Hopes were high that the dingy student flea-pit would be banished forever when Section 50 tax incentives for rented accommodation for third-level students were introduced under the 1999 Finance Act.

Described by the Department of Education and Science guidelines as "Section 23-type relief", it could have been the perfect opportunity to boost the supply of student accommodation and at the same time corral investors into an area where they are not competing with first-time buyers.

Section 50 developments must be certified by a college or university and should be within eight miles of their main campus. Units typically carry 80 to 95 per cent tax relief on Irish-based rental income over a 10year period. Purchasers can use up all of their relief in the first year if they wish or can carry unused relief past the 10-year period if it suits.

There are many reasons why Section 50 could have worked. During the academic year the accommodation - apartments, townhouses and houses - can only be let to students of its affiliated college, but in the summer it can be made available for short-term lettings to tourists, foreign students and private groups.

But apart from a few pioneering developments attached to colleges and universities around the country, the scheme has been largely shot down by the absence of mortgage interest relief.

Already the aftermath of the anti-investor measures contained in Bacon Three has cost us dearly in terms of residential investment, according to Paul McLoughlin, regional new homes manager for Sherry FitzGerald/Ross McParland, based in Galway. "Around £500 million (#635m) has been invested outside Ireland in the UK residential and commercial markets and in residential schemes in countries like Spain. Many developers are turning to commercial schemes which are more lucrative."

According to McLoughlin, there are 2,000 units certified by colleges and universities nationally, but without mortgage interest relief many will not be built.

"We estimate that the net loss to the exchequer if these do not go ahead will be around £49.3 million (#62.6m) - if you calculate on the basis of 2,000 units at an average of £170,000 (#215,855) each ."

Galway city has had relative success in getting Section 50 off the ground. There are currently 700 units for sale attached to Galway Mayo Institute of Technology (GMIT) and University College Galway (NUIG).

"Galway has good potential for summer lettings which has helped but in somewhere like Athlone, where there are currently three Section 50 developments, it might be harder to factor in the summer market."

In Galway, high-quality Section 50 developments in prime locations sell reasonably well, whereas those in secondary areas are slower.

"Developers are tentative; apart from the lack of mortgage interest relief, which is obviously a big factor, building a Section 50 scheme represents a big step into the unknown for many. For the investor there are also many things to take on board. You are selling a financial product, a relatively new accommodation concept which comes with an in-built management structure and on top of that, you are selling the property." But instead of cramming students into a property that is unsuited to their needs, Section 50 represents an opportunity to provide purpose-built accommodation. A qualifying development must provide at least 20 bed spaces.

A two-bedroom 700 sq ft apartment, for example, would typically sleep three people, two in a twin room and one in a single and have a hall and living/kitchen area. Developments usually have showers instead of baths to economise on water; some have key card systems for ease of management, built-in desks and wardrobes to minimise moveable parts, on-site laundries and drying rooms and centralised storage. Some of the bigger schemes have closed-circuit TV security.

The Department of Education and Science guidelines specify that there must be a minimum of three people per unit and a maximum of eight, one bathroom for every three students and proper light and ventilation. Rents are uniform across a development - typically £150 a week for a two-bed apartment, working out at £50 per student.

The Union of Students of Ireland has criticised the scheme as short-sighted. It says housing is reserved for student purposes only for 10 years and is often designed so that walls can be knocked through to allow conversion to units more suited to professionals.

Glasan in Renmore, Co Galway, attached to the GMIT, provides 167 housing units for over 700 students. As it has the longest experience of academic and summer lettings, it has been used as a benchmark in subsequent developments.

Dunaras, on Bishop O'Donnell Road in Galway, certified by NUIG which has over 7,000 full-time students, has been one of the best selling Section 50 schemes, providing 112 apartments according to McLoughlin.

These self-contained units are Bord Failte three-star standard at prices starting at £149,950 (#190,436). A uniform fit-out of carpets, curtains, cutlery, kitchen appliances and beds, worth around £6,000 (#7,620), is included in the prices.

However, given the phenomenal pressure on student accommodation in Galway and other Irish cities, these developments represent little more than a drop in the ocean in terms of requirements. At present, less than 5 per cent of student accommodation is provided under structured schemes, compared to 28 per cent in the UK.

According to the Union of Students of Ireland, we require around 13,000 units to bring us into line with European levels. "The government spend on education last year represented 28 per cent of its entire funding," says McLoughlin. "The provision of good accommodation is a big part of getting the student through that vital first year."

In Waterford, small-scale schemes like the 50-apartment Maple Springs at Kilcohan, with prices starting at £125,000 (#158,717) for a two-bed apartment, will be ready for occupation in September; at Rossgrove Court, a 23-unit development at Hennessy's Road, close to the city centre, prices start at £135,000 (#171,415). Up to this, Dublin has been a Section 50 failure. While suitable sites have been identified, according to McLoughlin, developers have been loath to commit given the high cost of sites.

"The apartments would be expensive and in turn so would the rents, which would defeat the purpose of providing an affordable place to live for students. It is a pity because these sites could be lost to student accommodation forever unless something is done."

However, Dublin Corporation has granted permission for a two and three-storey section 50 development at Dun An Oir, Finglas Road, Glasnevin. An application for 27 three and four-bed units at the Joe Duffy Motors site at the junction of Ballygall Road East and Griffith Avenue Extension is currently on appeal.

According to Ken MacDonald of Hooke & MacDonald, unless mortgage interest relief is made available, the future looks bleak for Section 50.

"There are a number of developments planned around the country. But a lot that have been approved are on hold. I don't think it is going well and it's a pity because it is an important type of accommodation."

emorgan@irish-times.ie