Up to €8bn may be diverted from new sovereign wealth fund for home-building

The Government is discussing moves to divert as much as €8 billion from the new sovereign wealth fund into housing, as part of a fresh push to boost the supply of social and affordable homes.

The money would go to the State-controlled Land Development Agency (LDA) as it enters new partnerships with private developers to build on public and private land.

“This will give them the flexibility to be out there in the market,” said a person familiar with the plan. “We don’t know the scale of that yet. But if you look at the objectives of the Government, the number one objective is housing delivery.”

With booming business tax revenues fueling the cumulative €65 billion budget surplus forecast for coming years, Minister for Finance Michael McGrath plans to channel money into a new sovereign wealth fund to tackle long-term challenges. Such a fund is a pool of surplus money set aside by the State as a reserve for investment, often for pensions or infrastructure.

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With interest rates at their highest for more than 20 years, the move is designed to insulate the agency and partners from the sharp escalation in borrowing costs by drawing on money already in the State coffers.

Minister for Housing Darragh O’Brien has backed the measures in talks with the Cabinet subcommittee on housing and the three Coalition leaders: Taoiseach Leo Varadkar, Tánaiste Micheál Martin and Minister for the Environment Eamon Ryan.

The plan has not yet received Government approval. But it reflects the view that “multiples” of the LDA’s original €1.25 billion budget will be needed to tackle the housing crisis and that building costs will only rise if the agency borrows on private markets to fund its operations.

Now Mr O’Brien is staking a claim to deploy anywhere between €4 billion and €8 billion of that fund into the agency, whose original budget is fully committed to current housing projects. Such money would be released only in tranches from the fund but would be set aside for that purpose to provide certainty to the LDA and prospective partners.

Backing developers

The LDA was established in 2018 to build homes on State lands but took on additional responsibilities under the Government’s Housing for All masterplan, backing developers building “affordable” homes on private lands.

After heavy criticism of the agency over slow delivery of new homes, the effort to boost its public funding comes as the Government presses the agency to accelerate construction while containing costs.

One critical factor driving the push for more LDA funds is the recognition within the Coalition that Housing for All targets for an average of 33,000 new homes annually for the rest of the decade must rise to break the cycle of crisis. Mr Varadkar has said “at least 40,000 homes” will be needed each year.

A second factor in the move to give sovereign wealth fund money to the LDA is the weakening flow of private housing investment since the European Central Bank raised interest rates in 2022, for the first time in years. Such moves have spurred developer interest in agency support as the rise in euro zone interest rates to levels not seen since 2001 upsets financial projections behind stalled projects.

The plan involves the LDA setting up a panel of five or six private developers with whom it would work on specific housing projects.

Under a “framework arrangement” to streamline the agency’s work with panel companies, Cabinet approval would not be required to give the go-ahead each time an individual housing scheme begins.