Social housing projects at risk as State agency hikes lending rates

Housing bodies say higher borrowing costs will stop some new projects being built

Key not-for-profit social housing providers have said they will not be able to proceed with some projects following a surprise hike in lending rates by the State's Housing Finance Agency.

The agency told approved housing bodies (AHBs) this week that it was increasing the interest rates on long-term fixed loans. The agency’s 25-year fixed rate is increasing by a half-point to 2.25 per cent, while the 30-year fixed rate was rising by a quarter-point to 2.5 per cent.

Non-profit housing associations, which rely on this lending, have said the move would reduce the amount of new social housing they will be able to deliver, putting further strain on the Government’s plan to tackle the housing crisis.

AHBs are due to provide 45 per cent of the Government’s target of social housing units, or about 21,500 homes, under the Housing For All plan over the next four years.

Housing providers say the rise in lending costs, coming on top of higher construction material, labour and supply-chain costs, will undermine the viability of cost-rental housing projects.

Rents paid by residents in cost-rental schemes cover the cost of building and maintaining new homes, offering long-term tenancies and rents up to 40 per cent below local market levels. The Government is planning up to 18,000 cost-rental homes over the next eight years.

Cost-rental sites

The Housing Alliance, representing the six largest housing bodies, said the rate increases were “likely to put more pressure on the delivery of social and affordable housing”.

Brian O’Gorman, chief executive of Clúid Housing, said it was reassessing and evaluating the impact on cost-rental projects in development in light of the higher funding costs. “It is inevitable that we will not be able to proceed with some projects in the future. These concerns are shared by all AHBs,” he said.

A spokeswoman for Respond, another AHB, said the overall social housing and cost-rental funding model would require "tweaking" to cope with the higher costs of delivering housing.

A Department of Housing spokeswoman said that, in the event of rate increases, officials engage with individual AHBs to ascertain the effects on projects and “where necessary, reappraise the initial financial assessment”.

“The department will be working closely with the AHB sector now to ensure that the increase in HFA lending rates does not impact on the delivery of social housing projects under Housing For All,” she said.

‘Modest’ increases

Housing Finance Agency chief executive Barry O’Leary said the “modest” increases were due to “high volatility in the bond markets” – where the agency sources its funding – and the “substantial” increase in Government borrowing costs.

Mr O’Leary said the rates represented “excellent value”.

Sinn Féin’s housing spokesman, Eoin Ó Broin, said the rate hikes were “very disappointing”, given that the cost of finance was a key factor determining the delivery of social housing.

“I would be very concerned that any change to the interest rates on loans already secured but as yet not drawn down – or indeed on new loans – could significantly undermine the viability and the affordability of the cost-rental offering and that would be a very retrograde step,” he said.

AHBs had borrowings of €2.6 billion at the end of April.

Mr O’Leary said the agency’s plan was to lend €6 billion over the five years to 2026, representing at least 25 per cent of the total funding under the Housing for All plan.