Ireland’s market for buying and renting homes needs more supply. That supply must address the multiple layered demands that Irish society requires in the decades ahead. Home ownership should be achievable for those who aspire to it, so it is right that the first-time-buyer market is supported as a matter of government policy. The provision of adequate social housing is critical to underpin any claim of a society that cares about equality. Also, a deep and varied private rental market is necessary to accommodate the needs of a mobile workforce.
From whatever perspective you view the problem, the faster provision of more supply is the solution to alleviate the current pressures. Supply requires investment and the good news is that there is ample capital available in Ireland and abroad to fund the 35,000 to 40,000 housing units we need annually to address the current shortage. To vilify the investors behind that capital is to distract from addressing more fundamental blockers that inhibit further supply.
There is great appetite from the international investor community to support the build-out of a vibrant and affordable housing sector in Ireland. In the lead up to the housing crash of 2008, the market was financed almost exclusively by domestic banks and then almost exclusively with debt. It is a welcome development in the market that we now have access to a more diversified pool of capital from investors such as overseas pension funds who are well positioned to finance this phase of Ireland’s build-out.
With long investment horizons often extending beyond 20 years, pension funds are more focused on return of capital over return on capital. They may already be buying Irish sovereign government bonds with an annual interest return or ‘coupon’ close to 0 per cent, which means they are happy to deploy into less liquid real-estate investments at only 3 to 4 per cent annual returns. Attractive low rate costs of capital are available to the sector and with the right guardrails in place, we can ensure that capital serves the widest goals for the country’s needs.
Equally, these investors understand that investment in real estate is a societal issue, not just a financial one and they respond positively to sensible policy around taxation, tenant rights and transparent governance. This profile of investor is very different to the caricature of the ‘cuckoo’ fund often blamed for crowding out first-time buyers or trapping renters.
To date these investors have been active mostly in the ‘multi-family’ sector, which refers to them buying blocks of apartments which are built exclusively to rent out indefinitely and not for sale.
There is a large and growing need for pure rental stock in Ireland where we lag behind European peers. Ireland has been very successful in attracting the European headquarters of global firms and with them thousands of jobs which are filled with local talent and employees from abroad. For overseas employees who may reside in Dublin for periods from six months to three years with no desire to purchase a home for the long haul, high-quality, professionally-serviced rental apartments are key. Provision of rental apartments to this cohort need not come at the cost of crowding out first-time buyers but again the answer to this issue is more supply, not less efficient capital.
Funding the future
Another development relevant to the debate when considering the role of international investors in the Irish market is the concerning contraction in the Irish banking market. With Ulster Bank and KBC exiting the Irish banking sector this will further deplete the finance options available domestically to the wider economy including real-estate developers. International capital can step up to fill the gap left behind to steward the pipeline of housing developments to completion.
The bottlenecks to accelerating supply include the slow pace at which planning is awarded to developers and the low thresholds for judicial review even when that planning is successful. Delays to confirming connection certificates for site services such as water and electricity stall the initiation of house building. There are other bottlenecks to developing Ireland’s residential pipeline, such as the shortage of construction workers and supply-chain shortages linked to Brexit and Covid-19, but these will not be tackled until there is a clear horizon for faster development of housing which is currently crippled by a broken planning process.
These issues must be addressed by the Government’s nascent Housing for All policy initiative due to be published later this month and by the terms of reference of the soon-to-be-launched Housing Commission. With sensible policy guardrails in place to protect renters and first-time buyers alike, international investors can provide an attractive source of capital to help address Ireland’s chronic housing shortage for decades to come.
Myles Clarke is managing director of CBRE Ireland