The Affordable Housing Act 2021 (the “Act”), which provides for an expansion of the role of the State in the provision of affordable housing at below open market prices, was signed into law on 21 July 2021.
The Act aims to increase the stock of affordable housing with the introduction of the following initiatives:
- Local authorities are to deliver affordable homes for purchase on their lands for the first time in more than a decade;
- A new Affordable Purchase Shared Equity Scheme will see the State providing equity support to households purchasing homes in the private market but who are unable to secure the full mortgage to do so; and
- The introduction of ‘Cost Rental’ as a new form of tenure.
In this article we examine the new measures introduced under the Act.
Delivery of Affordable Homes by Local Authorities
The Act empowers a local authority to enter into arrangements with the Land Development Agency (the “LDA”), Approved Housing Bodies (“AHBs”), community-led housing organisations and public private partnership arrangements for the acquisition, building or provision of housing. Local authorities will be allowed to select and prioritise eligible purchasers for homes to be sold. Where housing is to be developed by the LDA, the LDA would sell the units directly to purchasers with the local authority’s role limited to nominating purchasers. If the lands are owned by the local authority, the LDA would be in the position of a developer or contractor providing homes for the local authority to be sold to purchasers, most likely through a direct sales agreement.
Under the current system for Part V agreements, a local authority may enter into a direct sales agreement with a developer whereby the developer sells homes directly to the purchasers, often to an AHB. If the local authority wishes to subsidise the purchase price, it may pay the difference to the developer. Arrangements outside Part V are more complex, in that the local authority is required to take ownership of the units and subsequently transfer the homes to the purchaser at discount. The Act allows the units to be sold directly to the purchaser at a discount without the requirement of the local authority purchasing and sub-selling the units, thereby avoiding additional expense and delay.
From June 2018, local authorities were required to prepare schemes of priority to manage the priority to be applied to eligible applicants where there is insufficient supply of affordable homes available to meet demand. The Department of Housing, Local Government and Heritage noted inconsistencies between the approaches of local authorities in preparing schemes of priority and the Act intends to simplify the schemes. The Minister will be empowered to make regulations regarding schemes of priority based on:
- the suitability of the home for the entire household, taking into consideration the size or composition of the household;
- whether an application already owns or is beneficially entitled to an interest in a dwelling;
- length of time the applicant has been living in the area; and
- the date of submission of the application.
Affordable Purchase Shared Equity Scheme
The Act provides for the Minister to contribute funds to a special purpose vehicle to operate the national Affordable Purchase Shared Equity Scheme. This is targeted at first time buyers who can demonstrate an inability to secure a mortgage to purchase a home at market price, by bridging the gap between the maximum mortgage available to a household and the actual cost of a new home, with the State taking equity in a property. The overall State contribution is to be prescribed by the Minister. An initial €75m was allocated in Budget 2021 to establish the scheme which is to be boosted with additional private investment. The Minister commented that there is no obligation to repay the loan after a certain point until the house is sold but it will make financial sense for the owner to pay down the equity stake. A Government press release estimated the Affordable Purchase Shared Equity Scheme could save some renters up to €11,000 per year.
The Act introduces new income eligibility criteria that applicants must be unable to secure a mortgage for 90% of the market value of the home. It is intended the purchaser will take out its maximum bank mortgage and the equity charge will be based on the balance of the purchase price.
Introduction of Cost Rental
Recognising the emerging trend of long term renting in Ireland, a new rental model for moderate income households based on the actual cost of housing is to be introduced under the Act. Rents charged will be designed to cover capital development, acquisition or debt finance costs associated with making dwellings available for cost rental along with costs associated with necessary and appropriate management and maintenance, to include contributions toward sinking funds. The protections of the Residential Tenancies Act 2004, as amended, (the “RTA”) will apply to cost rental tenancies. However, there will be restrictions on the landlord’s entitlement to terminate cost rental tenancies which are otherwise permitted under the RTA.
Certain protections are given as any rent increases would be permitted provided they are in line with inflation using either the Consumer Price Index or Harmonised Index of Consumer Prices or in another form prescribed by the Minister and rent reviews may not occur more frequently than once every 12 months. Notice of a rent review must be served on the tenant in advance of when the new rent is due to take effect and disputes may be referred to the Residential Tenancies Board. The Minister may make grants to the Housing Agency to provide for loans or grants to AHBs for the provision of cost rental dwellings. The Government will make €35m in funding available to AHBs for the purposes of providing Cost Rental housing through a Cost Rental Equity Loan scheme. The State has issued a “Call for Proposals” for AHBs to deliver approximately 400 Cost Rental Homes to be available at a minimum of 25% below open market rent. It is anticipated that Cost Rental Housing will be a new form of tenure that will develop over the coming years.
The Affordable Housing Act 2021 is an ambitious piece of legislation giving the State a greater role in the provision of affordable housing. Local authorities are to work alongside the LDA, AHBs, community-led housing organisations and public private partnership arrangements to deliver homes at below market prices. The LDA will be tasked with delivering 150,000 new homes over the next 20 years, of which 10% will be designated for social and 30% for affordable housing. Reforms to affordable dwelling purchase arrangements will allow for the repayment of affordable housing over a longer term or on the subsequent sale of a property or through probate/administration. Streamlining direct sales agreements will also avoid added expense and delays where a local authority subsidises the purchase price of affordable housing.
The Act also amends the current 10% minimum requirement for social homes and increases this to 20% for social and affordable under Part V of the Planning and Development Act 2000, as amended. Local Authorities may require developers to set aside up to 20% of new developments of 5 or more houses for social or affordable housing.
These measures under the Act have been broadly welcomed to bring about increased housing stock and lower rents in the short to medium term to alleviate the current housing crisis.