Based on our calculations, this year’s expenditure by the State on housing, accounting for gross spending and tax relief measures (another form of expenditure), amounts to an impressive €8.3 billion. This constitutes a substantial portion of the annual State budget, which is around €100 billion.
Notably, there’s been a significant increase in the amount allocated to housing over the recent years. Comparatively, the funds designated to it are 3½ times greater than what it was a decade ago – taking 2014 as a benchmark, a period characterized by the lowest State spending. The growth from that point, even by any standards, can be described as remarkable, regardless of the historical lows in spending following the economic downturn.
Another important point is that this figure isn’t static, it is estimated to rise even more. The pressing need to boost the existing stock of social homes is still an issue significantly impacted by the sparse construction of new social dwellings over nearly ten years, and the tenant purchase schemes implemented by local councils. These purchase schemes allow longstanding council tenants to acquire sought-after properties at substantial discounts, which has led to depleted social housing inventory.
Moreover, a total of 58,824 households were concluded as having unmet social housing needs at the close of the previous year. This does not account for those reaping the advantages of private rent aid schemes, indicating that the true demand for secure social homes is significantly higher. Consequently, with the frequent rise in homelessness and expanding need for social housing, the expected expenditure in this area is predicted to see a surge.
Furthermore, the mounting need to enhance housing supply across the board, particularly the availability of houses within reach of buyers’ financial capabilities, is also evident. A majority of the State investment efforts began only a few years back and are anticipated to intensify further down the line. Changes are expected, such as alterations in spending on social and affordable homes, if Sinn Féin assumes power following the subsequent general election. Regardless of who holds authority, the State’s commitment to housing appears to be single-directional: upward.
Three main sectors constitute the State’s share of resources for housing: capital or investment spending, day-to-day spending, and a diverse mix of tax reliefs and allowances. Capital spendings include purchases and constructions of houses or providing funds to those doing it. While day-to-day spending covers State assistance which aids populace in housing access. Tax reliefs and allowances are in place to support buyers and provide stimulating incentives for home builders.
/”1. Expenditure on Capital
Total government or government-backed investment in housing this year surpasses €5 billion significantly.
Government spending has risen sharply in recent years, due to growing political pressure to provide more housing. This includes not only state investment, but also investment from local authorities and approved housing organisations. It also factors in funds provided by the Land Development Agency (LDA), the Housing Finance Agency (HFA), and Home Building Finance, Ireland (HBFI).
Although the HFA provides loan aid to local authorities, housing organisations, and universities for student accommodation, and will be paid back over time, it is not identical to direct state expenditure. The same applies to funds loaned to the private sector by HBFI. However, since both agencies have state-approved security, it seems fair to account for them.
Government Investment
Direct government capital investment in housing this year, via the Department of Housing, is estimated at €2.7 billion. The lion’s share – to the tune of €1.86 billion – is allocated to local authorities and approved housing bodies via an assortment of schemes designed at construction assistance, acquisition of external credit sources – including the HFA – or aid for property leasing or buying for social housing purposes.
In the sequence of financial backing, the state funds local governments for property acquisitions, direct construction, urban renewal, and other plans, whilst affording them the means to loan to approved housing organisations (AHOs) – autonomous, non-profit entities providing affordable housing – allowing them to build or buy homes. AHOs also have access to loans from local authorities or the HFA. Consequently, loans from the HFA are guaranteed by government backing.
The government, thus, is heavily woven into each aspect of the process.
New Initiatives”/
Recent years have seen the introduction of multiple support measures, characterised by various acronyms, primarily geared towards assisting private builders and AHBs in initiating and completing housing projects. Essentially, the State is partially or entirely capitalising these ventures, thereby diminishing the apprehension of risk by developers. Initiatives such as the Croí Cónaithe fund are used, which offers financial backing for the construction of owner occupier flats and renovation of disused residences. The recent affordable rental (Star) scheme provides equity to private builders and AHBs for constructing cost-rental accommodations backed by a cost rental equity loan (Crel) scheme that lends to AHBs for the same. Tweaks and changes in these programmes are anticipated to cause a further rise in costs.
