The Irish Times view on funding house building: trying to answer the €20 billion question

The Department of Finance appears to be concerned that the massive push by the Government to speed housing development may need more careful management

Residential construction - some €20 billion in gross funding may be needed each year, according to the Department of Finance . (Photograph: iStock)

A new report from the Department of Finance raises some interesting issues about the funding of house-building in Ireland. It estimates that more than €20 billion in development funding would be needed each year to deliver 50,000 new homes, around the level of revised Government targets likely to be confirmed later this year. The bulk of this would come from the private sector, but the State is deeply involved in funding its own development, providing finances and effectively underwriting much of the building being undertaken.

Finance is generally available, the report finds, but there are key issues to be considered. One is the financial risk which results from the long and uncertain planning process – new planning legislation is designed to address this, though critics criticise parts of it. Getting this right is a vital step to freeing up finance – currently there is little money available for land without planning permission and a concern that this will limit the creation of land banks for future development.

The lack of infrastructure – roads, water, energy and so on– is another barrier with funders fearing long delivery timelines.

While the €20 billion funding figure is a gross total – the net figure would be reduced by the proceeds of the sale of houses or apartments being built – the cash requirement is enormous. The Department argues that it requires international capital to augment limited sources of domestic finance and particularly of equity funding.

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A vital point is the increased role of the State– typically through the Land Development Agency or Approved Housing Bodies – in both advance purchasing of developments and, more recently, in providing direct funding to developers through the construction stage. The report underlines the risk to the State in the latter approach, for example if a developer runs into trouble. It is essential that there is enough expertise in the public service to minimise these risks. The Department of Finance is clearly concerned that the massive push by the Government to speed housing development may need more careful management.