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Dublin: 20°C Saturday 13 August 2022

'Exceptionally unlikely' that Govt could bend EU spending rules to build more homes

Sinn Féin has said flexibility around fiscal rules is necessary to address the housing crisis.

Image: Leah Farrell

FINANCE MINISTER PASCHAL Donohoe has said “it’s exceptionally unlikely” that Ireland could bend EU rules on government spending in order to put more money into building homes.

Speaking at a press conference on Thursday, the minister was asked if Ireland could look for an exemption from state aid rules to allow for more houses to be built. 

“It’s exceptionally unlikely that would be granted because of the size and scale of NAMA and the role they are playing in the delivery of homes,” he said.

The State’s National Asset Management Agency (NAMA) made an average €30,000 profit from each of the 13,000 homes whose construction it backed since 2014.

NAMA was set up to bail out Irish banks following the financial crash. It is due to cease operations in December 2025. 

Speaking to reporters during the week, the minister said NAMA had to operate commercially to satisfy EU state aid rules.

“Those were part of the conditions that we had to meet to establish this organisation,” he said.

“It is part of the state aid permission that underpins the existence of NAMA, there is a requirement that an organisation like this is commercially viable, that its activity be commercially viable, that is part of the conditions that we needed to meet in order for this organisation to be put in place and to be functioning for as long as it has,” he said.

In an interview with The Journal last year, Housing Minister Darragh O’Brien was asked whether there could be some sort of emergency opt-out from the EU rules in the future. 

He responded: ”Yeah, there’s certainly an argument for that and we’re dealing with European colleagues on a regular basis on that specific point.” 

The European Union has rules on government spending that Ireland, as a member, has to follow. Those rules have been temporarily suspended because of the pandemic and accompanying economic crisis.

Since then there have been many calls, including from Sinn Féin, for the same flexibility to be shown when dealing with the housing crisis. 

Kim van Sparrentak, a Dutch MEP, who acted as rapporteur for the affordable housing report produced by the European Parliament in 2020, also told the Business Post last year that European State aid rules should be changed to specifically allow states to increase investment in the delivery of social housing.

A report she carried out found that European fiscal policies were restricting member states from investing sufficiently in housing provision and thus exacerbating the affordability crisis.

As reported in a The Journal FactCheck on the same issue, the European Union has had fiscal rules since the introduction of the Stability and Growth Pact in the late 1990s.

Ireland, like every EU member state, is supposed to aim for debt below 60% of GDP and a yearly budget deficit below 3% of GDP. These figures are actually written into the EU treaties.

To support these headline objectives, the rules put a cap on overall public spending. Essentially, governments aren’t supposed to increase public spending from one year to the next above the rate at which their economy is expected to grow in the medium term.

Dr Eddie Casey, chief economist at the Irish Fiscal Advisory Council, told The Journal previously that there is unlikely to be any scope to invoke an exception in the fiscal rules based on the argument that there is a crisis in housing in Ireland.

He said while deviations from the domestic Budgetary rules are allowed, it is only for an “unusual event outside the control of the State that has a major impact on the financial position of the general government or for a period of severe economic downturn”.

He said the use of such clauses has been very limited, such as the recent example of the include the Covid-19 pandemic.

EU Oversight

Speaking at the same press conference on Thursday, an official from NAMA said there is “stringent oversight from the European Commission under state aid”.

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“When we make a decision to fund a development, its under a commercially viable basis, and we have to justify that to the European Commission. So in that basis, we’re no different to Glenveigh or Cairn Homes or Ballymore or any other big major builder, which is operating in a residential area. It has to make sense commercially,” he said.

Housing spokesperson for Sinn Féin Eoin Ó Broín told The Journal that there is nothing preventing the Government from spending more money to build more public housing and could do so in full compliance with the rules, adding that it is a political choice.

In relation to fiscal rules, he said the same spending flexibility that was shown during the pandemic should be shown when it comes to housing, adding that Government should stop giving taxpayers money to private developers to deliver homes.

He also hit out at the Taoiseach for criticising the pace of land transfer from state agencies to the Land Development Agency.

A memo went to Cabinet on Thursday that noted the progress of the transfer of State lands to the LDA and requested all departments identify further potential sites within the State’s property portfolio that would be suitable to support housing delivery.

The purpose of this specific programme is to ensure that every effort is made to identify State lands and properties which can be re-purposed to increase the supply of housing over the long-term

Ó Broín said that the slow pace of utilising land was of the Government’s own making, stating that when the LDA legislation passed through the Oireachtas, Sinn Féin and others warned that without comprehensive compulsory purchase order powers, the new agency would have limited ability to acquire and develop underutilised public land.

“This view was shared by agencies such as NESC, ESRI and TASC. Despite repeated requests for government to amend the LDA Act to make it an effective active land management agency, Minister Darragh O’Brien chose to give the agency limited ransom strip CPO powers.

“This is the reason why, four years on from its creation, the LDA has proved ineffective with respect to ensuring best use of public land, ” he said, stating that even when the LDA does acquire land, such as in Shanganagh, Dún Laoghaire, developments are still taking far too long.

“If Micheál Martin is frustrated with the lack of progress on land acquisition and affordable housing delivery, then he should be frustrated with himself, his Housing Minister and his government,” he said.

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