Sustaining Progress: Social Partnership Agreement

Sustaining Progress: Social Partnership Agreement Second Progress Report to the Social Partners on the Implementation of the Affordable Housing Initiative Des Geraghty December 2004 1

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Contents: Summary 1. Broader Policy context 2. Mid-Term Review 3. Contact Group 4. Meeting the Target proposed by the Parties to the Pay Agreement 5. Timescale for Delivery/Alternative Strategies for Accelerated Delivery 6. Provision of Mortgage Finance/Protection of Public Investment 7. Communications 8. Conclusion Appendices A B C D Summary of Release of State Lands/Local Authority Lands to the Initiative. Current Examples of Eligibility Criteria for Affordable Housing. Harcourt Terrace Guidance Document for Developers. IHBA Outline of Current Availability of Broader Affordable Housing in the Greater Dublin Area. 3

Summary This Report sets out the significant progress that has been made in developing and progressing the Affordable Housing Initiative since my first report last June to the Parties to the Pay Agreement under the Mid-Term Review of the Sustaining Progress Agreement. In June, I reported that the main elements of the overall scheme had been developed with the potential delivery of 6,100 housing units in prospect, and 24 sites having been assigned to the Initiative. Since then, I can now report that very significant progress has been made on the Affordable Housing Initiative. Government has agreed to the release of a further series of local authority/state lands, which together with the increase in Part V activity and the more efficient utilisation of the land already provided, has the potential to yield an additional 4,296 units. The total potential yield is now over 10,000 units, meeting the target proposed by the parties to the pay agreement. The Affordable Housing Initiative is an injection of extra State resources, in the form of surplus or under utilised, land. It has not and will not detract from the funding available for existing social and affordable housing programmes. The announcement last July on the release of State lands also included additional lands to be supplied for specific social housing purposes, such as the proposal for housing the elderly in Portlaoise. Over 70 sites have now been assigned to the Initiative. The Initiative is now on track to begin to deliver housing units with visible evidence of this delivery beginning in 2005. The key focus for the next phase of the Initiative will be to significantly increase the affordable housing output through a combination of alternative fast-tracking strategies and proactive local authority management of those sites for which they have direct responsibility. In this context the valuable site at Harcourt Terrace was brought to the market on the 17 th of November 2004 as the first pilot for an exchange of completed (turnkey) housing units and/or zoned lands for housing. Initial feedback indicates that there is significant interest in this site. Other sites, particularly those in the Dublin area will also be brought to the market on this basis. The Department of the Environment, Heritage & Local Government has been engaged in urgent discussions with a number of financial institutions to put together a package of measures, which will enable buyers to purchase affordable housing units by way of mortgage finance provided by the commercial lending agencies. In this context, the recent announcement by Bank of Ireland of a new mortgage product designed in particular with affordable housing applicants in mind, is a very welcome development. I understand that the Bank has been engaged in extensive consultations with the Department of the Environment, Heritage and Local Government and a number of local authorities to ensure that the product meets the requirements of the various affordable schemes. The real value this product presents to first time buyers is in minimising the amount of deposit required. 4

While some of the details remain to be ironed out this positive engagement from the financial sector is very welcome. I understand that the Educational Building Society has also been working closely with the Department of the Environment, Heritage and Local Government with a view to entering the affordable housing mortgage market. I would encourage other lending institutions to follow the lead of Bank of Ireland. This development complements the recent stamp duty changes, which could result in potential savings of 9,000 and should help to make more readily available a largely untapped market to the first-time buyer. The public investment in the Affordable Housing Schemes will be supported by legislation to give effect to a claw back arrangement designed to prevent profiteering, facilitate the direct sale of affordable units by the builder to persons nominated by the local authorities, and will also open up the affordable mortgage market to commercial lending agencies. Now that all of the main components of the Initiative are in place, a simple communications strategy aimed at those who are eligible needs to be brought forward as a priority. In the first instance this report and other guidance documentation are being made available on the Department of the Environment, Heritage and Local Government website (http://www.environ.gov.ie). This central source of information will be continuously updated and linked to relevant local authority websites, which will identify access points and provide updated information at local level, aimed at potential beneficiaries. My third report will monitor the effectiveness of the delivery mechanism using the local authority structure, alternative fast-tracking strategies, and the communications strategies being deployed both centrally and within each local authority structure. I will also be engaging with relevant bodies in relation to other direct costs incurred by affordable housing applicants, such as conveyancing costs. 5

