The Government has told Brussels officials that Nama’s plan to fund the construction of 20,000 starter homes in a bid to help tackle the housing crisis does not breach EU rules on state aid.

Builders have complained to the European Commission that the Budget 2016 proposal that the agency finance the construction of new homes on some of its sites is illegal state aid.

It is understood the Department of Finance has told the commission's competition law directorate that, as Brussels approved Nama's establishment in 2009, the housing plan does not break the rules.

Before setting up the agency, the Government had to ask the commission to clear it on state aid grounds.

The department believes that, as Nama’s housing plan does not go beyond the powers originally given to the organisation, it does not constitute illegal state aid.

Borrowing rates

EU law bans state aid where it distorts normal commercial competition. Builders argue that Nama’s plan breaks this rule because, as a State agency, it can borrow at far cheaper rates than private sector developers, giving it an unfair advantage.

The five complainants – New Generation Homes, MKN, David Daly, Michael O'Flynn and Paddy McKillen – also argue that the proposal goes much further than Nama's original purpose, which was to repair the banks' balance sheets.

Nama's plan will involve the agency lending money to developers to build 20,000 affordable homes over five years on sites that it controls. Its chairman, Frank Daly, and chief executive, Brendan McDonagh, have already said publicly this would be done strictly on a commercial basis.

Competition watchdog

The directorate-general for competition, the commission’s watchdog, is carrying out a phase-one investigation into the plan. Once this is complete, it can make a ruling or begin a longer, phase-two inquiry.

Nama has not commented on the complaint. The Department of Finance recently confirmed that it had contact with EU officials but added that it would not be appropriate to comment on an ongoing process.