Give the Government its due: real strides have been made on the two problems that dogged housing delivery for a decade. Infrastructure investment is finally flowing and the rezoning of land is at last being tackled seriously. Over the next twelve months I expect an ample supply of zoned, serviced land to come on stream. That is a big win. But solving land only exposes the next bottleneck, and it is a serious one: money.
Developers in Ireland are being charged as much as twelve per cent for development finance. Think about that. Typical gross margins on a housing scheme run at sub ten per cent. The lender is making more from housebuilding than the builder, who carries all the risk. There is something fundamentally wrong with that picture.
The standard model works like this. A developer puts millions of their own money into the ground first, then transfers the project into a special purpose vehicle. Non-bank lenders lend into that structure at very high rates, and if anything goes wrong they can repossess the site swiftly. The builder bears the risk; the lender is handsomely paid and well protected either way.
How did we get here? Since the financial crash the traditional banks have almost entirely exited development lending, even though AIB remains substantially in State ownership. And while the State itself borrows cheaply on the markets, its own development lender, Home Building Finance Ireland, publishes indicative margins of up to 7.5 per cent over Euribor. With Euribor near 2.5 per cent, that is an all-in cost approaching ten per cent before fees. The State's cheap money becomes dear money by the time it reaches a building site.
Now layer on costs. The mass money printing of the Covid era drove huge increases in inflation and material prices, and geopolitical instability and rising oil prices are pushing already inflated input costs towards the extortionate. The result is a genuine viability crisis: sites that should be built out do not stack up, on cost and increasingly on the price and availability of finance.
Here is an idea worth serious examination, put to me by a developer this week: a State-backed guaranteed forward purchase of, say, twenty per cent of every new scheme. Local authorities already acquire units under Part V social housing obligations, so the demand exists; it is simply not bankable. Formalise it. Contract the purchase up front, stage payment against phase one to fund the remainder of the build and give the State a first charge as security. Guaranteed offtake with staged payment transforms the risk profile of a scheme, and lower risk means cheaper money. The developer gets working capital; the State gets homes it was going to buy anyway, sooner and at better value. Beyond that, the pillar banks must be encouraged back into development lending at viable rates, because borrowing at nine to twelve per cent against sub ten per cent margins tilts any scheme into non-viability unless the developer is exceptionally cash rich.
We should also support demand while supply catches up. Help to Buy has been hugely successful and should be expanded and increased, while targeted tax measures for those delivering new homes deserve serious consideration.
The pieces are falling into place. Planning is being reformed, land is being zoned, infrastructure is being funded. The urgent next step is a proper flow of capital into Irish housebuilding at rates that work. Fix the finance and the land now being unlocked can actually be built on. Get this right and the coming years could be the strongest for housing delivery in two decades. The opportunity is there; it just needs to be funded.
Johnny Gannon is the founder of Fair Deal Property Auctioneers and Estate Agents. For Advice on Buying, Selling or Developing, Contact: 091 394593 or visit www.fairdealproperty.ie
