Developer Tetrarch Capital has lobbied the government to “mandate and fund” approved housing bodies to lease homes from the private sector for affordable rentals.
In January, the CEO of Tetrarch Capital ran the idea of the model “to deliver privately funded affordable housing” by Housing Minister Darragh O’Brien and senior officials in the Department of Housing.
The rents would be set at 25 percent below market rates, says the presentation, released under the Freedom of Information Act.
For a couple of its future developments in the south-west fringes of the city this would mean rents of €1,163 for one-bed apartments, it estimates.
The head of Circle Voluntary Housing Association (VHA), John Hannigan, said that while his preference is for a bigger roll-out of cost-rental – where rents are pegged to the cost of building homes rather than market rents – his organisation wants affordable leasing too.
“Whatever gets as many affordable homes on the ground, I think it’s really important,” he said.
The Department of Housing didn’t directly address queries as to whether it plans to pursue this or other ideas that Tetrarch Capital’s presentation said it had around affordable housing.
A spokesperson pointed to the Affordable Housing Bill 2020, which provides for three other new affordable-housing schemes – its affordable-purchase scheme, shared-equity scheme, and cost-rental scheme.
“Detailed drafting of this legislation is ongoing and the final details of the schemes are being advanced based on engagement with stakeholders,” they said.
Hannigan, though, said he expected to hear “positive outcomes” from the government on the idea of affordable leases soon.
“We’re still waiting on a few more things to occur before we would have a clear way to doing this, but I do know that they’re looking at it and they’re looking at it seriously,” he said last week.
Tetrarch Capital’s presentation includes an outline of what it says it would do on land it owns at Citywest. It has also been lobbying for some of its land there currently zoned as amenity to be rezoned for housing.
A spokesperson for Tetrarch Capital said that its residential plans are largely based around delivering social and affordable housing across several schemes, including in the Greater Dublin Area.
About 30 to 40 percent of homes on its schemes would be affordable housing for sale or rent, they said. “We hope to deliver c 1,500 social and affordable homes in the next 5-6 years.”
At Garter Lane in Citywest, plans show 224 apartments across four blocks – which would all be “affordable rental” and social housing, the presentation says.
About a kilometre away at Mill Road in Saggart, the company plans 277 apartments and houses, which would all be affordable rental and social, it shows.
Meanwhile, at Riverside Manor in Kilcullen in Kildare, Tetrarch Capital plans to build 111 affordable rental homes, it says.
At Garter Lane in Citywest and Mill Road in Saggart, the apartment rents would come out at €1,163 for a one-bed, €1,388 for a two bed, and €1,575 for a three bed, it says.
According to the RTB Rent Index, the average rent for a two-bed apartment in Saggart in the third quarter of 2020 was €1,513.20 – about 8 percent higher than the “affordable” rent Tetrarch is proposing to charge. (The RTB didn’t have average figures for the other apartment sizes.)
At Riverside Manor at Kilcullen in Kildare, the apartment rent would be €938 for a one-bed maisonette, €1,125 for a two-bed duplex, €1,275 for a three-bed terrace, and €1,013 for a one-bed apartment, and €1,200 for a two-bed apartment.
According to the RTB Rent Index, the average rent for a two-bed apartment in the first quarter of 2020 in Kilcullen was €978.11. That’s about 18.5 percent lower than the “affordable” rent Tetrarch is proposing to charge. (The RTB didn’t have average rents for other types.)
Those estimated rents are “very high”, says Eoin Ó Broin, the Sinn Féin TD and housing spokesperson, especially as Citywest is “on the edge of the city”.
Says Alison Gilliland, the Labour councillor who heads up Dublin City Council’s housing committee: “It still sounds a bit expensive.”
A spokesperson for Tetrarch Capital said that the proposed rents are 25 percent below the open market rent for equivalent homes and any rent increases would be linked to inflation.
They will also provide “a breadth of resident amenities and facilities” that are “unmatched in the market”, they said.
And they are pioneering a solar energy and micro-grid system that will lower tenants’ energy costs “and eliminate fuel poverty”, said the spokesperson.
Also “if VAT was to be reduced on the cost of delivering affordable housing, we would further reduce the rents accordingly”, they said.
