1. Housing Supply: the “Wall of Money”
Aidan Culhane

2. Collapse RTB Rent index House price: -54% peak to trough decline.
Housing output: -91% peak to trough.
2,876 unfinished estates in 2011.
€43 billion lost in housing wealth.
RTB Rent index

3. Decline and Fall Decimation of banks
Obliteration of house development industry
Precarious public finances
Confidence!! (Public/Investors/Industry)
Austerity
NAMA

4. Decline and Fall Lack of development finance Lack of equity
“Sector is moving from bank debt to blended finance” (Adviser, 2015)
“75-80% of land is in the hands of ‘unnatural’owners.” (Developer, 2015)
Lack of development finance
Lack of equity
Lack of mortgage finance
Lack of viability
Lack of demand
“It is somewhat contested whether finance is a problem. Certainly equity for smaller builders is a problem, and that reflects the new realities of finance” (Banker, 2015)
“Need to make a distinction between [housing] need and demand. Strong demographics does not mean money is available to buy .... Future population growth is not a good basis for action by developers.” (Economist, 2015)

5. Availability of Finance: The “Wall of Money”?
Private Equity
Hedge Funds
Pension funds
Bank finance
PLCs

6. Changing Investor Profile
Opportunistic investors
Vultures
Funds
Individuals
REITs
Listed housebuilders
Irish Banks Divesting
Developers looking for capital partners
New lenders emerging
ISIF
LIHAF
SHD

7. Investors need a return
UK Risk/Return Profile (Residential)

9. Example: IRES REIT Annual Rent: €19,188 @ 6.6% gross
Apartment cost: €291K
Apartment Value: €344K
Net yield: approx. 4.9%
6 HANOVER QUAY …
120 apartments bought for €101 million.
Average Price per apartment: €800,000
Yield at 4% = €3,200 per month.

10. More to come … Yields are compressing
But are still above many European comparable cities
Dublin remains attractive to investors
Values could rise further (and rents)

11. The Gap
Median €39,005
Mean €47,870
Ireland’s Income Distribution (Source: NERI/SILC)

12. Affordability
Source: MGI

13. Affordability Effect of CBI Macroprudential Rules
Gross annual income
Max borrowing
Deposit (HTB)
Purchase
€40,000
€140,000
€15,556
€155,556
€50,000
€175,000
€19,444
€194,444
€60,000
€210,000
€23,333
€233,333
€70,000
€245,000
€27,222
€272,222
€80,000
€280,000
€31,111
€311,111
€90,000
€315,000
€35,000
€350,000
€100,000
€38,889
€388,889
Effect of CBI Macroprudential Rules
Average Dublin House Prices, Q1, 2019, Daft.ie
Average Dublin Rents, Q1, 2019, Daft.ie

14. Structural change
Population change

15. Typical AHB Social Housing Deal
DEBT
REMUNERATION
Typically 20-30% soft government loan (CALF)
Long-term fixed-rate HFA finance
Payment and Availability Agreement
Notionally 92% of market rent.
Differential rents (average c.€2,800 pa)

16. What’s not to like? Opportunities Challenges
Government-backed income stream
Index-linked adjustments (not increases!)
Guaranteed payments (nearly!)
Regulated AHB counterparty (almost)
Strong boards and governance
Scale
Novelty
Development risk
Reputational risk
Types of investor

17. Enhanced Leasing Scheme
Minimum 20 properties
25-year lease
95% of market rent. 3-year reviews to HICP.
Lessor provides management services to strict protocols.
Landlord is the council.
Agreement for lease is available.

18. Oaklee-Nord/LB €50 million 25-year fixed-rate debt SPV structure
Uses CALF and P&A
Project financing structure

19. UK Funding Debt Equity Long-standing access to capital markets
Bonds
Private placements.
Bond aggregator
Cheap Debt
Off balance sheet
Private Sector Participation
Civitas REIT plc
RESI REIT plc
Sage (Blackstone)
L&G
British Land
CBRE Global Investors

20. Conclusions
There are plenty of possibilities for private investment in social and, even more so in affordable housing.
Alignment of interests is not straightforward.
Sector has work to do in terms of developing capacity and to produce scale.
Investment is likely to come from a relatively limited range of capital sources.
Debt and equity models are possible.

21.
@aidanculhane