NAMA, social housing and the Leasing Initiative

We may end up paying twice for NAMA sourced social housing units - and the State may not even end up owning them. By Eoin Ó Broin.

On Wednesday 21 December 2011 Minister for the Environment Phil Hogan announced that NAMA were to make 2,000 properties available to the Government for social housing.

The units, which were said to make up 20% of NAMA’s residential property portfolio, would be managed by local authorities and housing associations and funded via the Social Housing Leasing Scheme.

Minister Hogan told journalists that the agreement with NAMA was “one of the largest housing allocations made in the history of the State”, that it would “provide hope for individuals and families in social housing waiting lists” and would be “a welcome Christmas boost to those most vulnerable in society.”

The implication was that the Government were taking the issue of social housing and NAMA’s statutory social dividend mandate seriously; that the 2,000 housing units were ready for allocation; and that they would make a significant dent in local authority waiting lists.

Unfortunately none of these contentions are true.

Two weeks earlier, in Budget 2012, the Government slashed capital funding for social housing by 23%, reducing the available monies for social housing by €118m. Local authorities, already unable to provide additional social housing stock because of Fianna Fáil-Green Party cuts, would be even more restricted in 2012.

Meanwhile social housing waiting lists continue to increase, with over 100,000 households on local authority lists.

As for the 2,000 NAMA units themselves, according to parliamentary question replies published this month, the Department of Environment did not know how many of them, if any, would be suitable for social housing, as they had not been inspected by local authorities.

Even if the properties are deemed suitable for social use there are significant question marks over the scheme that is to be used to finance the homes. The final number of NAMA sourced social housing units may be much lower than the 2,000 announced by the Minister.

Worse still, taxpayers look set to pay twice for properties that they may not even end up owning.

The Leasing Initiative

The Social Housing Leasing Initiative was launched by Minister of State with responsibility for Housing and Homelessness Michael Finneran in February 2009. The then Fianna Fáil Junior Minister ringfenced €20m of the existing social housing budget to fund the initiative and said that between 2,000 and 4,000 units would be made available by the end of 2009 through the scheme.

The premise was simple. Local authorities would enter into long-term leasing arrangements with private property owners for 10 to 20 years. In some instances voluntary housing associations would be responsible for management of the properties. Households on local authority waiting lists would be allocated the tenancies. The local authority would pay the  property owners at a discount of the market rent and take over all management and maintenance functions or fund a housing association to provide these services. The tenant would pay the local authority or housing association a differential rent.

The tenant would have all the same rights as if they were in a property owned by the local authority except the right of tenant purchase. If, at the end of the leasing period, the property owner did not want to continue with the arrangement the local authority would have a legal obligation to re-house the tenant.

Despite the available funding and ambitious targets the scheme was a total failure in 2009. Not a single new tenancy was commenced in that year. The private sector didn’t like the scheme because it required a long-term commitment at a time of great uncertainty in the housing market. Local authorities were lukewarm about the proposal as it was organisationally and financially cumbersome. Housing associations found it difficult to make the scheme stack up financially.

With 2010 fast approaching it looked as if Minister Finneran and his advisors in the Department of Environment’s great idea had come to nothing.

Unsold affordable housing

Fortunately, for the Minister and his senior Departmental staff, a number of local authorities had a supply of unsold affordable housing units on their hands.  The units originated from the Part V portion of private housing developments which the local authorities were contractually obliged to buy if offers to purchase were rejected by two prospective buyers on the affordable housing list.

The number of such units was considerable as was the cost to the state. For example, at the end of 2009 Dublin City Council had 300 such properties on their books, costing them on average €1000 per property per month in mortgage repayments to the Housing Finance Agency.

Seeing an opportunity to solve two problems at once, the Department of the Environment amended the original terms of the leasing scheme to enable local authorities to lease the properties from themselves and allocate them to families on the social housing waiting lists.

They also created leasing arrangements with housing associations whereby the associations would buy the units from the Council with loans from the private sector and the Department of Environment would lease the property back from the association until the mortgage was paid.

From the end of 2009 through to the end of 2011 a total of 1,546 unsold affordable units were leased by local authorities to housing associations using the Leasing Initiative.

Assessing the Leasing Scheme

During the same period only 932 units were leased from the private sector, as originally envisaged, with 197 of these managed by housing associations, 322 by private owners and 421 managed directly by local authorities.

The availability of unsold affordable units held by local authorities allowed the Government to present the scheme as a success.

However the real measure of success must be the number of units leased from the private sector: 932 in three years, set against Minister Finneran's ambitious target of between 2,000 and 4,000 per year.

Not only was the scheme an abject failure in respect to the number of units involved, it was also very costly.

The average length of the leases covered by the scheme is 11 years and the average cost of the units is €6,327 per unit per year. Which means that at current prices housing the 2,045 families covered by the leasing scheme for the duration of the leasing arrangement will cost the Government €174m.

Of course, generally speaking, social housing tenancies are for life, which means that the actual cost of housing a family under the terms of the leasing scheme for say, 50 years, would be more than €300,000.

When one considers that the average cost of purchasing a property for social housing in Dublin in 2011 was approx €169,000, then there is a real question mark over whether the social housing leasing initiative represents value for money for the taxpayer.

Back to NAMA

Whatever the limitations of the leasing initiative, the decision to use the scheme as a way of financing the use of NAMA-controlled properties for social housing is highly questionable.

It must be remembered that NAMA does not, in the first instance, own the property its controls, but rather owns the banking debts connected to those properties.

These loans, including those relating to the 2,000 properties being offered for social housing, were bought from banks in 2010 with public money.

Under the proposal announced by Minister Hogan last December, the State is now going to pay for these properties to be brought into public use.

The form in which these transactions will take place is not yet clear. However there are three possible scenarios.

Scenario one would see the state leasing these properties from the developers using public money. The developers would then use that same public money to repay their debts to NAMA.  When those debts are paid in full, ownership of the properties would return to developers.

Scenario two would see a voluntary housing association purchase the NAMA properties with private finance. These properties would then be leased from the housing association by local authorities until such time as the mortgage is paid in full, making the housing association the ultimate owner of the property.

Scenario three would see local authorities purchasing these properties with finance from the Housing Finance Agency and using the leasing funds to repay the mortgage. In this scenario the local authority would be the ultimate owner.

In all three scenarios the taxpayer will have paid twice for the same property – the first time when the debt passed from the bank to NAMA in 2010 and the second time when the local authority paid for the long-term lease of the property. In scenarios one and two the final ownership of the property is in private rather than public hands.

It will be some months before we know how many of the 2,000 NAMA properties are suitable for social housing; more time will pass before the complicated financial arrangements involved in the leasing scheme will be put in place; and only then will families currently on the housing waiting list actually get to occupy their new homes.

It is too early to say if Minister Hogan’s target of 2,000 will be met in 2012. What we do know is that whatever the final number the taxpayer will have paid not once but twice for these properties. Worse still, on the basis of the operation of the leasing scheme to date, the State will end up owning only a small percentage of the properties if any at all.

Eoin Ó Broin is a policy analyst, political activist and writer. 

Image top: Doun Dounell.