Hannigan, the head of Circle VHA, said these “affordable rents” wouldn’t be anywhere near what some of the politicians are seeking of around 50 percent of current market rents.
But at 25 percent below market rents, it would be a significant drop down, he says. “Now, does that make them affordable? It does for some people, but not for everybody.”
Cian O’Callaghan, the Social Democrats TD and housing spokesperson, said there’s a risk with metering off market rents in big developments.
If a developer is building, say, 1,000 homes and is setting rents or sales prices for the top tier ones, then they’re setting what the full market rate is, he says.
“Given that they control the top top tier if you like, to a degree they then control the affordable ones,” he says.
If the top-tier homes are sold at bumped-up rates and the affordable ones might be metered off those inflated, or highest spec, top-tier homes. “That’s the danger,” he says.
So for a scheme like this, it “could be used to try and get public subsidies for housing that isn’t really going to be sold or rented much below what it would have been sold or rented anyway”, he says.
He’s not saying that definitely would happen. “But it’s certainly a strong possibility that that’s how it could play out,” he said.
For affordable housing and cost-rental, the rents need to be set at a level that is affordable in terms of people’s incomes, he said. “Rather than a discount from the full market rent.”
Tetrarch Capital’s presentation says its affordable housing would be made possible by low site values at scale, with stable long-term capital funding partners, and by teaming up to lease to AHBs.
But it also had a number of asks of the government, or “ideas for expediting affordable housing delivery”, the presentation shows.
One was for “suitable sites at the right cost, in the right location”. To do that, it suggested “new zonings on lands on key transport infrastructure in areas of high demand to be prioritised” and suggests that some could be conditioned that a significant percentage of the lands must be social and affordable.
The strategic housing development (SHD) process for planning applications – the fast-track process by which big applications go straight to An Bord Pleanála and bypass councillors – should be kept, but only for social and affordable housing applications, it says.
The presentation also asked for help for developers with infrastructure costs by making something akin to the Serviced Sites Fund for those willing to dedicate more than 50 percent of a scheme to social and affordable homes.
Under the current Serviced Sites Fund, the government gives money to councils for infrastructure on public lands that are earmarked for affordable homes. It’s been used, for example, as a way to enable lower rents for cost-rental homes at Enniskerry Road near Sandyford.
A spokesperson for the Department of Housing didn’t directly address whether it plans to make a fund of this kind available to developers.
“The Minister has signalled an intention to review the operation of the Serviced Sites Fund and this process is ongoing,” the spokesperson said in an email.
Long-term leases are already a good deal for developers, say Ó Broin, the Sinn Féin TD.
And once the long-term leases for these affordable homes are up, the homes wouldn’t be owned by the public sector, says Ó Broin. The “property owner can just take that property back and sell it on the market”.
“So there would be no reason why you would give any kind of infrastructure funding for a long-term lease,” he says. “It would just be the most egregious abuse of public money.”
A Move to Lease
Ó Broin says it’s not surprising to see lobbying for supports for a scheme to lease affordable homes from the private sector.
Increasingly, investment advisory companies have been recommending that investors diversify away from commercial offices and warning that the high-end built-to-rent market will get saturated, he says.
“And therefore to diversify a portion of their portfolios into social housing,” says Ó Broin. Meaning, social leasing schemes through which councils sign up for long-term leases for homes.
Ó Broin has criticised the enhanced social leasing scheme as bad value for money, given that the state doesn’t own the homes at the end of the lease.
So while there wasn’t that much institutional investment back when social leases were brought in, and what investment there was was going into office blocks or high-end rental, that’s changed.
“What many of us think is going to happen over the next couple of years, is a lot of that money is now going to move into social rental. The yields are lower, but the risks are also lower, and therefore it’s a safer bet,” he says.
Hannigan, the chief executive of Circle VHA, says he doesn’t think there’ll be loads of interest in affordable leases.
“I don’t think you’ll get the private sector staying in this very long, I think there’s a limited amount that they would be willing to enable this to occur,” he said.
But “I think now is the right time for them to do it. The first mover will get some advantage out of it, as all first movers do,” he says.
Tetrach’s proposals are for its private land. But current draft legislation does leave open the possibility that leasing schemes such as this could be used on public land, says O’Callaghan, the Social Democrats TD.