State Organisations:
Apart from these direct investments from the State, roughly €1 billion has been allocated by the housing spending plans for 2024 to the LDA which constructs on state land and recently collaborates with private builders to expedite the completion of housing developments. This extension of its brief is crucial because it assists in filling the gaps in project viability and reducing delays in development.
An approximate sum of €1.5 billion is expected to be dedicated by the HFA. Although it sources its funds externally, it provides loans at a favourable rate with a state guarantee and hence is considered state-supported spending.
State capital spending also includes funds allocated by HBFI, instituted in 2019 to enhance the flow of finance towards private developers. Initially funded by €730 million from the Ireland Strategic Investment Fund, its loan portfolio stood at over €1.6 billion at the end of the previous year, reflecting an increase of €400 million within a year. A corresponding provision is provided in our predictions for 2024. The HBFI maintains fully commercial operations, its state funding and ownership signifies its critcal role in government policy for the sector.
2. Current Expenditure:
Affordable Housing:
The Housing Department has earmarked €1.5 billion from this year’s budget for current spend. This figure is significantly occupied by affordable housing, designated for low income households. This expenditure has seen a consistent increase, with a quadrupled rise over the past ten years.
An important factor contributing to the rise in expenditure can be attributed to the purchase of council houses by long-standing tenants. A study conducted in 2018 by Professor Michelle Norris from UCD discovered that 66% of all council properties offered were procured by residents at a bargain rate.
Ireland’s construction of residential properties follows a pattern of growth and deterioration, implying that there has been a lack of government investment in social housing over several years. This situation, combined with the ongoing sale of their existing properties, has led to an immense demand for a limited, though increasing, supply.
Construction of these residential properties has now resumed, however, the rate of completion for new units has not yet matched the need of the population. Consequently, the government has had to explore different solutions to offer homes to those needing social housing. These are mainly achieved through the Housing Assistance Payment (HAP) and the Rental Accommodation Scheme (RAS). This year, an amount of €525 million has been reserved for HAP, while €111 million has been allocated for RAS. These funds are directly paid to private property owners and enable tenants on the social housing list to rent for less than market prices.
An additional €62.7 million has been set aside as rent supplements, a temporary financial aid for those who rent in the private sector.
For those who occupy social housing in local authority properties, differential rents are imposed, which are significantly lower compared to market rates and directly correlate with the tenant’s income. While this reduction in rent itself doesn’t entail any immediate expense from the treasury, it is considered as a form of subsidy.
In 2015, the Economic and Social Review published a report, estimating the cost of these differential rents to be around €575 million for that year. This subsidy has not been incorporated into our total figures for several reasons: it varies greatly across local authorities, it’s difficult to determine exactly how much this consequence of the rental sector’s change since 2015 constitutes, and housing experts and economists alike have affirmed the challenge in doing so.
For instance, the Economic and Social Research Institute (ESRI) revealed in a 2022 finding that the rent paid by a lone parent with two children earning an annual income of €25,000 could range between €226 and €450 per month, depending on tenant location.
In sharp contrast to its European neighbours, Ireland doesn’t tie local authority tenant rents to a cost-recovery level, although a cost-rental model is presently being implemented. Consequently, the government must earmark annual funds for the upkeep and renovation of said properties, with a sum of €31 million allocated this year for such a programme.
This cost-rental model, while attractive due to its offering rents below market levels yet enough to recoup building and maintenance costs, will make the process of calculating the state’s underpinning support complex.
Alongside, the Mortgage-to-Rent (MTR) scheme, a social housing initiative where residents grappling with mortgage arrears can sell their property to an MTR scheme provider and continue living there as social housing tenants, has been granted €18 million for this year.
Tackling the homelessness issue requires significant spending as well. With heightened numbers of people seeking emergency accommodation, the spending matches the needs. A total of €242 million has been allocated for homelessness services this year. As mentioned in a 2021 report by the Housing Department, annual expenditure on homelessness services has witnessed an average increase of 26 percent since 2014, the year when data on individuals in emergency accommodations first began surfacing. The report highlighted an uncharacteristically high expenditure of €270.9 million in 2020 due to the carryover of unspent funds from the prior year.