1. Broader Policy context 1.1 The Affordable Housing Initiative is one scheme within the overall development of housing policy. Other schemes are being progressed, specifically targeted at those on lower incomes. Following the identification by the Social Partners of Housing and Accommodation as one of the ten Special Initiatives to be undertaken during the period of Sustaining Progress, NESC have examined all aspects of housing policy and their report will be published shortly to further inform the development of housing policy. The recent stamp duty changes and increases in social housing provision announced in the context of budget 2005 are also welcome and will help to increase the availability of social and affordable housing. The additional capital resources for housing in the Budget represent an increase of 20%, on the expected outturn for 2004. As a result of these improved funding arrangements, the Minister for the Environment, Heritage and Local Government has stated that 5,500 new local authority houses can be started in 2005, compared to an average of 4,700 in the last three years. 1.2 The new rate structure for stamp duty will apply to legal instruments relating to properties executed on or after 2 December. This will result in the following stamp duty savings for first-time buyers of second-hand property at the range of prices shown below: Property prices Savings 150,000 Nil 200,000 6,000 232,000 6,960 250,000 7,500 300,000 11,250 308,000 11,550 2. Mid-Term Review of Sustaining Progress 2.1 My first assessment on the implementation of the Affordable Housing Initiative was formally presented to the ICTU Executive meeting held on 16 June 2004, in the context of the mid-term review national pay talks. Since then I have presented my report to the Business/Employer Pillar and the Housing Forum. I also met with the Housing Sub-committee of the County and City Managers Association on 1 October to highlight the continuing importance of the Initiative, and to highlight the need for all projects announced to date to be progressed as a matter of priority. As part of my discussions with the Building industry, they have provided me with details of houses in the greater Dublin area that they regard as affordable. I am attaching this list for information (Appendix D). 2.2 The report sets out the background to the Sustaining Progress Housing Initiative with the objective of increasing such houses by 10,000 units, and of targeting the Initiative at those who in the past would have expected to 6

purchase a house from their own resources but are unable to do so in the current housing market. 2.3 A fundamental principle, which continues to underpin the Affordable Housing Initiative is that it does not impact on the Exchequer or General Government Balance and would be additional to funding which is available for the Local Authority and other social and affordable housing programmes. 2.4 The main elements to report in my June 2004 mid-term assessment included the potential delivery of 6,100 units with 24 sites having being assigned to the Initiative, agreement on a delivery model, and agreement in principle on the eligibility criteria for the Initiative. 3. Contact Group 3.1 The Contact Group 1 on the Affordable Housing Initiative, which is chaired by the Department of the Taoiseach, and comprising of Senior Officials from a number of Departments and Offices, continues to play an important role in developing and progressing the implementation of key aspects of the Initiative. The Group has met on 12 occasions since its establishment in 2003. Implementation teams are also in place in the Department of the Environment, Heritage & Local Government and project managers at local level are working with great urgency to ensure the success of the Initiative. I have been informed that their key priority for the next phase will be on ensuring the accelerated delivery of housing units. 3.1 In its most recent work the Group has been focusing, in particular on the need to identify remaining sites so as to reach the target figure of 10,000 housing units as proposed by the parties to the pay agreement, and on the need to speed up the process by examining alternative strategies which might deliver units more quickly. 4 Meeting the Target proposed by the Parties to the Pay Agreement. 4.1 Identifying potential sites for the Initiative was the first important step in the Affordable Housing Initiative. Following the first progress report (June 2004) substantial progress has been made in this area. In summary, all sites so far identified, together with Part V 2 affordable units have the current potential to deliver over 10,000 units, (Appendix A), meeting the target proposed by the parties to the pay agreement. 1 Membership is comprised of senior officials from D/Taoiseach, D/Environment, Heritage & Local Government, D/Finance, Office of Public Works, and the Central Statistics Office. 2 Part V of the Planning and Development Act requires that up to 20% of land zoned for residential developments or a mix of residential and other uses, is to be reserved to meet social and affordable housing needs and be made available to the local authority at the existing use value rather than development value. 7