“It’s all left open, certainly with the Land Development Agency, that it could enter into these sorts of arrangements with private developers if it wanted to,” he said.
A spokesperson for the Land Development Agency, which is planned in the future to take responsibility for developing homes on big parcels of public land, said: “We have not considered Affordable Leasing as an option for the delivery of homes through the LDA.”
“The LDA’s current preferred model is to develop State lands directly, appointing the contractor and once completed the LDA holding and renting the homes or selling the completed homes direct to people qualifying under the Government’s affordable housing policies,” they said.
The Role of AHBs
AHBS can sign any leases they want already unless their own rules don’t allow it, says O’Callaghan. “There’s nothing really to stop that.”
While the Tetrarch Capital presentation says no government capital investment would be needed to make the scheme happen, it does also suggest that the state “mandate and fund AHBs to sign standard leases for affordable rental”.
A spokesperson for Tetrarch Capital said that the cost-rental equity loan facility – a fund to help AHBs pay for cost-rental projects – “does not address the potential leasing by the Approved Housing Body (AHB) sector of newly built units for affordable housing”.
“We are hopeful that the Government will look at ways to support a number of the AHBs that have a stated aim of expanding their leased estate as well as their owned estate, particularly in relation to affordable housing,” they said.
Hannigan, the chief executive of Circle VHA, said that affordable leasing would be higher risk for his organisation than some other affordable housing schemes.
“We’re signing without a safety net as it were,” he says. “So we are taking a bit more risk that we would normally take on these things if we’re doing them for a lease basis.”
Circle VHA would like the state to allow that if tenants lose their jobs, say, or can’t pay the rent for some reason outside of their control, that they could use the Housing Assistance Payment (HAP) to cover it, he said.
“Or some other process that would allow them to transfer it to social housing,” he said – meaning that it could switch and be rented through the long-term social leasing scheme.
But it is different to social leasing schemes, he says, as in those schemes the state pays full price, or close to full price, to lease it and doesn’t own the asset at the end. “On the affordable lease though, the state aren’t paying anything towards it.”
Not all AHBs are on board at the moment with the idea of affordable leasing.
A spokesperson for Clúid Housing said that affordable leasing is not something it is looking at right now. “It’s not part of our business model.”
One reason is that the leases run out after which a family may have to move, he said. “Twenty-five to thirty years is not a long time in the lifecycle of a family.”
Another issue is around value to the AHB, he says. “You don’t end up owning an asset at the end of it.”
Managing, rather than owning properties, would also affect how AHBs work, he said. “If you can’t guarantee a long-term relationship for a resident, that’s going to have an effect on the relationship I think.”
The spokesperson for Clúid Housing said it is working to build a cost-rental programme. “That’s our focus,” he said.
O’Callaghan, the Social Democrats TD, said he wouldn’t want to see AHBs go down a route where the way they operate and rents they charge isn’t all that different from the private sector, as has happened in the UK.
“It’s important in Ireland that we build up a not-for-profit sector that plays a very different role to a private sector,” he said.
Ó Broin said, for AHBs, “the idea that we would push them into not being social landlords, but being service providers for private landlords is completely contrary to their function and their ethos.”
“It happens a little bit. And it’s a bad idea, it absolutely shouldn’t happen on an ongoing basis,” he says.
Says Hannigan of Circle VHA: “There are those in the sector, who believe that AHBs should only own stock and should only manage what they own.”
But Circle VHA has always, since it was created in 2003, managed both council stock and homes in the private sector, he says.
“Our raison d’etre is to provide people with quality housing, people in housing need,” he said, and by any means.
“We don’t mind if others own the properties, but we want to make sure that they’re utilized for social housing and affordable housing as far as possible,” he said.
Hannigan says this scheme isn’t his top pick. “My preference, without a doubt, is for the cost-rental scheme to be more widely deployed.”
But that’s going to take a while, he said. So “I think the need is there’s a great need for all of the mechanisms because right now we’re not seeing anything being delivered”.
Michelle Norris, a professor in the school of social policy at University College Dublin and an expert in financing public housing, said affordable leasing is “far from ideal”.
The idea of cost-rental homes is that once the development loans are paid off, rents can cross-subside new developments and reduce overall costs, she said in an email. “So a non profit business model is more efficient in the long run in my view.”