Even with an extra €8bn, can the Land Development Agency deliver enough new homes?

The housing shortage won’t go away. In the face of escalating prices, crippling rents and rising homelessness, there is no end to the cycle of crisis. Now, the Government is discussing a big increase in funding for the Land Development Agency (LDA) so it can build more “affordable” homes. As reported in The Irish Times on Monday, the agency could be line to receive anywhere between €4 billion and €8 billion but will it work?

When the State-backed LDA was set up in 2018 to exploit public land for housing, Taoiseach Leo Varadkar claimed the agency could have as big an imprint as the ESB, Aer Lingus or IDA Ireland. Back then, the LDA was forecast to build no less than 150,000 dwellings over two decades, a daunting sum that now seems wildly optimistic. Half a decade later, the number of LDA homes under construction is still measured in thousands, rather than tens of thousands.

Criticised repeatedly for the slow delivery of new homes, the agency has set out plans to provide 8,000 dwellings by 2026 among the 10,500 or so housing units currently on its books in one form or another. Limited progress but certainly not enough – yet – to make the kind of impact suggested when it was launched five years ago next month. A quarter of the way through the 20-year time frame mooted at that time, the agency is still some way from realising even the first 10 per cent of the original 150,000 target.

Some of that is down to the fact that the LDA was in a form of limbo before laws were enacted in 2021 to establish it on a statutory footing, delaying everything.

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Although the LDA may yet become the biggest housing developer in the State, it is still subject to many of the same planning constraints that bear down on other builders. There is more. Because of bureaucratic hurdles in the State system, a little fewer than 10,000 of the 67,000 homes deemed possible on public land could be delivered in five or ten years. The LDA has also taken on new responsibilities to work with private developers on private land but critics say it is too slow to enter contracts.

All of this is something of an open goal for the Opposition and a source of frustration within the Coalition. “We’re literally sitting on them,” said one Government figure, adding that the volume of large LDA projects will increase this autumn. As the LDA burns through its original €1.25 billion budget, that raises money questions for the future.

At the outset of its work, the LDA was promised €1.25 billion to €2.5 billion in State capital from a public development fund known as the Ireland Strategic Investment Fund and the right to draw down €1.25 billion in debt – and potentially another €1 billion.

Two big developments have since changed the horizon. First, the rapid rise in euro zone interest rates to the highest level since 2001 has made debt a lot more expensive. LDA debt financing would increase costs at a time of rampant construction inflation and high housing costs. That is despite more private developers seeking to work with the LDA because their own projects are hampered by ever more expensive debt.

Second, booming business tax revenues have led to forecasts of a cumulative €65 billion budget surplus in coming years. Minister for Finance Michael McGrath plans a new sovereign wealth fund – essentially a pool of public money reserved for long-term investment – to tackle long-term challenges.

[ Up to €8bn may be diverted from new sovereign wealth fund for home-building ]

This is where Minister for Housing Darragh O’Brien comes in, staking a claim for the LDA to draw up to €8 billion from the sovereign wealth fund. The option opens potential for cheaper LDA funding than debt and headroom to expand partnerships with private developers. Although the figures are large, the €4 billion at the low end of O’Brien’s scale is not a great deal bigger than the €3.5 billion the LDA might have had if it maxed-out its original capital and credit lines.

At the same time, many Government figures recognise that the Housing for All target to build an average of 33,000 new homes annually for the rest of the 2020s will have to be increased to break the housing crisis. For all the delays encountered by the LDA, the likelihood of higher national housing targets means the agency will need more money in line with increased Government expectations on it.

None of this is agreed yet at Cabinet level. Still, it suggests Mr O’Brien wants to bet big on the LDA as local and European elections next year herald the prospect of a voter backlash against the Coalition over housing. The biggest question of all, however, is whether the agency has the flexibility to ramp up housing delivery in line with increased funding.