Nama, Social Housing and the Leasing Initiative

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On Wednesday 21 December 2011 Minister for the Environment Phil Hogan announced that NAMA were to make 2,000 properties available to the Government for social housing.

The units, which were said to make up 20% of NAMAs residential property portfolio would be managed by local authorities and housing associations and funded via the Social Housing Leasing Scheme.

Minister Hogan told journalists that the agreement with NAMA was ‘one of the largest housing allocations made in the history of the State’ would ‘provide hope for individuals and families in social housing waiting lists’ and would be ‘a welcome Christmas boost to those most vulnerable in society.’

The implication was that the Government were taking the issue of social housing and NAMA’s statutory social dividend mandate seriously; that the 2,000 housing units were ready for allocation; and that they would make a significant dent in the local authority waiting lists.

Unfortunately none of these contentions are true.

Two weeks earlier in the 2012 Budget announcement the Government slashed capital funding for social housing by 23% reducing the available monies for social housing by €118m. Local authorities, already unable to provide additional social housing stock because of Fianna Fail-Green Party cuts, would be even more restricted in 2012.

Meanwhile social housing waiting lists continue to increase with over 100,000 households on local authority lists.

As for the 2,000 NAMA units themselves, according to parliamentary question replies published this month the Department of Environment did not know how many of them, if any, would be suitable for social housing, as they had not been inspected by local authorities.

Even if the properties are deemed suitable for social use there are significant question marks over the scheme that it to be used to finance the homes. The final number of NAMA sourced social housing units may be much lower than the 2,000 announced by the Minister.

Worse still the tax-payer looks set to pay twice for properties that it may not even end up owning.

The Leasing Initiative

The Social Housing Leasing Initiative was launched by Minister of State with responsibility for Housing and Homelessness Michael Finneran in February 2009. The then Fianna Fail junior Minister ring fenced €20m of the existing social housing budget to fund the initiative and said that between 2,000 and 4,000 units would be made available by the end of 2009 through the scheme.

The premiss was simple. Local authorities would enter into long-term leasing arrangements with private property owners for 10 to 20 years. In some instances voluntary housing associations would be responsible for management of the properties. Households on local authority waiting lists would be allocated the tenancies. The local authority would pay the  property owners at a discount of the market rent and take over all management and maintenance functions or fund a housing association to provide these services. The tenant would pay the local authority or housing association a differential rent.

The tenant would have all the same rights as if they were in a property owned by the local authority except the right of tenant purchase. If at the end of the leasing period the property owner did not want to continue with the arrangement the local authority would have a legal obligation to re-house the tenant.

Despite the available funding and ambitious targets the scheme was a total failure in 2009. Not a single new tenancy was commenced in that year. The private sector didn’t like the scheme because it required a long-term commitment at a time of great uncertainty in the housing market. Local authorities were luke warm with the proposal as it was organisationally and financially cumbersome. Housing associations found it difficult to make the scheme stack up financially.

With 2010 fast approaching it looked as if Minister Finneran and his advisors in the Department of Environment’s great idea had come to nothing.

Unsold Affordable Housing

Fortunately, for the Minister and his senior Departmental staff, a number of local authorities had a supply of unsold affordable housing units on their hands.  The units originated from the Part V portion of private housing developments which the local authorities were contractually obliged to buy if offers to purchase were rejected by two prospective buyers on the affordable housing list.

The number of such units was considerable as was the cost to the state. For example at the end of 2009 Dublin City Council had 300 such properties on their books costing them on average €1000 per property per month in mortgage repayments to the Housing Finance Agency.

Seeing an opportunity to solve two problems at once the Department of Environment amended the original terms of the leasing scheme to enable local authorities to lease the properties from themselves and allocate them to families on the social housing waiting lists.

They also created leasing arrangements with housing associations whereby the associations would buy the units from the Council with loans from the private sector and the Department of Environment would lease the property back from the association until the mortgage was paid.

From the end of 2009 through to the end of 2011 a total of 1,546 unsold affordable units were leased by local authorities to housing associations using the Leasing Initiative.

Assessing the Leasing Scheme

During the same period only 932 units were leased from the private sector, as originally envisaged, with 197 of these managed by housing associations, 322 by private owners and 421 managed directly by local authorities.

The availability of unsold affordable units held by local authorities allowed the Government to present the scheme as a success.

However the real measure of success must be the number of units leased from the private sector; 932 in three years, set against Minister Finneran’s ambitious target of between 2,000 and 4,000 per year.

Not only was the scheme an abject failure in respect to the number of units involved, it was also very costly.

The average length of the leases covered by the scheme is 11 years and the average cost of the units is €6,327 per unit per year. Which means that at current prices housing the 2,045 families covered by the leasing scheme for the duration of the leasing arrangement will cost the Government €174m.

Of course generally speaking social housing tenancies are for life, which means that the actual cost of housing a family under the terms of the leasing scheme for say, 50 years, would be more than €300,000.

When one considers that the average cost of purchasing a property for social housing in Dublin in 2011 was approx €169,000 then there is a real question mark over whether the social housing leasing initiative represents value for money for the tax-payer.

Back to NAMA

Whatever the limitations of the leasing initiative, the decision to use the scheme as a way of financing the use of NAMA controlled properties for social housing is highly questionable.

It must be remembered that NAMA, in the first instance does not own the property its controls, but rather owns the banking debts connected to those properties.

These loans, including those relating to the 2,000 properties being offered for social housing were bought from banks in 2010 with public money.

