State must be ‘welcoming’ to foreign investors to meet €20bn housing cost, Minister says

The Republic needs to become a “welcoming home” for foreign institutional investors in order to meet the estimated €20 billion cost of meeting the Government’s new target for 50,000 homes to be built a year, Minister for Finance Michael McGrath has warned.

“We have to be grown up and acknowledge that we have a great funding need that the State alone cannot meet,” the Minister said at conference organised by Banking & Payments Federation Ireland (BPFI) in Dublin on Tuesday.

“If we are to build around 50,000 units a year, then you need approximately €20 billion. The State can provide a share of that, but the banking sector, the nonbanking sector, and international capital will all have to play a role. And we have to be open and welcoming to private capital if we are genuine and serious about meeting the housing need.”

About 33,000 homes a year are currently being developed, with much of this supported by the State. A total of about €5 billion was allocated by the State for home construction this year equating to 36 per cent of the estimated €13.6 billion total development cost, the Department of Finance said in papers published in late May.

This includes exchequer funding, investment by the Land Development Authority (LDA) and loans issued by the Housing Finance Agency (HFA).

The Department papers noted that investment in apartment blocks – a segment of the market that, it says, is only viable for the build-to-rent sector to fund development – slumped 75 per cent last year, as large schemes in particular were affected by rising interest rates.

Property industry observers also say that overseas institutional investors have also become increasingly cautious about committing money to the delivery of apartments in the State in recent years as a result of concerns about political “noise” and acceptance of this type of accommodation – even as a lack of rental properties is driving rents higher.

Tom Kinsella, managing director of the AIB’s Homes unit, highlighted that while the pillar banks “will not be found wanting” funding a portion of the total cost, they are bound by lending concentration limits brought in following the property bubble.

He said that private equity, international funds and pension funds will also have to play a role in funding delivery.

Bank of Ireland director of home buying, Alan Hartley, told the conference, however, that other key concerns surrounding the delivery of homes – such as the supply of zoned land, critical infrastructure, and planning – outweigh the funding question.

“If we fail to get to 50,000 [a year], I don’t think funding will be the issue,” he said.