Nama and developers need to build bridge to end crisis

There’s a housing crisis in Ireland. Everyone is agreed on that much. What they can’t agree on is how we frame the solution.

The Government thought it had made a good stab at it when Minister for Finance Michael Noonan announced in the October budget that Nama would build 20,000 mostly starter homes in the years to 2020.

This would equate to roughly 20 per cent of the supply in the market over that period and would be a good selling point to voters in the Coalition’s campaign to be re-elected next year.

That plan, which will require €5.6 billion in funding, was formally unveiled by Nama last Thursday with Ministers Noonan, Brendan Howlin and Simon Harris on hand for the speeches.

While Nama and the politicians were praising each other in the Aviva Stadium, five prominent developers – David Daly, Paddy McKillen, Michael O'Flynn, New Generation Homes and MKN Properties – were putting the final touches to a complaint to the European Commission the following day alleging that Nama's housebuilding programme breaches State aid rules.

They claim that it severely restricts the ability of non-supported developers to compete with Nama receivers and Nama-supported developers, and restricts consumers’ choice of homebuilder to those pre-selected by Nama. They also claim that it restricts the choice of location for homebuyers to sites controlled by Nama, and jeopardises the return to normal conditions of property development financing markets through the presence of Nama as a State-guaranteed borrower of funds and provider of development finance at rates that are “substantially less” than those available on the open market.

According to the complainants, Nama’s cost of capital is 2.5 per cent by virtue of its Government guarantee. They claim the agency then passes on this money to its debtors at between 5 and 6 per cent while their cost of funding in the open market is between 14 and 15 per cent.

Silly talk

They would also argue that Nama was never intended to be a housebuilder although the agency might point to the fact that it has been building homes since 2013, with 2,300 completed by the end of this year. Some of the developers are warning in private that if the EU strikes out their complaint, they simply won’t build any homes in Ireland. It’s silly talk because they can’t simply sit on the sites they own forever and some of them are actively in the market to buy more.

In a statement yesterday, Nama said it was “satisfied that based on its own analysis it believes there is no State aid [issue]”. It would be hugely embarrassing to Nama and the Government if its housing plan were to be scuppered on the grounds that it breached EU rules.

There will be little sympathy for the developers’ plight. In the court of public opinion, it was profiteering developers and dozy bankers who ruined the country. They made fat profits in the boom years and fed off various generous tax breaks from the State to build their empires, driving up the price of land and housing.

There was practically no transparency around the businesses operated by most developers in the boom years. That’s to say nothing of the shoddy building practices at various developments that continue to emerge.

Not all Irish developers are taking on the State. On Monday, London-listed Cairn Homes announced that it planned to build 14,000 mostly starter homes after picking up the bulk of the Project Clear loan portfolio from Ulster Bank.

My understanding is that Cairn was sounded out about joining the complaint but its board decided to just get on with things. Cairn might be having it both ways in that it would clearly benefit from any finding against Nama but without having had to stick its head above the parapet.

The losers in this are young people who simply want to buy a home at a reasonable cost. They really don't care if it's Frank Daly or Paddy McKillen who builds their house or apartment.

A solution to this stand-off might be for Nama or the Government to make a chunk of its cheap funding available to the other developers via some mechanism or other in a way that doesn’t breach EU rules. It’s surely better than putting our fate in the hands of some unelected bureaucrats in Brussels.

Twitter:@CiaranHancock1