Pathway to Supporting Home Ownership and Increasing Affordability

The Government believes that homeownership is good for individuals, families and communities and believes a step change in the interventions that must be put in place to support home ownership is required. The Government maintains that affordability and a chance to own a home are at the very heart of Housing for All. It recognises that there is a need for a mixture of affordable homes and rental options in urban areas near concentrations of employment with the option to buy in vibrant communities with reasonable commutes to work and education. In addition, to more options to live and work in our towns and villages in rural areas must be provided. To facilitate the steps set out in this pathway the following key measures are to be taken:

A. Implement the Affordable Housing Act 2021

The Affordable Housing Act 2021 was enacted into law on 21st July 2021. The Affordable Housing Act puts on a statutory basis many of the measures that are to be introduced under this pathway including the Affordable Purchase Scheme and the Cost Rental Scheme, both of which are detailed below.

B.  Launch a new Local Authority Affordable Purchase Scheme

Local Authorities, working with delivery partners, will play a central role in the planning and provision of affordable homes through a new Affordable Purchase Scheme. These homes will be available at a reduced price with the Local Authority taking an equity stake equivalent to the reduction from the prevailing market price for the property. The purchaser can redeem or “buy out” this equity stake at a time of their choosing but there will be no requirement for them to do so. If the purchaser chooses not to redeem the equity stake while living in the home, the State can do so when the property is sold or transferred or after the death of the owner. These schemes will primarily be targeted at first time buyers. 

A “Fresh Start” principle will apply to applications in this scheme and other State-run loan schemes.  This means that people who are divorced or separated and no longer have a financial interest in a family home or who have undergone insolvency proceedings will be able to apply for this and other State schemes. 

The Government will work with and provide funding to Local Authorities to deliver houses in targeted areas. This will include situations in which a Local Authority does not have suitable lands to deliver the housing required. This funding will be made available through a new Affordable Housing Fund (which will incorporate the existing Serviced Sites Fund). Depending on the type, size and location of the homes, which will vary from project to project, Local Authorities have indicated, in Serviced Site Fund submissions, that they will aim to make homes available at average purchase prices of approximately €250,000.00. 

The Government believes that the equity stake will return to the State over time and can then be recycled to help others facing affordability constraints. They believe that this will provide funding for counter-cyclical economic housing interventions moving away from the current over reliance on the availability of annual exchequer funding.

 C. Establish a “First Home Scheme” 

The Government, working in partnership with the banking sector, will establish a new shared equity First Home Scheme.  Under this scheme, the State and participating banks will jointly support first time buyers on moderate incomes to assist them buying a new home. The support will take the form of an equity stake in the home equivalent to the level of funding provided. Unlike the Local Authorities led Affordable Purchase Scheme referred to at B above, the First Home Scheme will be available nationally and purchasers can themselves determine where they choose to buy. No repayment under this scheme will be payable in this first 5 years post purchase and the purchaser will be able to redeem or buy out the State’s equity stake at the time of their choosing but there will be no compulsion to do so. 

The scheme will be available to eligible purchasers acquiring new homes in private developments throughout the country. Homes made available under the scheme will be subject to area based priced ceilings for both houses and apartments. It is anticipated that these ceilings will be based on open market prices and will range from about €225,000.00 for homes in the most competitively priced areas of the country to circa €450,000.00 in the most expensive areas. Specific ceilings may be applied to stimulate the supply of apartments in urban areas. Up to 20% equity support will be available to purchase these homes (or up to 30% if the Help to Buy scheme is not utilised).

The State believes that utilising the support of the banking sector to match exchequer funds in delivering this scheme will enable the State to double its investment for purchasers and support twice as many families and individuals to purchase their first homes. This scheme is to be established immediately to allow time for Local Authority new build delivery to ramp up. Further details are awaited.

 D. Roll Out Cost Rental at Scale

The Government believes that its Cost Rental Scheme is the most radical reform of the Irish rental system in the history of the State. It maintains that the private rental sector has traditionally provided homes with rents based on prevailing market rents and profit maximisation. Under the Cost Rental Scheme, homes will instead be provided at rents that are instead set to cover the cost of financing, building, managing and maintaining the homes over a minimum period over 40 years. 

Placed on a statutory basis by the Affordable Housing Act, the Cost Rental Scheme will mean that tenants will have significantly increased security of tenure in their homes, making Cost Rental a long-term rental option. Rents for these homes will be linked to annual inflation providing greater cost certainty and meaning the initial cost rents may become more affordable over time. This scheme is targeted at middle-income households above the social housing limits. 

