Innovative solution to housing crisis has been under our noses all this time

In any discussion on innovative solutions to the housing crisis, you get used to people citing some other city or state, typically a Scandinavian one, as the model for how to deliver housing and other critical infrastructure. It was strange then, when I was chairing the European Housing Advisory Board over the last year, to hear experts routinely mentioning an Irish housing innovation as the example that others might follow.

They were citing the Land Development Agency (LDA) and its potential to raise funding for affordable public housing. This is badly needed in cities across the European Union. It is not the only comparison that offers hope. Forty thousand new Irish homes will be built this year, which is almost 2½ times the per-capita levels of construction in the rest of Europe. Unlike other member states, we have the tax revenues to fund a variety of new building supports, which are starting to bear fruit. When they do, it will give us the appetite to do more.

As Ronan Lyons has argued, our backlog of undersupply and a switch to smaller household formations means we still need to get the rate of construction up to at least 60,000 units each year. The big question now is how we raise the necessary funding to close that gap.

Two large Irish house building companies, Glenveagh and Cairn Homes, have been raising private capital, but they will not be able to build enough units on their own. Other international funding sources have meanwhile dried up, as higher interest rates and construction costs have killed their particular business model. Large approved housing bodies such as Respond, Clúid and Tuath Housing have delivered a lot of social and affordable housing, but their further growth is likely to be restricted due to their dependency on exchequer funding, which the Department of Public Expenditure says has reached a limit. The priority for spending might have to go to more public-transport projects, without which no housing solutions will work in any case.

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This leaves us with the LDA as the one large developer which could quickly scale up to meet our needs. The agency was slow to start, with only some 3,125 new units being delivered since 2022. But that is about to change with an additional 13,000 units now being promised by 2030.

Most of what the agency delivers is cost-rental housing, which is open to everyone under a certain income threshold, with rents typically being at least 25 per cent below the market rate. As it also provides security of tenure, the model has not surprisingly become popular with the Irish public.

Those rents cover the cost of construction and maintenance, which means the development becomes an investible proposition for those willing to accept a return which is just a couple of percentage points above the inflation rate. The developments still need some exchequer support, either in the form of direct grants or lower land costs, but because it is seen as a State commercial investment, rather that just additional Government borrowing, it can raise other loans and has an easier passage through European state-aid rules.

The LDA has large sites around the likes of Colbert Station in Limerick, the docklands in Cork and new metro and Dart West stations in Dublin, which are in just the right locations to support more sustainable transport-orientated development

The Government intends to allow the LDA to sell a small percentage of new units to the private market, to bring a more diverse mix of residents in new developments and to raise additional capital for the agency to reinvest in more of these cost-rental projects. It will take a few decades for the full benefit to flow, as the stock of such publicly owned, fully paid-off properties takes time to grow. But once that happens these properties can then be used as collateral to raise yet more loans to build more of the same. It is a virtuous circle that gets us out of the boom-and-bust nature of housing construction that has been the cause of so many problems.

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The LDA has large sites around the likes of Colbert Station in Limerick, the docklands in Cork and new metro and Dart West stations in Dublin, which are in just the right locations to support more sustainable transport-orientated development. They also tend to include a lot of one- and two-bedroomed apartments, which is where there is the greatest need.

The biggest obstacle to increasing output from the agency again appears to be the Department of Public Expenditure, which seems unwilling to provide any further support. It appears to dislike the idea of tying up public money in such a long-term mechanism, which takes decades for the financing to bring in the full return.

This is where the European Housing Advisory Board parts company with the department. One of our central recommendations has been to envisage the financing of housing in a 50-year-plus time horizon, rather than relying on shorter-term speculative models.

The Government needs to back its agency, directing it to double its planned output in the next five years and provide the necessary firepower to make this innovative financing model really deliver.