Department ‘not keen’ on increasing cost-rental State funding, says Housing Agency

The cost-rental system, designed to provide homes for low and middle income workers, is facing growing viability challenges in Dublin, the State’s Housing Agency has said.

Increasing construction and maintenance costs are putting pressure on the ability to provide cost-rental homes at 25 per cent below market rates, the discount required by the State-subsidised scheme, Jim Baneham, head of the delivery with the agency, told Dublin City Council.

However, Baneham said the Department of Public Expenditure and Reform was “not keen” to increase the State subsidy for the system.

One of the State’s largest non-profit housing bodies, Clúid, in April scrapped plans to develop cost-rental homes in Cabra, in north Dublin. The approved scheme had become financially unviable due to rising maintenance costs which “mean that it would not be possible to deliver these as cost-rental homes with rents 25 per cent below market rate,” Clúid said.

Under the cost-rental system, operating since 2021, rents are based on the cost of building, managing and maintaining the properties. In Dublin, applicants must have an after-tax income under €66,000 and a State subvention of €150,000 is provided for the construction of each apartment. In return, rents must be at least 25 per below market values for the area.

Cost-rental was “still a very young scheme” in Ireland, Baneham said, with about 6,500 homes provided since 2021.

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“Going back to the very start of the scheme, we could deliver lower rents at that stage because we had lower costs.” However, he said costs of construction, and projected maintenance costs, had increased considerably since, which was putting pressure on the level of rents that could be offered and on the viability of schemes.

“The good thing about cost-rental is that it’s based on costs, the bad thing about cost rental is that it’s based on costs,” he said. “If you can bring down costs, you can also bring down rents. That’s the way the system works”.

It was his understanding that local authorities and the Department of Housing had sought an increase in the €150,000 subvention in Dublin, but “the Department of Public Expenditure and Reform, I know they have a longer name now, but effectively the Jack Chambers side of things, are not keen to allow that”.

The council’s head of housing Mick Mulhern said providing rents at 25 per cent below market values was particularly challenging in areas where the market rents were low. “We have to build a scheme and deliver that at 25 per cent below market, that can be really, really hard to do in places like Ballymun and Ballyfermot.”

To provide cost-rental housing, the council had to borrow the remaining costs not covered by the €150,000 subvention, Mulhern said.

“That presents a significant risk to us that we need to be very careful of managing,” he said. “So we just have to be very careful about walking headlong into large-scale cost-rental without making sure we’re managing those financial risks.”

Cllr Cieran Perry (Ind) said it was clear the solution was for the €150,000 subvention to be increased.

“Cost-rental shouldn’t have to be financially viable, because we’re building here for the future. We need to get that argument across to the Government, rather than them having that ideological mindset where all the maths have to add up – they never add up,” he said.

“The magic money tree is called out on occasions whenever the Government needs it and then when the likes of ourselves look for an increase in funding we’re accused of looking for a magic money tree that doesn’t exist.”