Over the period to 2026, it is intended that approximately 10,000 Cost Rental homes will be delivered. In building to this scale, the State will provide certain focused funding supports to help delivery partners provide rental homes that target affordable rents in the order of 25% below market rent. Increasing the scale of Cost Rental is a key objective and the Land Development Agency will have a key delivery role. The Government believes that the delivery of Cost Rental at scale will have a stabilising effect on the wider rental market. Cost Rental investment by private sector vehicles has been facilitated through the Affordable Housing Act. Returns on such investments will be limited but are intended to be secure and consistent.

E.  Launch “Project Tosaigh” to deliver more affordable homes through the Land Development Agency

The Government believes that many non-State sites where homes could be delivered, even those that have planning permission, are not being built out quickly enough or at all. The Land Development Agency has been given specific statutory responsibility to deliver affordable housing primarily on State land but also on third party lands through engagement with other actors. The Land Development Agency will be tasked in intervening with those slow or stalled developments through an open and transparent process designed to ascertain the potential for it to enter into strategic partnerships with landowners in order to accelerate delivery of affordable housing. This will be known as “Project Tosaigh”.

If value for money for the State and affordability can be ascertained following this process, the Land Development Agency will be funded by up to an additional one billion euro above current levels to enable the delivery of up to 5,000 new, affordable homes on such lands. It will achieve this by entering into strategic partnerships with suitable parties that have proven abilities to deliver homes. It is intended that these homes will be delivered in the near term from 2022.

F.  Extend The Part V Requirement to 20% to Include Affordable Homes

The requirement in Part V in the Planning and Development Act 2000 to provide 10% of the uplift in value of zoned residential land for social housing has been increased under Part 6 of the Affordable Housing Act to a mandatory 20% for social, affordable and cost rental housing requirements of which at least half must be applied to social housing provision. The link to a specified percentage need in the housing strategy reflected in Local Authority development plan objectives has been removed so the focus will be on capturing the full scale of the planning gain for the State on every applicable site in every Local Authority area.

The 20% will apply to all land transacted after 21st July 2021 or bought before 2015 where planning permission has not been granted. Current planning permissions will be unaffected, and land purchased between 2015 and 2021 will also continue to be subject to the 10% rate. Near term supply will not be affected by these changes. However, this will change in 2026 when the 20% rate will apply to all land regardless of when purchased.

G. Reform the Local Authority Home Loan Scheme

Changes will be made to the current Local Authority mortgage product. The product will be changed by lowering the interest rate for new borrowers by 0.25% and raising the maximum ceiling for single persons to €65,000.00 in areas where the house price limit under the scheme is €320,000.00 (the Greater Dublin Area (which includes Louth, Wicklow Meath and Kildare), Cork and Galway). 

H. Set Out a New Owner Occupier Guarantee 

The Government has introduced new higher stamp duty measures and planning permission restrictions to minimise the bulk buying of traditional family homes. Please see our article on these measures of 19 May 2021. The government will also introduce a new form of “owner occupier guarantee” which will enable Local Authorities following on from the introduction of the Housing Need Demand Assessment framework to specify a minimum proportion of the houses and duplexes in a new development as being restricted to first occupation by individual purchasers or “owner occupiers”

The Government has ambitious plans under this pathway. A delivery of 54,000 affordable homes between now and 2030 have been targeted with an average of 6,000 affordable homes to be made available every year for purchase or rent by Local Authorities, Authorised Housing Bodies, the Land Development Agency and through a strategic partnership with retail banks. However, at this admittedly early stage, this Housing for All pathway is high in aspiration but light on detail. we have highlighted all the things that the Government will do throughout the article and the devil will clearly be in the detail as to how these aims are to be achieved and whether they will be implemented as planned. Some of the objectives are already being rolled out. The first Cost Rental homes have already been delivered by Glenveagh at their development at Taylor Hill in Dublin which we were pleased to be involved with. While the government has set out a timetable and allocated lead agencies for the delivery of the objectives set out above, we will need to wait until the delivery of each of the objectives to fully ascertain if they will allow the Government to meet its targets and have the desired effect on the property market.

 Please note this Article is not intended as legal advice. If you have any queries, please contact either Paul McCutcheon or David Mullins whose contact details are set out below.

AUTHOR

Paul McCutcheon, Partner
E:  pmcutcheon@kanetuohy.ie  
M: 087 632 2591