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How social housing providers and first-time buyers became accidental rivals in a squeezed market

First-time buyers are increasingly competing for new homes with AHBs, non-profit providers of social homes and key bodies for the Government in fixing the housing crisis

Caroline Donohoe got a vivid demonstration of the fierce competition in the Irish housing market when she tried to take a photograph of a showhouse she was viewing last year.

Donohoe and her partner, Paddy Coscoran, had put their names down on a register of interest for the houses in the nearly 350-house development. Before a house was available to view, they were told they could buy one straight off the plans, but they wanted to wait until they could view a showhouse.

“It was less a show house than it was an open house; I remember trying to take videos of the way they had decorated the stairs and you couldn’t even see the stairs because there were so many people,” she said.

The homes in the estate were selling fast – too fast for the couple to be able to make a bid on the semidetached house they were looking for.

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What Donohoe and Coscoran didn’t know was that their competition wasn’t only from other first-time buyers but, in large part, from approved housing bodies (AHBs) and Kildare County Council.

In fact, by the time they had made it to see a show house, almost half of the homes in the development had been taken off the market.

Their experience is not uncommon, but getting a handle on the scale of the matter is not easy.

AHBs are independent, not-for-profit organisations that provide managed rented social housing. For the Government and the State, they are an important provider of social housing across the country.

But the Department of Housing cannot say how many houses AHBs are buying from the market, as opposed to building from scratch.

At a time when the Government should be rapidly increasing the building of all types of homes, housing policy allows AHBs and local councils to acquire a large share of the supply of new homes – and out-compete first-time buyers.

The Government has pumped billions, and will pump many billions more, into ending the housing emergency in Ireland. The goal is to fix the problem by stimulating the building of private houses, social and affordable houses, and apartments.

However, in recent months there have been indications that not everything is working precisely as intended.

A recent analysis by the Banking and Payments Federation, first reported by the Business Post newspaper, found that private homebuyers bought just 523 of the 9,100 apartments put up for sale in Dublin last year – just 6 per cent of the total. The remainder were bought for private rental sector investors and State bodies, who acquire homes to provide social and affordable housing.

Although that analysis was focused solely on apartments in Dublin, it appears to be a feature of the construction of houses nationwide as well, where there is evidence of significant bulk purchases of private houses by AHBs and local councils for social housing.

To some extent that is by design. On top of the houses they build themselves, AHBs are entitled to buy some houses on the open market, either by purchasing the homes outright or by funding the construction of housing estates that will go towards social housing needs.

Such arrangements are called “turnkey” developments where homes provided to an AHB are ready for the tenant to simply turn the key and move in.

In response to a query, the Department of Housing said that “in many cases turnkey arrangements are highly appropriate in terms of delivery timescale and cost”, especially in situations where a local authority might have no land suitable for social homes.

In such situations, the department said: “Approved Housing Bodies are often involved from inception and the houses would not be built without the involvement and funding of the local authority.”

But, according to several experts, AHBs might not only be involved from inception, but may also be making purchases later in the construction stages as well.

If the number of such purchases is high, it could have the effect of sharpening the competition for the small supply of private houses.

In Donohoe and Coscoran’s case, some of the houses in the development they were looking at had been earmarked for social housing long before the construction began. Some of those were under the developer’s Part V obligations, under which by law a builder has to provide 10 per cent of all housing for social and affordable housing. In this case it amounted to 34 houses.

Tuath, one of the country’s biggest AHBs, took control of those houses, which is a normal practice in the provision of social and affordable housing.

But, in addition to that, Tuath bought 50 more houses through what is known as a cost-rental equity loan, which were then allocated to residents through a lottery system.

The net effect of so many houses is a social benefit to a great many families and households, of course. Tuath was able to offer houses for rent to social tenants at prices between €1,130 a month and €1,300. That’s a roughly 30 per cent reduction below average rents in Newbridge, benefitting struggling tenants.

On top of that, Kildare County Council leased another 86 units, bought by Ardstone Homes, for its own social housing provision.

However, the Government’s provision of both private and social housing is falling behind even its own targets and this puts an added strain on the already inadequate supply.

This raises the question: just how many houses are AHBs buying rather than building?

It’s a question the Department of Housing seems to struggle to answer.

Take the total supply of social housing in 2022, according to the department’s own data. In that year, the State delivered 7,433 social homes through various programmes.