4.2 Since June 2004 the Government have agreed to the release of further lands in the ownership of Government Departments, Local Authorities and other State Bodies in Clare, Cork, Dublin, Galway, Kerry, Kildare, Limerick, Meath, Sligo, Wicklow, and Wexford. 4.3 As a central component to the latest Government decision on the release of State lands to the Initiative, the Tanaiste and Minister for Health and Children has agreed to provide a range of Health Board lands which have the potential to yield 1,400 affordable housing units. Those Health Board lands relating to the greater Dublin area will be the subject of joint venture proposals providing a unique opportunity for the replacement of existing health care facilities with modern equivalent facilities at no cost to the exchequer. These joint venture proposals in respect of the greater Dublin area sites will require further detailed consideration. 4.4 The various local authorities have been asked, in examining the additional lands, to ensure that there is a demand for AHI housing units in the area, to maximise densities where possible and to ensure the quickest possible delivery of affordable housing units. 5. Timescale for Delivery/Alternative Strategies for Accelerated Delivery 5.1 Careful consideration has been given to the best methods of delivering this initiative, so that there are no undue delays. These processes, while involving a time element, are required to ensure the effective delivery of housing and the creation of housing in good quality environments. Through the project management arrangements, local authorities are ensuring that to the greatest extent possible that these processes are paralleled, so that progress in construction can be expedited. 5.2 In relation to over 70 individual projects on the lands identified to-date, with a current potential yield of over 10,000 units (including Part V affordable units), the timescale for delivery and the precise number of units to be delivered on each site is being determined in planning the projects and determining suitability for fast-tracking options. The projects involved vary in terms of key site characteristics such as zoning status and servicing. Allowance must also be factored in for the procurement process to deliver the projects through competitive tendering and for obtaining necessary planning permissions. The Construction Industry Federation have indicated that the normal time taken to construct housing units from the identification of the land through to completion of the first housing units (assuming no unforeseen delays) is over four years. In this context I will be pressing for the greater use of the fasttracking mechanisms. 5.3 Construction has commenced on the Finglas road site. A number of other sites have been advertised for expressions of interest, including the St Bricins military hospital site, which was advertised as part of the O Devaney Gardens redevelopment. The request for proposals for the St Bricins site issued in early December 2004. The Jamestown Road and Infirmary Road projects were 8

advertised for expressions of interest in late September 2004. There is active interest in these four developments. Collectively, it is estimated that these four projects have the potential to yield over 700 affordable housing units to the Initiative. 5.4 The latest information in relation to Part V affordable housing units suggests a greater than anticipated yield over the 2005-2006 period. In July 2004 the Government agreed to pursue alternative strategies for the early delivery of affordable housing units. The land swap option proposes that high value land in State ownership be exchanged with builders/developers in return for the delivery of a higher unit output of affordable housing on a site or combination of sites owned by that developer. 5.5 The valuable Harcourt Terrace site, in the Dublin City Council area, had been proposed as a pilot project to test this approach and was advertised for expressions of interest on 17 November 2004. Dublin City Council are seeking proposals for the exchange of the site at Harcourt Terrace for completed (turnkey) housing units and/or zoned lands for housing within the greater Dublin area (See Appendix C). Latest indications suggest that there is significant interest in this site. 5.6 The first report outlined the range of criteria under which designbuild projects proposals are typically assessed. These include Design/Technical Merit, Programme/Method Statement and Price. The balance between these factors is such as to ensure selection of the proposal that represents an optimum balance between quality of design and accommodation and value for money and not just the lowest price. 9

