Rebuilding Ireland, 10,000 are targeted to be leased by local authorities and Approved Housing Bodies (AHBs) under leasing arrangements from a range of different sources. All homes delivered under leasing arrangements are funded under my Department’s Social Housing Current Expenditure Programme (SHCEP), which has an annual budget in 2019 of almost €155million, which covers the ongoing cost of existing contractual arrangements and the cost of new leases commenced within the year.
The Enhanced Leasing Scheme has been developed by my Department, together with the National Development Finance Agency (NDFA), the Housing Agency and local authorities, in order to harness the potential of private sector interest in social housing delivery in a new set of long-term leasing arrangements, in a manner designed to leverage off-balance sheet funding opportunities in accordance with Rebuilding Ireland objectives. A key aspect of the Enhanced Long Term Social Housing Leasing Scheme is that the proposer will finance 100% of the cost of delivering the homes and remain responsible for the ongoing management and maintenance of the properties, including all building life-cycle costs.
A number of financial and economic studies carried out during the development of the enhanced leasing scheme supported the rationale for the provision of social housing through mechanisms such as the leasing and renting of privately owned accommodation. At the time of the Government decision in 2015 to develop a new leasing scheme, consideration of costs and comparative costs was undertaken which informed the Government decision to proceed at that time. A further set of costings were undertaken to inform the Government agreement to move forward and launch the enhanced leasing scheme in January 2018. These costings were undertaken using information on average lease costs, at that time, and the expected level of take-up of the scheme, which is targeted at 2,500 units by end 2021.
The costs of the Enhanced Lease are included in the Government's commitment to multi-annual funding to deliver on the targets set out in Rebuilding Ireland. The exact and full financial costs per unit will vary across local authority areas and are subject to a range of variables, including the agreed market rents and payable rent, management and maintenance costs, administration costs and differential rent recoupment.
There are a number of factors that ensure that leasing is good value in the long term for the State. The cost of delivering social housing units under the traditional construction and acquisition model is not adequately captured by the up-front capital expenditure, as each unit will carry a stream of ongoing costs over the long-term including management, maintenance and remediation. Furthermore, during the term of an enhanced lease, the responsibility for structural matters and day-to-day property maintenance remains with the property owner and not the local authority. At the end of the lease term – 25 years is a substantial period - the dwelling can require major renovation or upgrading resulting in a significant capital cost, which under leasing is not borne by the Local Authority but by the owner.
Whilst it is clearly beneficial to build on local authority own land, there are instances where such land is not available. Consequently, to purchase the land on the open market would significantly add to the overall development costs. In this context, it is important to note that leasing in general is designed to complement local authority own build programmes, not replace it, and to do so in a manner that does not require additional capital expenditure, i.e. it is off-balance sheet.
A spending review and analysis of current expenditure on housing supports was carried out by the Irish Government Economic & Evaluation Service (IGEES) staff within the Department of Finance and Public Expenditure and Reform in 2017 and 2018. Amongst other findings, the report found that while relative cost efficiency is an important consideration in terms of the mix of delivery, it is not the only consideration and leasing must be viewed in the context of policy objectives and wider issues. This is particularly important in the current climate where it is essential to ensure the highest possible supply in the shortest possible time. In this context, as well as relative costs, a number of other considerations must be taken into account in terms of the overall mix of delivery including the speed of delivery, the quality and appropriateness of accommodation, sectoral capacity and flexibility.
With respect to the assessment of individual proposals, all submissions are made directly to the Housing Agency and are subject to a range of criteria as set out in the terms and conditions for entry into the scheme and the proposals are assessed in accordance with the criteria set out therein. The terms and conditions for entry are available on the Housing Agency's website at the following link:
Proposers are required to provide a brief summary of their strategy to source committed funding to meet their development and lease obligations to include, without limitation, delivery of homes and delivery of the services under the lease and include all relevant financial information for assessment (including life-cycle costs, maintenance costs etc.). The Housing Agency, which has responsibility for overseeing and managing the assessment process, assesses this information in consultation with the National Development Finance Agency (NDFA) in order to ensure that the proposer has the capability to deliver both the units themselves and their obligations under the lease. This assessment is carried out in advance of any acceptance into the scheme and the signing of any agreements but, in the first instance, a Local Authority is required to asses a proposal and a) indicate whether the proposal is suitable and appropriate for social housing in the area in which it is situated and, b) whether it agrees with the proposed Open Market rents for the properties.
In accordance with the Government decision, the provider will be paid up to 95% market rate. The market rent must be evidenced by a valuation prepared by a qualified valuer and each valuation must refer to 3 comparable properties in the locality as evidence of the market rent for the property. The local authority will assess the rent against their own rent database and available market information to determine whether it is acceptable or not. Where there is a disagreement on the relevant Open Market Rent, an Independent Valuation will be carried out by a suitably qualified practitioner appointed by the Housing Agency.
Local authorities will also determine the overall suitability of the proposed properties, having regard to the standard of the properties, the requirement for social housing in the area and the criteria set out in each authority’s Development Plans, including in particular sustainable communities’ considerations.
When a local authority is considering an Enhanced Leasing proposal, it has regard to its own construction programme, land availability and a range of other factors as follows:
- Specifics of the proposal at hand;
- Availability of land in the immediate vicinity;
- Demand for social housing in the area;
- Capacity of the local authority to deliver a capital construction programme;
- Capacity of local authority to maintain the properties; and
- Ability to deliver at speed comparable to what is being proposed.
The units secured in the referenced development represent good value for the local authority and will provide immediate, secure, high quality social housing for many households, including many families potentially living in emergency accommodation, in an area of extremely high social housing demand. In broad terms, leasing offers the opportunity to secure high quality long-term social housing in areas or developments that may not otherwise be available for social housing and this proposal is testament to that – the families living in this accommodation will benefit from its highly accessible location and good quality public transport links. The annual rent paid by the local authority for these units is fully in line with the terms of the Enhanced Leasing Scheme, as set out in the Government’s decision in 2018, and the proposal was assessed in accordance with same, as with all Enhanced Leasing proposals and includes a deduction for the Part V obligation on the site.
My Department closely monitors the comparable delivery costs of all enhanced leasing proposals, having regard to the development and all life-cycle risks that are retained by the property owner for the life of the property, the ongoing costs of the lease payments (including any Part V deductions), the ability of the local authority to meet its housing needs through its own build programme and the overall targets clearly set out under Rebuilding Ireland for build, acquisition and leasing programmes. The proposal was assessed in these terms, in addition to the wider policy and delivery objectives, and I am satisfied that process followed was in line with the terms of the Enhanced Leasing Scheme and that the housing needs of these families are best met through this proposal.