In a parliamentary question in April 2023, Minister for Housing Darragh O’Brien said 1,976 of those were own-build and 4,000 were turnkey, indicating that turnkey are the largest proportion of social housing delivery.

So how many of those turnkey houses were the AHB or local authority involved with “from inception”, and how many were bought at a later stage in the process, when the houses were closer to being put on the open market?

The number might be a bit higher than anyone imagined. One analysis seen by The Irish Times shows that in 2022 as much as 70 per cent of approvals for AHB housing was for turnkey acquisitions, as opposed to turnkey construction, which made up about 15 per cent.

That proportion was lower in 2023 – 50 per cent turnkey acquisition versus about 30 per cent turnkey construction – but it still means that for several years the AHB sector has been building far fewer houses than it has been buying.

That may only account for a few thousand houses over the past few years, but in the context of a dire undersupply of new homes, the effect on the market may be significant.

Sinn Féin’s housing spokesman Eoin Ó Broin said this kind of buying was distinct from the trend of large institutional investors buying houses or apartments to rent at market rates.

“Approved housing bodies are delivering social and affordable housing, and that’s a good outcome, it’s not the same as institutional funds buying apartments and renting them out at unaffordable prices,” he said.

“What I’d like to see is local authorities and AHBs ramping up their direct delivery on social and affordable homes to reduce their over-reliance on turnkeys, which in the medium to long term isn’t sustainable,” he said.

Rory Hearne, a lecturer in social policy at Maynooth University who is also running as a candidate for the Social Democrats in the European Parliament elections this year, said that “the Government’s overall social housing strategy has been overly dependent on the purchase of new building housing from the market – from developers – and I have been questioning that for a long time”.

“The fundamental role of social housing and of public housing is that it’s supposed to meet housing need and be a counterweight to the market,” he said.

“The State, via AHBs, is buying vital new social housing stock, but one potential negative impact is that it could be potentially outbidding and locking out homebuyers in a similar fashion to institutional investors,” he said, not to mention having an inflationary impact in the market.

For Brian O’Gorman, chief executive of Cluid, one of the country’s biggest AHBs, it is right and proper that there should be a mix of tenure types in any new development, with both private owners and social and affordable tenants living together.

After all, the houses that weren’t put on to the private market in Newbridge didn’t simply evaporate – 84 went to people waiting on Kildare County Council’s social housing list, and 50 went to people who couldn’t afford a mortgage.

But he’s aware that in the current climate, with housing levels so depressed, there can be the view that purchases of houses for social and affordable homes can be viewed as direct competition with first-time buyers.

“We have to defend this on multiple occasions: the idea that we are taking homes intended for first time buyers, so keeping people in scarce and costly private rental accommodation,” he said.

“And we’re also quite aware that we’re facilitated and funded to do what we do by the general taxpayer – I’ve had meetings with councillors and the general public who will tell me things like, ‘My daughter is living with me, she has a good job, and still she can’t afford to buy.’”

He said he believes that one way to remedy the issue is to ramp up the delivery of cost-rental housing, providing affordable rented accommodation to people on middle incomes, which expands the options for people who are above the income threshold for social housing but would otherwise struggle to secure a mortgage.

Ultimately, he said, it’s an issue that ought to recede as the Government begins to meet, and exceed, its housing targets. In the meantime, AHBs will have to continue their job of providing social housing.

“It’s a difficult balance, and ultimately we have a social mission to fulfil and we will fulfil it,” he said.

For Donohoe and Coscoran, the strong competition in Newbridge in the end meant they couldn’t find the house they were looking to buy, so they decided to look elsewhere.

They got a stroke of luck when Coscoran, who works in Kildare town, noticed builders clearing a site near the town and put their names down for a house in the development. Soon after, according to Residential Tenancies Board figures, about 80 of the 187 houses were taken up by AHBs and other buyers.

And it’s possible this situation could grow even larger, according to David Hall, the mortgage debt campaigner who has set up his own approved housing body, iCare.

Hall said he has had multiple approaches from developers to fund them on sites, and said that developers are “increasingly turning to AHBs not just to sell houses but to seek funding as part of arrangements that see the AHBs buy the houses outright”.

He sees this as a consequence of an unintended flaw in the Government’s housing policy.

“Somewhere along the line the Government policy that was supposed to create two tracks of delivery resulted in the two tracks getting crossed for a period of time, and that minimises the number of houses available,” he said.

“If an AHB is going to build a thousand homes, the department wants it to build its own thousand homes, not take a thousand homes from a private developer.”