House prices in Ireland have remained stubbornly high, as a result of continuing high demand that is not currently being sated by the market supply, leading to a worsening general affordability issue in the Irish housing market.
Against this backdrop, the general scheme of the Affordable Housing Bill 2020 (the Bill) was recently published by the Minister for Housing, Local Government and Heritage, Darragh O'Brien. Its aim is to alleviate the pressure on affordable housing supply.
The Bill introduces two key provisions:
- A new Affordable Purchase Shared Equity scheme which provides for the State to take an equity share in a property being purchased by an individual. The owner of that property will also take out a mortgage on the remainder as usual. The aim of the scheme is to assist those who are not able to secure a mortgage to buy a property at its full market price.
- The Bill will also define cost rental housing as a new form of tenure and place it on statutory footing.
Shared Equity Scheme
Anew affordable housing plan will provide for the State to take up to 30 per cent equity in a property. There are certain conditions that will be attached to this scheme that include, but are not limited to, the following:
- the property must be a new home; and
- the purchaser must be a first-time buyer.
It remains to be seen whether further conditions will be attached to this scheme such as price, geographical location, minimum/maximum levels of equity support and whether there will be any salary caps in the eligibility criteria. Detail around eligibility will be covered in separate guidelines so as to enable the Minister retain flexibility to vary this criteria from time to time.
It is envisaged that a prospective purchaser availing of this scheme will also take out a mortgage with a bank in respect of the balance of the purchase price after equity has been taken by the State, and that the equity charge in favour of the State will rank second to the mortgage.
The scheme will also provide for the option to buy out the equity share provided certain conditions are met.
This is a welcome mechanism that should assist with financing the purchase of new homes and aid the overall delivery of housing in the State.
The Bill introduces a new form of tenure known as Cost Rental tenancies, a form of long-term rental. The idea behind this new form of tenure is that the landlord will charge a rent that is based on the cost of provision of such accommodation instead of for profit, resulting in a lower rent than market rent. The Bill provides that rent can be increased on an annual basis in line with inflation to account for potential increases in costs over time.
This scheme is aimed at those who are not eligible for, or do not wish to avail of, social housing supports. However, it is important to note that Cost Rental tenancies are not social housing and will instead be covered by the Residential Tenancies Act 2004 – 2020. As such, Cost Rental tenants will be treated the same and will be able to avail of all the same legal protections and obligations as tenants in the private rental sector.
A Cost Rental Equity Loan (CREL) scheme, announced in Budget 2021, will provide €35m in loan funding to Approved Housing Bodies for the purposes of the provision of such Cost Rental housing.
Further detail will be needed once the Bill is published on the various conditions of this proposal and how it will work in practice. The Bill will, as always, be subject to scrutiny and amendment as it makes its way through the Houses of the Oireachtas. It is, however, a welcome step in tackling the affordability of housing in Ireland. The two proposals are important steps from the Government, neither of which should be viewed as a silver bullet solution to the complex and interconnected problems of housing provision. Our head of housing, Fidelma McManus recently published an article examining the Cost Rental tenancy option in more detail, and we will continue to monitor the progress of the Bill, providing updates and insights as the subject evolves.