As of 23 February 2020, there were 10,148 homeless people in Ireland which includes both adults and children. The percentage of homeless families in Ireland has increased by 275% since February 2020. Social housing is at crisis level in Ireland. Demand for social housing remains unrelenting with increasing pressure due to the economic challenges faced as a result of Covid 19.
The key findings of the 2019 Summary of Social Housing Assesments carried out by the Housing Agency indicate;
- 68,693 households were assessed as qualified for housing support as of 24 June 2019;
- The four Dublin Authorities (Dublin City, Dún Laoghaire-Rathdown, Fingal and South Dublin) account for 43.2% of the national total.
- One-adult households are the predominant household grouping in need of social housing support.
- The number of households whose basis of need was listed as ’homeless, institution, emergency accommodation or hostel’ rose by 10.8% (614 households) since the 2018 assessment.
Social Housing Strategy
The Social Housing Strategy (“SHS”) which was published in 2014 aims to;
- Provide 35,000 new social housing units, over a 6 year period, to meet the additional social housing supply requirements as determined by the Housing Agency;
- Support up to 75,000 households through an enhanced private rental sector; and
- Reform social housing supports to create a more flexible and responsive system.
This strategy was developed to address the crisis in the housing sector and outlined delivery requirement through three central pillars in the SHS;
- Pillar 1 of the SHS targets to deliver 35,000 new social housing units over the period to 2020 with an estimated cost to the exchequer to build and or lease these units of €3.5 billion. The primary delivery channels being the local authorities and approved housing bodies.
- Pillar 2 of the SHS targets the delivery of social housing supports provided through the private rental sector.
- Pillar 3 comprises of a number of actions to ensure that social housing supports are receptive to people’s needs together with improvements in their circumstances.
Investing in social housing
The SHS contained an investment programme of over €2.2 billion for social housing provision. Government investment is expected to total €3.8 billion by 2020 year end.
There are three main providers of social housing accommodation in Ireland;
- Local authorities- Are the largest providers of socially rented housing in Ireland. In 2014 the Local Authorities controlled 137,000 dwellings. Out of this number 4,800 were leased under the Social Housing Leasing Initiative.
- Approved Housing Bodies (AHB’s);
- Private rental secto
Public Private Partnerships (“PPP”) are being used for the construction of new properties to be used for social housing. This partnership involves the Local Authority offering land to a developer, who will then provide the required capital and build on the site. This allows the Local Authority to have properties, which are fit for social housing needs. Once the site is complete, the developer sells the development to a real estate investment trust or pension fund, who will seek a return on their investment through the leasing process.
The Society of Chartered Surveyors Ireland produced a viability study of the scheme in their Social Housing Funding Model Submission. The study assumes all properties in the development will be social housing. Developers normally seek a profit of 15% to 20% of the development value. It is assumed developers would be willing to accept a 10% profit due to the reduced risk of having a purchaser for the development pre-completion. This allows for the development of sites which otherwise would not have been commercially viable. The net annual profit for this type of investment is 5.6%, which is five times greater than the annual profit in the bond market.
The Department of the Environment, Community and Local Government also offer financial support to AHB’s in the construction or purchasing of properties that will be used for social housing in the form of a long-term loan. This loan is for up to 30% of the cost of the development under the Capital Advance Leasing Facility. This funding can reduce the amount an AHB needs to borrow from a lending institution to finance a project and is a repayable loan with preferential terms.
Long term leasing
The Enhanced Long Term Social Housing Leasing Scheme (“ELTSHS”) was introduced under pillar two (Accelerate Social Housing) of Rebuilding Ireland- an Action Plan for housing and homelessness, which was published in 2016. This scheme introduced 25 years leases between the Local Authority (the lessee) and the property owner (lessor). Rent received is usually between 80% and 95% of market value, investors take this reduced rent due to the security of the scheme. The rent is also reviewed every three years in line with the Harmonised Index of Consumer Prices (“HICP”)
The key benefits of social housing investment under the ELTHSHS
This system allows for the use of private funds in the provision of social housing. It is an attractive investment opportunity due to the secure nature of the investment particularly those that are seeking a high yield at low risk with an average net minimum rental income yield currently available is 5% +. Below is a list of key benefits of an investment in social housing under the ELTSHS;
- Long term financial arrangement with the State (local authority) with predictable rent review process for a term of 10- 25 years;
- Secure and certain the rental income -rent paid directly by the Local Authorities or AHB’s on a monthly cycle even in the event of vacant property.
- The Local Authorities or AHB’s take responsibility to manage tenant and maintenance of the property. Property owner to remain responsible for structural repairs;
- No obligation to register tenants with the Residential Tenancies Board;
- No break clause;
- Regular rent reviews linked by the Harmonised Index of the Consumer Price Index.
Tully Rinckey can offer specialised advice in relation to social housing development and investment across our team of lawyers in the following departments;
- Real Estate;
- Banking and Finance; and
- Employment Law