Now that the dust has settled, let’s look back on the big housing announcements from Ireland’s 2018 budget. While overall, the budget received a lukewarm reception from employers and the construction industry as a whole, there’s more good news for housebuilders.
The biggest announcement for housebuilders was the creation of House Building Finance Ireland (HBFI), a new government entity that will provide loans to builders who otherwise struggle to secure funding via the banks. This announcement comes hot on the heels of a report by RSM and the Construction Industry Federation showing that 70% of construction SMEs struggle to secure finance.
Funding for the HBFI will be sourced from the Ireland Strategic Investment Fund (ISIF), which will be managed by Nama. €750 million of funds will be made available to housebuilders.
Details of this new funding scheme are thin on the ground, although it’s expected that HBFI will loan around 80% of the cost of construction, up from the 60-75% housebuilders can expect to secure from the banks.
Interest rates are therefore expected to be at around 8%, about 1% higher than the main banks, reflecting the extra risk involved. These figures could change if the scheme proves successful.
Funding will be prioritised for sites with planning permission, where construction is ready to begin immediately. Housebuilders should expect the scheme to start in 2018.
Elsewhere, social housing received a significant boost in funds, with an extra €500 million pumped into the direct building programme, and a growth in Rebuilding Ireland’s social housing target to 50,000 from 33,500. Infrastructure spending is also set to increase, with more money set aside from large projects as well as general transport spending.
Overall, these measures point to a concerted effort to boost housing supply through both the private and the public sector.
With this extra funding unlocked, the government are also getting tougher on landowners with vacant sites. The vacant site levy will increase to 7% for the second and subsequent years a registered site is left vacant, up from the 3% charged during the first year. Capital gains tax relief, which was previously applied seven years after acquisition, will now be available after four years, providing another incentive to transform vacant sites into new builds.
Clearly, this development won’t be as a warmly received by landowners, but it may be key to improving housing supply.
On the demand side, the Help to Buy scheme has been retained, despite doubts over its future.
The additional funding for housebuilders that’s being made available through the HBFI is undoubtedly the headline news for the construction industry. We don’t yet know exactly how funding will be allocated, or how red-tape-heavy the application process will be, but at present, the HBFI looks to be extremely promising.
It’s worth noting that most of the 2018 Budget announcements dealt with only the short term. Long term house building strategy is still lacking.
Overall, housebuilders should review their funding options in anticipation of the HBFI, as well as calculating the impact of the vacant site levy, where applicable. Housebuilders in Ireland can be more optimistic about 2018 and beyond.