Equally noteworthy is the allocation of €35 million this year to the Housing First initiative, aimed at providing unconditional housing to the chronically homeless, often struggling with complex needs, supplemented with supportive services.
Apart from limelight initiatives, several less publicised programmes supplement the majority of the expenditure, including a €28 million allocation for Traveller-specific accommodation along with €90 million for energy retrofitting, €70 million to address construction defects, and €3.3 million dedicated towards housing for disabled or elderly individuals.
In order for a housing system to work efficiently and equitably, there is a requirement to designate public funds for regulation. This was achieved through various provisions in the 2024 Budget. In total, over €13.5 million was reserved for the Residential Tenancies Board (RTB), €9 million was assigned to regulate rented accommodations, approximately €17.5 million was allocated to the housing and sustainable communities agency and more than €3.35 million was allocated for the AHB regulatory body.
3. Tax incentives and deductions
Although the primary focus is on expenditure from the state coffers, exclusive tax rebates also burden it due to missed income. These are integral policy measures which can extensively influence the housing market. In the past, substantial property deductions overstimulated the property market, inciting the construction of incorrect types of property in low-demand areas. These deductions frequently acted as tax havens for wealthier individuals, reducing their tax liabilities through schemes proposed by tax advisers.
Post-financial crisis, governments have demonstrated caution with regards to tax rebates. However, they remain influential in the market. For purchasers, a notable lure is the Help-to-Buy scheme, offering a refund on income tax and deposit interest retention tax for first-time buyers. Its anticipated expense this year is a considerable €185 million. First-time buyers can additionally obtain support through the First Home Scheme, acknowledged as part of the Department of Housing allocation. Buyers with inadequate access to commercial loans can secure finance through locally administered loan schemes.
It’s worth mentioning the recent expansion of the waiver on development fees and connection charges payable by developers of new homes. Albeit not technically taxes, this operates like a tax relief, costing €240 million annually.
There are several new reliefs pertaining to the rental market. This year’s budget saw an extension of tenants’ tax relief, with annual costs now estimated at €288 million. The newly introduced landlords’ credit is estimated to cost €45 million this year, but this is projected to escalate to €160 million by 2026. An interim mortgage interest relief scheme will incur costs of around €125 million.
Calculating the financial implications of tax concessions available as unique incentives isn’t always a simple task. Landlords receive a multitude of tax treatments that could be seen as generous, including the ability to deduct mortgage relief and incentives for refurbishment of ageing properties. On the other hand, deductions for improvement and repairs are common business practices. In 2022, private landlords claimed €1.2 billion, with the cost dependent on landlord’s tax rate. If we assume a median tax rate of 30%, it results in approximately €400 million per annum, which have been included in our sum.
Additionally, a tax cut designed for non-landlord residents who have an extra room—the rent-a-room relief—cost around €27.9 million in 2020. This likely escalated due to the growing popularity of the initiative. Other lower-cost programmes such as the Living City, aimed at promoting inner-city development, and the residential stamp duty relief for non-residential land conversion, costing €17.6 million in 2020, also exist.
Various other concerns exist. As well as the tax expenditures, housing also generated tax revenue for the state, which we haven’t deducted. We also didn’t factor in the tax exemption for the main residence, a huge cost that the Commission on Taxation and Welfare urged to be gradually eliminated.
The potential revenue loss here could be colossal, with the Fiscal Advisory Council tentatively suggesting that limiting this relief could generate €400 million tax. More could also be gained through changes in tax relief on inheritances. However, these estimates weren’t included in our final figures. The Commission on Housing’s report, a Government-commissioned document recently presented to the Department of Housing, is the next crucial indicator. The commission’s task was to review the sector’s support measures and state regulation, and advise on future directions.
An important matter to consider will be its evaluation of the cost-effectiveness and utilisation of the funds presently in circulation, alongside suggestions for future actions. This, in turn, will lay the foundation for the upcoming political discussion around the general elections.
Given that enormous state funds are in use and immense political push to advance, there’s a significant amount on the line.