EU inquiry could put Nama construction plans on hold

Brussels could demand that the National Asset Management Agency (Nama) suspend its plans to build 20,000 houses while officials investigate claims that the move breaches EU state aid rules.

Nama proposes to build 20,000 starter homes in the Republic over the next five years as part of a Government plan to tackle the housing crisis, an issue that is set to feature in the general election campaign.

However, there is a possibility that the European Commission could order that Nama suspend those plans while it investigates a complaint brought by a group of builders. They allege that allowing the agency to engage in home construction is illegal state aid and could slow the construction of the 120,000 new homes needed to end the shortage.

DG Comp, the commission’s competition arm, is due to make an initial phase-one ruling on the complaint in coming weeks, possibly shortly after the electorate has voted.

Sources say that if DG Comp decides to move to a phase-two investigation and believes that allowing Nama to continue with its plans risks breaking state aid rules, it could order that the agency to freeze this activity until the inquiry is complete.

A more detailed phase-two investigation could take EU officials up to one year to complete. Any ruling that Nama cannot fund housebuilding while the probe continues would present the next government with an unwelcome headache.

Developers

The five developers involved –

New Generation Homes

, MKN Properties

David Daly

, Paddy McKillen and Michael O’Flynn – lodged their complaint late last year after Minister for Finance

Michael Noonan

announced the plan in his budget speech. Their representatives recently met officials in Brussels to discuss the complaint.

It argues that when the State got EU approval in 2009 to establish Nama in the first place, it was intended simply to repair the banks’ balance sheets. The State has gone beyond the limits agreed by Brussels by involving it in residential development, the complaint says.

The five argue that Nama has a number of advantages that distort normal competition. First, it can borrow money at far cheaper rates than private sector builders as it is a State agency.

Figures produced by the developers’ economists show that the difference between the two is nine percentage points.

Second, as the agency will eventually be wound up, it does not have to continue to buy sites and spend money on building more houses to replace those that it sells, which private sector builders must do in order to stay in business.

As it does not have to bear either of these costs, Nama will be able to sell its houses far more cheaply than private sector players.

British economists, Oxera, hired by the builders, say that broader measures such as cutting VAT, capital gains tax and levies could cut prices for all buyers, rather than the 16 per cent of them likely to benefit from Nama's cheaper houses.

The price advantages mean that private sector builders and their funders will not work on projects close to Nama sites, which the developers say will slow the pace at which new houses are built, as it limits where they can be built.