On 20 January 2021 the Minister for Housing, Local Government and Heritage, Darragh O’Brien TD, published the Affordable Housing Bill 2020 which is to expand the role of the State in the provision of affordable housing.
The Bill 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 where the State will provide equity support to households seeking to purchase homes in the private market but who are unable to secure the full mortgage to do so; and
- The introduction of a new form of tenure in ‘Cost Rental’.
In this article we examine the new proposals under the Affordable Housing Bill 2020 (the “Bill”).
Delivery of Affordable Homes by Local Authorities
The Bill will empower a local authority to enter into arrangements with the Land Development Agency (the “LDA”) for the provision of affordable housing. Local authorities will be allowed to select and prioritise eligible purchasers for homes to be sold by the LDA. The LDA would sell the units directly to purchasers with the local authority’s role limited to nominating purchasers. In the case of lands 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.
From June 2018 local authorities were required to make 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 noted inconsistencies between the approaches of local authorities in schemes of priority and it is proposed to simplify the schemes. The Minister will make regulations regarding local authority schemes of priority based on:
- the suitability of the home for the entire household;
- length of time the applicant has been living in the area; and
- the date of submission of the application.
The Bill proposes a scheme of priority must allocate 70% of dwellings on the basis of the suitability of a home for the applicant household and the date/time of the application. The remainder of homes may be allocated on a basis to be decided by the local authority.
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 Approved Housing Body (“AHB”). If the local authority wishes to subsidise the purchase price, it may pay the difference to the developer. For arrangements other than Part V, the local authority is required to take ownership of the units and subsequently sell the homes to the purchaser at a discount. The Bill proposes to streamline direct sales agreements by allowing 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. Alternatively, a local authority may agree with a developer to supply housing on local authority lands where the units are to be sold directly to a purchaser for a higher purchase price than the contract sum for the housing units. Any surplus will be repayable by the developer to the local authority.
A local authority may sell a home to an eligible purchaser by entering into an affordable dwelling purchase arrangement. Under current arrangements the home is charged for a specific period of not less than 25 years, at the end of which any outstanding amounts become repayable. On the expiration of 25 years, unless the local authority sought to enforce the charge and obtained a judgment mortgage it would have no security over the property. It is now proposed the charge will be indefinite and will not be enforceable until the end of the affordable dwelling purchase agreement period, which is anticipated to be 30 years. Enforcement of any outstanding amounts will be at the discretion of the local authority who will have the flexibility to instead recover the remaining balance on a subsequent sale of the property or through probate/administration following the death of the purchaser.
Affordable Purchase Shared Equity Scheme
The Bill 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 up to 30% equity in a property. An initial €75m was allocated in Budget 2021 to establish the scheme which is to be boosted with additional private investment. The Minister has commented 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 estimates the Affordable Purchase Shared Equity Scheme could save some renters up to €11,000 per year.
The Bill will introduce new income eligibility criteria to provide that eligible applicants must be unable to secure a mortgage for 90% of the market value of the home. It is intended the purchaser shall take out their maximum bank mortgage and the equity charge will be based on the difference between the purchase price the applicant can pay with their full mortgage or the lowest price the local authority agrees the unit can be sold for (whichever is lower) and the market value of the unit.
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 Bill. Rents charged will be designed to cover the cost of developing, managing and maintaining the homes. 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. 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 Bill 2020 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 to deliver homes built on State owned lands. Once the Land Development Agency Bill 2020 becomes law 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. Removal of a charge period of 25 years will provide flexibility to both the purchaser and the State as a local authority will retain security over the property but may use its discretion not to enforce the security until after the death of the purchaser. Streamlining direct sales agreements will also avoid added expense and delays where a local authority subsidises the purchase price of affordable housing.
A novel proposal will also see the State taking equity in housing through the affordable purchase shared equity scheme. Minister O’Brien noted a similar scheme in the UK which returned a 14% increase in housing supply. It is anticipated that a cost rental model aimed at longer term renters with moderate incomes will also deliver secure and affordable rental solutions. These measures 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.