A recent analysis by the Finance Department has highlighted significant considerations regarding residential construction financing in Ireland. They anticipate that around €20 billion per annum in development funding will be necessitated to fulfil the revised goals of the government for the production of 50,000 new houses, which are expected to be formalised later this year. Such a substantial sum is anticipated to primarily be sourced from the private sector, though the government is significantly involved in its own project financing, supplying funds and effectively guaranteeing much of the ongoing construction.
Funds are generally accessible according to the analysis, however there are some key points that need to be evaluated. One such point is the financial risk that stems from a lengthy and unpredictable planning process. Provisions to address this have been put forth in new planning laws, though certain aspects have been criticised. Rectifying this situation is crucial for freeing up finance and addressing the current scarcity of funds for land without planning permission, along with worries that this could hinder the establishment of land banks for prospective development.
The absence of infrastructure such as roads, water and energy supplies is another hurdle, with investors being deterred by extended delivery timelines. The €20 billion funding estimation is a total figure, and could be offset by earnings from the sale of constructed houses or flats, though the cash outlay is significant. The Department suggests that tapping into international capital is required to supplement the limited domestic finance resources, particularly in terms of equity funding.
It’s crucial to highlight the increased involvement of the State – usually via the Land Development Agency or Approved Housing Bodies – in both the initial purchase of developments and in the direct financial support of developers during the construction phase. The study underscores the potential risk to the State from the latter strategy, for instance if a developer experiences difficulties. Adequate expertise within the public sector is crucial to mitigate these risks. The Finance Department has expressed concerns that the Government’s aggressive strategy to expedite housing development may necessitate more thoughtful management.