5.7 The Finglas Road, Infirmary Road and Jamestown Road AHI projects, which are seen as model schemes, set the standard for future development. They offer high quality, architecturally innovative, contemporary solutions, responsive to their context and sustainable over their lifetime. In all cases there is an emphasis on encouraging a sense of community and ownership. 6. Provision of Mortgage Finance/Protection of Public Investment 6.1 The Department of the Environment, Heritage & Local Government has been engaged in urgent discussions with a number of financial institutions to put together a package of measures, which will enable buyers to purchase affordable housing units by way of mortgage finance provided by the commercial lending agencies. 6.2 In this context, the recent announcement by Bank of Ireland of a new mortgage product designed in particular with affordable housing applicants in mind, is a very welcome development. I understand that the Bank has been engaged in extensive consultations with the Department of the Environment, Heritage and Local Government and a number of local authorities to ensure that the product meets the requirements of the various affordable schemes. The real value this product presents to first time buyers is in minimising the amount of deposit required. While some of the details remain to be ironed out this positive engagement from the financial sector is very welcome. I understand that the Educational Building Society has also been working closely with the Department of the Environment, Heritage and Local Government with a view to entering the affordable housing mortgage market. I would encourage other lending institutions to follow the lead of Bank of Ireland. This development complements the recent stamp duty changes which increased the threshold at which stamp duty becomes payable by first time buyers of second half properties from 190,000 to 317,500, which should help to make more readily available a largely untapped market to the first-time buyer. 10

6.3 The public investment in the Affordable Housing Schemes will be supported by legislation to give effect to a claw back 3 arrangement designed to prevent profiteering, will facilitate the direct sale of affordable units by the builder to persons nominated by the local authorities, and will also open up the affordable mortgage market to commercial lending agencies. 7. Communications 7.1 A comprehensive guidance document for local authorities on developing AHI projects has been prepared by the Department of the Environment, Heritage and Local Government and local authority officials for the purpose of outlining the appropriate procedures that should apply to the development of an AHI project and to ensure efficient, early and effective delivery of the Initiative. The guidance document will be formally launched at a seminar involving all relevant local authorities in January 2005. 7.2 Now that all of the main components of the Initiative are in place, a simple communications strategy aimed at those who are eligible needs to be brought forward as a priority. In the first instance this report and other guidance documentation are being made available on the Department of the Environment, Heritage and Local Government website (http://www.environ.gov.ie). This central source of information will be continuously updated and linked to relevant local authority websites, which will identify access points and provide updated information at local level, aimed at potential beneficiaries. 8. Conclusion 8.1 It is hoped that the implementation of the Affordable Housing Initiative, in conjunction with those other elements of Government policy will ensure greater choice in the housing market between rental, purchase and social and affordable housing, and help bring house prices more closely into line with peoples expectations. 8.2 My third report will monitor the effectiveness of the delivery mechanism using the local authority structure, alternative fast-tracking strategies, and the communications strategies being deployed both centrally and within each local authority structure. I will also be engaging with relevant bodies in relation to other direct costs incurred by affordable housing applicants. 3 Where a local authority sells houses at a discount from the open market value, a clawback applies. It is an anti-profiteering mechanism and is payable if the house is resold before the expiration of 20 years from the date of the purchase. The person selling the property pays to the housing authority a percentage of the proceeds of the sale. This percentage is equal to the percentage discount allowed by the local authority on the original sale of the house where the house is resold within the first ten years. The amount payable is reduced by 10% in respect of each complete year after the 10th year during which the person who purchased the property has been in occupation as his or her normal place of residence. 11

