Notwithstanding, an urgent and immediate solution is required to address the worsening affordability crisis as the pandemic is likely to further exacerbate stresses within the residential sector. In the decade since the housing crash, we have consistently failed to deliver the supply that the residential market badly needs, despite being Europe’s best performing economy over the period. With the residential construction sector broadly shut down for the first quarter of this year, the availability of affordable accommodation will degrade further. In short, with both Government funds and new housing supply remaining scare, alternative solutions are required to ensure this basic human necessity is delivered for those in need.
This dynamic is not unique to Ireland, with an EU report identifying a funding gap to social and affordable housing of €7bn in Europe. To bridge this gap, European countries are increasingly looking to the private sector to fund this deficit.
Internationally, the affordable housing sector has become increasingly popular amongst institutional investors in recent years by satisfying their need for a consistent cash flow underpinned by low and stable vacancy rates. This is achieved because tenants pay below market rents which means they stay in this housing for longer than in the private rental sector. Furthermore, where these projects are backed by a state linked entity, they provide a very secure covenant from an investors point of view and create large investor demand for the sector. It also represents a win for the State as it allows the private sector to shoulder the burden in supplying the upfront capital required to build-out the affordable sector in Ireland at a time when the public purse is constrained. In sum, it creates a win-win situation for the tenant, the investor and for the Government.
The challenge for the Government is creating the right conditions to unlock these reservoirs of private sector, and allow them to flow into the Ireland’s affordable housing sector.
In this regard, significant strides have been made in this area with the forthcoming statutory regulation of Approved Housing Bodies (AHBs) an important conduit through which private investors can channel capital. L&G, an established investor in the sector internationally, have recently backed Cluid Housing to deliver more than 200 social homes in a move that could be a sign of things to come. The Land Development Agency (LDA) are also set to make leaps in the sector, particularly with new legislation clarifying their establishment as a Designated Activity Company (DAC), allowing the LDA to borrow funds and establish subsidiaries to carry out its purposes. The area is not without its challenges, however. For example, the majority of capital for AHBs is currently sourced from State financing with the on-government balance sheet nature of the AHBs limiting the private sector’s ability to invest. Nevertheless, creative thinking should allow for these issues to be navigated through successfully.
To conclude, while both political and institutional agendas are aligned in recognising the need to address the affordable housing market shortage, the State is constrained in its ability to provide sufficient financing to the sector. However, by leveraging the experience of European countries, we can see that privately sourced financing – in conjunction with AHBs - have the potential to solve the under-supply of affordable housing in Ireland.
Ebba Mowat is a Divisional Director in Savills Ireland.
.jpg "Savills")
.jpg)
.jpg)