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Investment funds buying whole estates is 'undesirable' and the government needs to act, says Leo Varadkar

Housing Minister Darragh O’Brien says a Bill he introduced in 2019 on the issue is “still valid”.

O'Brien told The Journal yesterday that he thinks his previous Bill on the issue is still workable and
O'Brien told The Journal yesterday that he thinks his previous Bill on the issue is still workable and "still valid".
Image: Shutterstock

INVESTMENT FUNDS BUYING up whole estates is “undesirable” and the government needs to act on this, according to Tánaiste Leo Varadkar.

“We can’t see this continuing,” he told reporters this morning. Varadkar said what can be done is being discussed at government specifically by Finance Minister Paschal Donohoe and Housing Minister Darragh O’Brien.

“Investment funds by and large to date have invested in apartment buildings before they were built or while they were still being built. And those developments might not have happened without those investment funds at all.

“But we have seen a change in recent months you know, buying whole estates or part of estates and it was never intended that they would enter into that part of the market and are taking away properties that could be bought by first time buyers or upgraders or even affordable housing bodies.

“And it’s working against the principle of home ownership and it’s something that we’ve discussed at Government and we’re going to have come up with a solution to that because we can’t see that continuing,” Varadkar said today.

Speaking During Leaders’ Questions, Sinn Féin’s Mary Lou McDonald home ownership is impossible for “ordinary people for the majority of homes on any estate on any day of the week”.

Taoiseach Micheál Martin said the sale of large tracts of new developments to investment funds is “is unacceptable and not consistent with government policy. 

He said Finance Minister Paschal Donohoe was meeting with his officials today to discuss what measures might be needed.

Martin said there is a role for REITs, also known as investment funds, but he expected them to be buying in high-density city centre areas, and not suburban estates.

However, first time buyers being locked out of the market by large investment funds buying up swathes of properties around the country is not a new problem.

Raised by current minister in 2019

In fact, the issue was raised by the current housing minister when he was in opposition in 2019, when he pointed out that of the 18,000 homes built that year according to the Department’s own figures, nearly 3,000 were purchased by so-called cuckoo funds.

Over the years ever since Ireland opened its doors to cuckoo funds, which have been dubbed as such as cuckoos elbow the eggs of other birds out of their nest and take the nest for themselves.

The analogy is these funds elbow first-time buyers, eager to get on the property ladder, out of the way before they have a chance to purchase.

While somewhat different to ‘vulture funds’ (these funds make money from distressed assets such as people in mortgage trouble by buying up the loans from traditional banks) there has been criticism over the favourable tax treatment both these investors avail of. 

RTÉ’s Prime Time reported last night on one such cases – Mullen Park housing estate in Maynooth, Co Kildare – where first-time buyers eager to get their foot on the property ladder were told that the rest of the development was no longer for sale to private buyers.

Why? Because Round Hill, a multinational investment company, is in discussions to buy 115 homes.

McDonald said in the Dáil today that what happened in Maynooth is “not an accident”.  “Sweetheart deals” through tax incentives that allows investment funds to “gobble up” homes meant for first-time buyers has allowed it to happen, she told the Taoiseach.

Meanwhile Social Democrats co-leader and Kildare TD Catherine Murphy said there is an urgency to deal with the issues now, stating that she would be willing to sit overnight in the Dáil to get legislation through that would stamp out such actions. 

With the country in the midst of a housing crisis, and with O’Brien admitting that the country needs to be building at least 33,000 houses per year to get on top of supply issues, people are left scratching their heads about why this is being allowed.

When O’Brien was in opposition, he was very critical of so-called “cuckoo funds” buying up entire housing developments.

Ring-fencing 

In fact, he brought forward his own private members bill in 2019 requiring 30% of all housing in new developments to be ring-fenced for first-time buyers. 

When asked what he plans to do to deal with the problem now that he is a minister, O’Brien told The Journal yesterday that he thinks his previous Bill is still workable and “still valid”.

“There is a taxation issue,” he said, stating that he is looking at how measures in the government’s Housing For All strategy plan due to be published in July might mitigate it. 

He said it will be an “all of government approach” which means his Fine Gael colleagues will have to get on board, and with taxation falling into the lap of the finance minister, it will be interesting to see what tax loopholes being availed of by these investment funds might be on the chopping board. 

O’Brien said that a number of changes need to made on the planning side, stating that he has been working on this over the last couple of months. 

“We do  need to look at tax treatments in this space,” he said, adding that he hopes to be able to report progress “in the coming weeks” on the matter. 

However, he added that there is no “silver bullet” to solve the issue. 

The minister said his position hasn’t changed since he was in opposition, and he does believe this needs to be legislated for.

Possible ban from cities

It is understood that he has asked officials in the Department of Housing to look at the options available with a view to bringing changes as part of new Planning & Development legislation – which will include significant planning reform which could see legislating for a specific ring-fencing of homes for first time buyers as per his 2019 Bill or possibly banning it entirely outside of city centres.

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“Is investment [funds] appropriate in certain areas and in certain parts of the city and for certain types of property, probably yes,” he said, but adding: 

“Is it appropriate that funds can come in and buy effectively the majority of the development – no it is not and I have said that before when I was in opposition and I think the same as minister for housing.”

So what plans are underway to finally fix the problem of large investment funds buying up the market and locking out young buyers? The minister is pointing to his Bill to amend the Planning and Development Act 2000 to provide for a specific percentage of lands in a private development to be limited for purchase by first-time buyers.

Speaking in the Dáil in October 2019 when he introduced the Bill to the House while he was Fianna Fail’s housing spokesperson, he said its aim was to “prevent the so-called cuckoo funds from crowding out first-time buyers out of the market in town and cities across the country”. 

O’Brien said the change in law is designed to “level the playing field for first-time buyers and keep the dream of home ownership alive” by earmarking a specific amount of units per development for first-time buyers.

The Bill still allows specific build-to-rent in appropriate places but prevents already-built developments from being sold in bulk to one purchaser. This means developments that boost supply are encouraged but purchases that simply swoop in on existing developments would be banned.

Real estate investment trusts, REITs, in the private rented sector are a small but rapidly expanding part of the housing sector, he said.

‘Crowding out first-time buyers’

While the Prime Time programme this week highlighted one case of one fund buying up properties, the minister had noted two years ago that there had been numerous cases in which already-built developments have been bought entirely by one fund.

“This is crowding out first time buyers and risks changing the character of areas of this country,” he told the Dáil.

How would it work? 

If the Bill was resurrected as a government Bill, it would allow local authorities to earmark a certain percentage of zoned land, up to 30% at the discretion of the local authority, for first-time buyers.

It will operate on a similar basis to the current Part V provisions, which ensure that 10% of units are set aside for social housing.

For example, a development of ten units must have up to three units available for first time buyers to purchase. Importantly, each local authority would also review its housing strategy to set out its requirements for rental units over the lifetime of its own housing plan. 

The Bill does contain exemptions to allow build-to-rent developments that would otherwise not be built to go ahead as part of an overall housing strategy agreed by each local authority, while preventing developments already in place being snapped up by investors at the last moment, said the minister in 2019.

“This way, investment in new built-to-rent will be allowed at the discretion of the local authority or indeed An Bord Pleanála but they must be earmarked for rental only as part of an overall housing plan adopted at each local authority level,” he added. 

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