The Irish home buying and letting market needs more supply. This offer must meet the multiple demands that Irish society needs in the decades to come. Homeownership should be accessible to those who aspire to it, so it is right that the first-time home market is supported as part of government policy. The provision of adequate social housing is essential to underpin any claim of an equality-minded society. In addition, a deep and diverse private rental market is needed to meet the needs of a mobile workforce.
Regardless of your perspective on the problem, delivering a larger supply faster is the way to alleviate the current pressures. Supply requires investment and the good news is that there is enough capital available in Ireland and abroad to finance the 35,000 to 40,000 housing units we need each year to meet the shortage. current. To denigrate the investors behind this capital is to divert attention from the fight against more fundamental blockers that inhibit supply.
The international investment community is very keen to support the building of a vibrant and affordable housing sector in Ireland. Before the 2008 real estate crash, the market was financed almost exclusively by national banks, and then almost exclusively by debt. It is a welcome development in the market that we now have access to a more diverse pool of capital from investors such as foreign pension funds who are well positioned to finance this phase of the construction of Ireland.
Long term goal
With long investment horizons often extending beyond 20 years, pension funds focus more on return on capital than on return on capital. They may already be buying Irish sovereign bonds with an annual interest return or ‘coupon’ close to 0%, which means they are happy to get into less liquid real estate investments at just 3-4%. annual return. Attractive low-rate capital costs are available to the industry and with the right safeguards in place we can ensure that the capital serves the broadest purposes for the country’s needs.
Likewise, these investors understand that investing in real estate is a societal issue, not just a financial one, and they respond positively to sound policy on taxation, tenant rights and transparent governance. This investor profile is very different from the caricature of the “cuckoo” fund often accused of evicting first-time buyers or trapping tenants.
To date, these investors have been mainly active in the “multi-family” sector, which means that they buy blocks of apartments built exclusively to be rented out indefinitely and not for sale.
There is a significant and growing need for pure rental stock in Ireland, where we are lagging behind our European peers. Ireland has been very successful in attracting European headquarters of global companies and with them thousands of jobs with local talent and employees from abroad. For foreign employees who can reside in Dublin for periods of six months to three years without wanting to buy a house for the long term, high quality, professionally maintained rental apartments are essential. The supply of rental apartments to this cohort does not necessarily have to come at the cost of crowding out first-time buyers, but again, the answer to this problem is more supply, not less efficient capital.
Financing the future
Another development of relevance to the debate when considering the role of international investors in the Irish market is the worrying contraction of the Irish banking market. With the exit of Ulster Bank and KBC from the Irish banking sector, this will further exhaust the nationally available financing options for the wider economy, including property developers. International capital can step in to fill the void left behind to manage the pipeline of real estate developments until completion.
Bottlenecks to accelerating supply include the slowness with which planning is assigned to developers and low thresholds for forensic review, even when that planning is successful. Delays in confirming connection certificates for site services such as water and electricity are blocking the start of construction on the house. There are other bottlenecks to the development of the Irish residential pipeline, such as the shortage of construction workers and supply chain shortages linked to Brexit and Covid-19, but they will not be resolved until ‘There will not be a clear horizon for faster housing development which is currently paralyzed by an interrupted planning process.
These issues need to be addressed through the government’s fledgling policy initiative on Housing for All due to be released later this month and the terms of reference of the soon-to-be-launched Housing Commission. With sensible policy safeguards in place to protect tenants and first-time buyers, international investors can provide an attractive source of capital to help tackle Ireland’s chronic housing shortage for decades to come.
Myles Clarke is Managing Director of CBRE Ireland