Appendix A Summary of Release of State/Local Authority Lands to the Initiative Affordable Housing Initiative and Part V Timeframe for Housing Yield Local Authority Area 2004-06 Post 2006 Total Clare 22 22 Cork 460 820 1,280 Cork City 410 300 710 Cork County 50 520 570 Dublin 710 3,210 3,920 Dublin City 620 920 1,540 Dun Laoghaire Rathdown 270 270 Fingal 90 640 730 South Dublin 1,380 1,380 Galway 939 939 Galway City 54 54 Galway County 885 885 Kerry 195 195 Kildare 150 550 700 Limerick City 50 50 Meath 100 350 450 Sligo 130 130 Waterford 100 100 12

Local Authority Area 2004-06 Post 2006 Total Wexford 60 60 Wicklow 50 50 Part V Affordable (countrywide) 2,500 2,500 Total 4,282 6,114 10,396 Note: The potential yield from sites depends on site characteristics, housing mix, other facilities and sustainable development, i.e. in terms of local development and in terms of meeting peoples' needs. The final number of units will therefore be determined through the planning process. 13

Appendix B Sustaining Progress Affordable Housing Initiative Background Paper on Eligibility Criteria under existing housing schemes Introduction 1. It is the intention that the initiative will be targeted at those who in the past would have expected to purchase a house from their own resources but find that they are unable to do so in the current market. As part of the work with the parties to the pay agreement to define the precise terms of the initiative, examination will have to be given to the eligibility criteria to apply to the beneficiaries and the appropriate targeting of the initiative. Consideration of this issue will have to have due regard to the positioning of the initiative within the broad range of existing schemes. 1999 LA Affordable Housing Scheme 2. The Affordable Housing Scheme was introduced in March 1999. Under this scheme the local authority provides new houses at cost price to eligible purchasers. These purchasers also qualify for a mortgage from the local authority of up to 97% of the cost of the dwelling. The maximum local authority loan is 165,000. In some instances, the Department provides the local authority with a site subsidy so that the house can be provided at a discounted price. 3. The eligibility criteria for Affordable Housing Schemes 4 require that an applicant is in need of housing and satisfies an income test, or is approved for local authority housing, or is a tenant or tenant purchaser returning their house to the local authority, or is a tenant of more than one year of a house provided under the Capital Loan and Subsidy Scheme which is being returned to the local authority. 4. The income test requires that a single income household gross income does not exceed 36,800 and in the case of a two income household, that two and a half times the gross income of the principal earner plus once the gross income of the subsidiary earner does not exceed 92,000. 4 Same eligibility criteria apply to shared ownership, where the local authority has an equity stake in the house. The purchaser undertakes to purchase at least 40% share of the house initially and rents the remaining equity from the local authority. 14

Example of 1999 Affordable Housing Scheme Single earner: Income of 36,800, qualifies for maximum 165,000 loan which would purchase a house at 170,000 net of any additional deposit and/or site subsidy payable. Two earners: Combined income of about 47,000 would meet maximum eligibility criteria and qualifies for maximum 165,000 loan which would purchase house at 170,000 net of any additional deposit and/or site subsidy payable. Part V Affordable Housing 5. Under the provisions of Part V of the Planning and Development, Act 2000 as amended, local authorities can reserve up to 20% of land zoned for residential development (or up to 20% of the residential element of land zoned for a mix of residential and other uses), to meet the identified needs for social and affordable housing. 6. The Act sets out the eligibility criteria, which will apply (section 93) and also empowers local authorities to develop a scheme, which determines the order of priority, which will be accorded to eligible persons (section 98). Copies of schemes from Dublin City Council and Fingal County Council are attached. 7. Essentially eligibility for Part V affordable housing is subject to the person being in need of accommodation and their income not being adequate to meet the mortgage repayments on a market value house appropriate to his or her accommodation needs because such payments would exceed 35% of that person's annual net income. In the case of a double income household, half the net income of the second earner is taken into account in making this assessment. 8. Consequently, whether a person is eligible or not depends on whether they could afford houses on the market in the local authority area which would meet their housing needs, and their level of priority for allocation of an affordable house depends on the particular scheme of allocation devised by the local authority in line with the general principles set out in section 98 of the Planning and Development Act, 2000 as amended. Examples of how this operates are set out in the box overleaf and a table which provides more information for different levels of income is also attached. 15

