Credit Union lending for social housing makes social & economic sense

Posted: August 7, 2017 in Credit Union, Housing, Uncategorized

In October 2014 the Irish League of Credit Unions (ILCU) proposed investing millions of euros of its members savings into social housing. Three years later the Central Bank looks set to give the proposal the green light.

The origin of the offer goes back to 2012 when the Government Commission on Credit Unions recommended broadening the sectors investment options. The follow on Credit Union Act of of the same year held out the prospect of investment in State projects.

With ILCU keen to diversify its investment portfolio and a chronic shortage of Government capital for social housing the two needs seemed to be a natural fit.

The 2014 proposal was pretty straightforward. The Credit Union movement would seek invest up to €1bn of its substantial reserves in off balance sheet lending to housing associations. The loans would be at competitive rates providing the associations with much needed cash, the credit unions with reasonable investment returns and most importantly homes for families in acute need.

All that was required was a change to the Central Bank regulations coupled with political support from the Department of Finance and the Department of Environment who had responsibility for housing.

Minister Alan Kelly had just launched a new housing action plan which promised more social and affordable housing, an increased role for the housing associations and for credit union finance.

With over 100,000 households on Council housing waiting lists and a growing homeless crisis fuelled by spiralling private sector rents the Credit Union offer should have been a godsend to a cash strapped Government constrained by ridged EU fiscal rules.

Credit Union finance could also be used by approved housing bodies to provide affordable rental and purchase homes for those above the income thresholds for social housing but unable to meet the exorbitant costs in the private rental and first time buyer sectors.

Bizarrely the proposal seemed to disappear between the cracks of the departments of Finance and Environment and the Registrar of Credit Unions in the Central Bank.

A year and a half passed by with no decision. In March 2016 ILCU boss Brian McRory described their dialogue with the relevant authorities as a ‘decision making roundabout which seemed to be interminable’.

That frustration was shared by those of us who sat on the special Dáil Housing and Homeless Committee from April to June 2016. One of the priority recommendations in our report of that year was for Government to ‘mobilise as quickly as possible all sources of funding [for social housing] including from… the Irish League of Credit Unions.”

As our Committee deliberated in the summer of 2016 a new Government was formed creating a new Department of Housing. Simon Coveney’s housing action plan, launched in July, again promised increased output from housing associations funded from sources including credit unions.

Yet October 2016 came and went with no movement from Government or the Central Bank. Millions of euros with the potential to deliver thousands of additional homes was just sitting there for two long years waiting for someone in authority to give the go ahead.

Given the shortage of Government investment in social housing during these years, this delay is hard to understand.

Capital spending on social housing has been slashed since 2008. In that year Government spent €1.5bn on social housing. In 2010 it had fallen to €830m. By 2014 it was reduced to a paltry €299m.

Even if the Government and Central Bank has taken an ultra cautions approach to ILCU lending they could have doubled investment and housing output in that year

Since 2014, capital spend on social housing has slowly increased, with €430m spent in 2015, €534m 2016 and €732m allocated for 2017. Despite these increases it still remains substantially below the levels of investment before Fine Gael took office in 2011, let alone the high point of 2008.

In May of this year the Central Bank opened a consultation on Potential Changes to the Investment Framework for Credit Unions (CP 109). One of the options under consideration is whether Credit Unions could invest in a fund which would lend to larger housing associations to provide social housing.

On July 5 Ed Sibley of the Central Bank and Des Carville of the Department of Finance separately addressed the Oireachtas Housing Committee to discuss the issue. A week earlier representatives of the housing associations and Credit Unions also met with the Committee.

While the Central Bank will not formally announce the outcome of their consultation until the autumn there were clear indications that they were moving towards approval of some form of credit union lending to larger housing associations. For their part the Department of Finance officials were also speaking in more positive terms than before.

In their submission to the Central Bank consultation the Irish League of Credit Unions proposed investing at a rate of €347m per year over six years. This would deliver up to 10,000 social homes on top of the targets contained in the Governments housing action plan. With a return of 3.5% the investment would also provide a net yield for the credit union movement of €52m.

If such an approach had been adopted in October 2014, when ILCU first made the offer, it could have financed up to 5000 additional homes over three years. Given that the total social housing output for last year was 4,500 units, with a similar output expected this year, this represents a real wasted opportunity.

You have to wonder how many of the 1300 families and 3000 single people currently living in emergency accommodation would have been housed if the Government and Central Bank had responded to the credit union offer with greater urgency.


This article was first published in the Sunday Business Post on 6.8.17


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