Eoin O'Broin's Dáil speech on cost rental financing

The Week in Housing 25/10/24

I don’t have a proper post for you today, so instead I’m sharing some really interesting comments from SF spokesperson Eoin O’Broin in the Dáil on Tuesday, October 8th. The context was the discussion of the second stage of the Housing (Miscellaneous Provisions) Bill 2024. The Bill itself includes one or two things about cost rental, but O’Broin took the opportunity to raise some interesting questions about the financing of cost rental in the context of both the LDA and the AHBs. I’ve pasted the relevant sections of his speech below. These questions highlight the importance of transparency in terms of financing and, especially, exactly how rents are set in the sector, and the importance of at least some degree of standardization as to how this is done. I’m circulating the below passages from O’Broin’s speech in the Dáil as part of that debate as I think many of you have been closely following the development of cost rental. Next week is mid-term grading so there’ll be no post.

If we look at some of the recent cost-rental offerings in Citywest, where the LDA bought properties from Cairn Homes in my constituency, the rents are almost €1,400 per month for a one-bedroom unit, almost €1,600 for a two-bedroom unit and almost €1,800 for a three-bedroom unit. Those are below new market rents but are above existing Residential Tenancies Board, RTB, rents in the private market. The rents are rising more rapidly elsewhere. The rents that will be announced for properties on Oscar Traynor Road, for example, will be almost €1,200 for a one-bedroom unit, almost €1,600 for a two-bedroom unit and over €1,700 for a three-bedroom unit. The rents for O'Devaney Gardens will probably be the most expensive to date at a cost of almost €1,500 for a one-bedroom unit, almost €1,700 for a two-bedroom unit and almost €1,900 for a three-bedroom unit. The problem, of course, is that it is the result of how the scheme rightly works. Eligibility requirements mean that people should not be paying more than one third of their net disposable income on rent. An ever-growing number of people for whom this form of tenure was designed simply cannot afford it. There are solutions but the issue is not being discussed.

One of my big concerns is that there is not a single funding model for cost rental. I am aware of four separate funding models currently in operation. The LDA is off balance sheet, which means, as the Minister knows, that it must make a commercial return on its Irish Strategic Investment Fund, ISIF, capitalisation. It is charged corporation tax at a rate of 25%. It is factoring in a management and maintenance rate of 40%, which is far beyond the AHB sector. All of that pushes rents in a particular direction.

We know that the AHB sector is calculating rents in different ways. One AHB is only taking into account the repayment of the primary loan to the Housing Finance Agency when calculating rent and is dealing with the cost-rental equity loan at a later stage. Another AHB is factoring in both of those payments now, which means its rents are arguably different and higher. We know that local authorities, including mine in south Dublin, have a different way of financing their first cost-rental projects. In an attempt to bring down rents, South Dublin County Council is using some of its own reserves at an assumed rate that is 2% lower than the LDA's rate or the Housing Finance Agency's rate. It seems odd that we would at the early stages allow this proliferation of financing models. It makes no sense. Surely people can be brought into a room and asked to work out the most sensible way of financing these projects to make the rents more affordable.

We also know there are still real problems with the cost-rental equity loan. The Government has increased it to 55% but there is no clarity about what it will do with the 20% that may or may not become equity at a future stage and how that impacts the rents. We have yet to see a cost-rental project between the canals in Dublin although I have mentioned one that is in the pipeline. I am concerned about the development at Shanganagh. I do not believe that the LDA does not know the rents that will be charged. I believe it withheld the announcement of those rents from the launch event. I do not mean to rain on the Minister's parade when I say that. I am concerned that we are going to see exceptionally high rents on land that was public and for which the LDA did not have to pay market value.

I am also concerned that despite the very high levels of secure tenancy affordable rental investment scheme, STAR, subsidy to the LDA, the rents are still unaffordable. That is the case in Citywest as it will be elsewhere. I have said previously that I urge the Minister to consider the situation again. Long-term, 60-year, lower cost finance is the way to go. I have met representatives of the National Treasury Management Agency along with my colleague, Deputy Pearse Doherty. The representatives said it was possible. Until the State goes out to seek that finance, we will not know the volume or cost of it but it should be trying. The over-reliance on expensive turnkey properties is a problem.