International Investors Remain Key To Solving Ireland’s Housing Crisis

The Irish government needs to prepare a long-term plan to continue attracting international investors if it is to meet its housing targets.

Commenting ahead of Bisnow's Dublin Residential Investment and Development Update next month, the director of Irish residential agent Hooke & MacDonald noted that the government must play an important role in fostering stability in the market if it is to ensure it meets its own housing targets.

"Ireland needs to show the international community that it's a place where the government has recognised that they need international capital here to fund housing,” Hooke & MacDonald Director Donald MacDonald said. “It needs to create certainty within the operating environment so international capital income here."

A report published this month by Irish Institutional Property on the role of institutional investment in the Irish real estate sector said that funding from abroad would need to increase fourfold if it was to meet the Irish government’s housing demands.

IIP noted that international capital accounted for 77.8% of total development finance in the two years from 2017 to 2019, equating to €4.2B in funding. The period saw an average housing output of 13,000 new homes per year in total across the country.

IIP’s future scenario saw this level of funding rise to €9.5B, or 86.4% of a total €11B in development finance, which would allow for 30,000 new homes per year to be built. 

In March it was revealed that €7B has been invested in Dublin’s booming build-to-rent sector in the past five years. The funds from both Irish and international investors had facilitated the construction of over 12,000 homes, housing up to 25,000 people.

Compared to previous economic cycles, including those preceding the financial crash of 2007, institutional investors are now more directly involved in the Irish property market, IIP said. Previously, capital was loaned to Irish banks that then approved loans to developers. The process meant that global investors had less direct oversight over where their own funds had been invested. 

The current model of using collective investment vehicles has allowed investors to pitch in with other investors on projects that if they were to fund individually would break their investment limits. The difference compared to the previous downturn is that each project is underwritten by global investors individually, rather than placing a strain on Irish banks’ balance sheets.

Keeping the investment ship steady

A number of issues could potentially destabilise the current investment market, with inflation rising, planning issues remaining a thorn in developers' sides and the war in Ukraine leading to political and demographic upheaval across Europe. 

There are signs that the government is aware of the market’s concerns. On 12 April it published its investment strategy for 2022-2026, which aims to capitalise on Ireland’s strengths to boost both trade and inward investment.

The higher profile that international finance has taken when it comes to foreign direct investment in Irish property has also begun to chafe with a sector of the Irish public, whom to some extent perceive the growth of sectors such as build-to-rent as pushing first-time buyers out of the housing market, MacDonald said. 

Last May the government announced plans to charge a 10% stamp duty on the bulk purchasers of homes in a move squarely aimed at institutional investors. The changes became law in August and saw the charge placed on purchases of 10 homes or more.

Changes such as these have been noticed by international investors and weigh on long-term investment decisions.

MacDonald noted that Ireland’s current investment environment is stable; however, more support and recognition of the role foreign capital plays in the sector at present would be welcome. 

“The main thing that investors look for is certainty, especially where you're dealing with pension funds who have obligations that have a 10- or 20-year horizon,” he said. “They need to know the operating environments that they're investing in is an absolute certainty.

“We do have a good environment in Ireland [but] the government needs to recognise and support that environment.”

Whether international finance can conjure up the billions needed to remedy Ireland's housing needs remains to be seen.

Yet the longer the Irish government can convince investors that the country is a safe pair of hands for their funds, the more likely it is that it meets its own tough housing targets.