Institutional investors leasing former council houses back to local authority

Institutional investors are leasing a "small number" of former council houses back to Dublin City Council for social housing, the council has said.

The council has almost 600 long-term social housing leases on private homes. Just under a quarter of these had been agreed with individuals but the remaining were with “limited companies, Icav’s or investment/pension trusts”, it said.

The council's head of housing, Brendan Kenny, said "a small number of leases" were with investors who had bought houses originally built by the council or its predecessor, Dublin Corporation.

The Business Post on Sunday reported details of five former council houses in the neighbouring South Dublin County Council area that are being leased from investment funds. In some cases the houses were repossessed after the financial crash, when tenants failed to meet loan repayments. In others they were sold directly by their owners to funds, the paper reported.

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Mr Kenny pointed out that once a council house is bought by its tenant under a tenant purchase scheme, it effectively becomes a private house, and its lease by the council would be no different than the lease of any other private residence.

“These former local authority houses are now private houses and are being sold on the open market, and being bought on the open market by investors, including small investors, who then are offering them to the local authority for long-term leasing.”

‘Small number’

Exact numbers of these leases in the Dublin City Council area were not available on Sunday, but Mr Kenny said they would be small, as the council preferred to lease properties where there were not already sufficient social homes. It was also concentrating on leasing apartment blocks rather than individual houses.

“We have done a small number of leases for such properties but we are more keen on volume and also locations where there is not an already over-concentration of social housing.”

The long-term leasing system came under scrutiny last month after it emerged investment firms would not have to pay stamp duty surcharges on bulk-house purchases if they leased them to local authorities.

The Government earlier this year announced plans to clamp down on house purchases by large investors by increasing stamp duty to 10 per cent on the purchase of more than 10 houses.

Opposition parties accused the Government of incentivising "cuckoo funds" by granting the latest tax exemption. Taoiseach Micheál Martin and Minister for Housing Darragh O'Brien insisted the exemption was necessary to avoid risking new lease deals that had been agreed with investment funds for up to 2,400 homes nationally.

The Long Term Leasing Initiative was introduced in 2009 to allow local authorities to enter into leases paying 80 per cent of market rates for 10-20 years as a means of meeting social housing needs.

In 2018 a new 25-year “enhanced” leasing scheme was introduced, which saw the rents increased to 95 per cent of market rates with index-linked reviews every three years. The scheme has proved popular with pension and other investment funds due to the guaranteed long-term returns.