Under Minister Hogan’s proposal announced last December, the state is now going to pay for these properties to be brought into public use.

The form in which these transactions will take place is not yet clear. However there are three possible scenarios.

Scenario one would see the state leasing these properties from the developers using public money. The developers would then use that same public money to repay their debts to NAMA.  When those debts are paid in full, ownership of the properties would return to developers.

Scenario two would see a voluntary housing association purchase the NAMA properties with private finance. These properties would then be leased from the housing association by local authorities until such time as the mortgage is paid in full, making the housing association the ultimate owner of the property.

Scenario three would see local authorities purchasing these properties with finance from the Housing Finance Agency and using the leasing funds to repay the mortgage. In this scenario the local authority would be the ultimate owner.

In all three scenarios the tax-payer will have paid twice for the same property – the first time when the debt passed from the bank to NAMA in 2010 and the second time when the local authority paid for the long-term lease of the property. In scenarios one and two the final ownership of the property is in private rather than public hands.

It will be some months before we know how many of the 2,000 NAMA properties are suitable for social housing; more time will pass before the complicated financial arrangements involved in the leasing scheme will be put in place; and only then will families currently on the housing waiting list actually get to occupy their new homes.

It is too early to say if Minister Hogan’s target of 2,000 will be met in 2012. What we do know is that whatever the final number the tax-payer will have paid not once but twice for these properties. Worse still, on the basis of the operation of the leasing scheme to date, the state will end up owning only a small percentage of the properties if any at all.

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6 Responses

  1. raggagirl

    January 23, 2012 3:06 pm

    Very informative. Thanks. However what you omit to mention is that in the housing act passed last year, a lifetime council tenancy has been abolished. They are trying to follow the UK decision that their tenants will only be given help for a finite time, after which they have to move out.

    And another tactic is for local authorities to lie and intimidate their applicants off the housing list. It is nigh on impossible to get on any housing list, which then makes you ineligible for rent allowance, which in the end renders you homeless, and if you have failed at point to meet the systems demands, you are deemed to have made yourself ‘voluntaryily homeless’.

    As someone who worked in housing in the UK in the 80’s, this is all very deja vu.

  2. Almeida

    January 23, 2012 4:30 pm

    +1

    Why do not these political parties come clean for once; and offer to put their party members up for jobs in banks, instead of a country’s government.

    Even then though, just exactly how profitable are the run-of-the-mill firms/factories that are supposed to long-term (hopefully) employ us enough to attain and sustain a mortgage. Or are many of these existing on loans from banks. Banks deciding (and, even a bit more sinister – discriminating) how much in loans they will give any concern.
    And these banks, in the U.K. and here, are now virtually underwritten by the Nation taxpayers and citizens.

  3. Jose Ospina

    January 24, 2012 1:33 pm

    I find this article both positive and negative. Although I agree with the basic sentiment, and that is that NAMA empty homes should be made over at nil charge to local authorities and approved housing associations for use by households on Council housing list (as the public purse has already paid for them and there is little point in paying for them again), it then goes on to miss the main point of the current housing deficit and the possible solution that the empty homes represent. Of course, these properties were the result of speculative building for a non-existent private market. But it is undeniable that Ireland needs around 100 K more social homes. Housing lists stand at over 110 K households. This i around the same number of empty homes that appear to be immediately habitable. At the same time, the bailout make extensive capital expenditure impossible. It would not be possible to buy this many houses. However, it is possible to rent them. The SIHL scheme pays owners 80% of the market rent when they are used by Housing Associations. Under this scheme the housing association then manages and maintains the property and charges a Council rent. So the state is getting use of property for less that its market value. The 80% of the market rent would NOT pay for the purchase of the property if it was used as mortgage payment. It would pay for around 1/3 of the mortgage required. f I add up the sum of my mortgage repayments and compare it against the cost of buying your house outright of course this adds up to much more. But that is not the way housing finance works. The state would have to borrow the money to pay for the purchase and would still end up paying a lot more that the cost today. The RAS and SHIL schemes provide the ONLY mechanism that Local Authorities and Housing Associations have of meeting the social housing needs of the 110 K plus households. It is vitally important that it is protected and expanded. If the programme was to be improved it would be useful to have a mechanism where rent could be negotiated down in exchange for the local authority or the housing association carrying out the required repairs. This would help unblock the barriers that currently prevent many owners from making properties available, that is that they cannot afford to carry out the required repairs. This could be combined with FAS and CE training programmes in refurbishment and provide thousands of additional jobs.

  4. Eoin O Broin

    January 24, 2012 2:27 pm

    Jose,

    You are right about the level of housing need and the number of social housing units required to meet this need.

    However your argument that RAS and SHLI will be able to meet this level of need is not supported by the facts.

    With only 932 leasing units provided via the private sector over three years it is hard to see how it will deliver anything more than a marginal supply of homes for those in need.

    The value for money arguments also need to be addressed.

    They key point is that without direct provision of social housing by the state, funded through general taxation over a 10 year period, housing need will continue to spiral out of control.

    Securing the resources for this will require a redirection of existing funding from RAS, Rent Supplement and Leasing combined with additional tax revenue.

    Of course this wont be easy but the primary issue is political will not available funding.

    The 2009 Housing Act put into legislation a general trend in place for some years before: namley the withdrawal of the state from direct provision of social housing.

    Untill this political and policy direction is reversed things are unlikley to improve.