Example of Part V: Affordable Housing Scheme To qualify, the person s income must be insufficient to purchase a house suitable to their needs in that local authority area (ie it would cost more than 35% of their income net of tax and PRSI) Example A: Where house prices in the area which would meet their needs are generally around 200,000 Single earner (2 person household married): with a gross income of less than 34,400 would qualify, but over that amount would not qualify Two earners (2 person household married): with a gross household income of less than 47,200 would qualify, but over that amount would be ineligible. Example B: Where house prices in the area which would meet the household s needs are generally around 250,000 Single earner (2 person household married): with a gross income of less than 48,200 or less would qualify, but over that amount would not qualify Two earners (2 person household married): with a gross household income of less than 64,000 would qualify, but over that amount would be ineligible. Housing Division Department of the Environment, Heritage and Local Government December 2004 16

Eligibility for Part V: Affordable Housing Scheme Table 1.1 Average House Price (Market Value) One Earner, Two Person Household (married) Income level at which household is eligible for Part V affordable housing based on average market price in column 1* Total Gross Household Income Total Net Household Income 130,000 < 20,400 < 19,144 140,000 < 22,400 < 20,624 150,000 < 24,400 < 22,104 160,000 < 26,400 < 23,584 170,000 < 28,400 < 25,064 180,000 < 30,400 < 26,544 190,000 < 32,400 < 28,024 200,000 < 34,400 < 29,504 210,000 < 36,400 < 30,984 220,000 < 39,000 < 32,468 230,000 < 42,100 < 34,139 240,000 < 45,100 < 35,807 250,000 < 48,200 < 37,531 260,000 < 51,200 < 39,203 270,000 < 54,200 < 40,871 280,000 < 57,200 < 42,543 * if the average house price on the market suitable to the household s need is 130,000, then the gross household income would have to be less than 20,400 (which is equivalent to net income of 19,144 under Part V) if the household was to be considered eligible for inclusion on a part V affordable housing list. With gross income of under 20,400 the mortgage outgoings would be more than 35% of the household s net income.. Table 1.2 Average House Price (Market Value) Two Earners, Two Person Household (married) Eligibility under Part V if more than (>) 35% of Net Income (sum of net income of Earner 1 + half net income of Earner 2) is required to service Mortgage) Earner 1 Earner 2 Gross Annual Income Gross Annual Income Total Gross Household Income 130,000 15,800 12,900 < 28,700 140,000 16,300 14,600 < 30,900 150,000 17,800 15,900 < 33,700 160,000 19,300 17,100 < 36,400 170,000 20,200 18,600 < 38,800 180,000 22,000 19,700 < 41,700 190,000 23,800 20,800 < 44,600 200,000 25,000 22,200 < 47,200 210,000 26,300 23,600 < 49,900 220,000 27,800 24,900 < 52,700 230,000 29,900 26,400 < 56,300 240,000 31,700 28,000 < 59,700 250,000 33,900 30,100 < 64,000 260,000 36,100 32,300 < 68,400 270,000 38,300 34,400 < 72.700 280,000 40,500 36,500 < 77,000 Assumptions Loan to Value Ratio: 92%, Mortgage Term: 25 years, Variable Interest Rate: 4% 17

Appendix C Harcourt Terrace Guidance Document for developers. 18

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