International funds 'will be required in Irish housing for years to come'

About 20% of the 20,000 housing units in the year leading up to the Covid pandemic were built by tapping  'institutional' investors and international funds will continue to play a role in building houses for rent and in providing financing for housing, economist says

Mullen Park estate Maynooth, Co Kildare, is the centre of a political row after it emerged that global investment fund Round Hill Capital had bought 135 of the 170 homes in the estate. Picture: Colin Keegan/ Collins Dublin

International capital from funds will be needed to play a big role on both sides of the Irish housing market for years to come, Goodbody chief economist Dermot O'Leary has said.

About 20% of the 20,000 housing units in the year leading up to the Covid pandemic were built by tapping investment from "institutional" investors and international funds will continue to play a role in building houses for rent and in providing financing for housing, Mr O'Leary said.                          

His comments come after the so-called cuckoo funds buying estates for rent in Maynooth in Co Kildare and in a Dublin north-west suburb has blown into a full scale political row. 

The Government has pledged to rein in by legislation some of the activities of the investment funds to stop them competing directly for residential suburban housing, as opposed to building apartment blocks.      

Investors have replaced domestic sources of financing

But Mr O'Leary said that on the development side of Irish housing, institutional investors have replaced domestic sources of financing once provided by Irish banks, and said that without such development financing some of the house construction of recent years wouldn't have occurred in the first place.

On the ownership side of housing, he said the once large role played by small buy-to-let investors has all but evaporated since the financial crash and has been replaced by institutional investors.

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The old model in which Irish banks loaned out to small developers has all but gone, he said.

"I think we have to be careful that we do not cut off the nose to spite the face," he said, as the Government assesses the role institutional investors should play in the market.  

Political furore

The political furore has put the spotlight on whether the building of housing units of recent years would have happened if there were no institutional financing. 

He said the Government may decide to put more capital into housing to support house building one way or the other. 

The Government has gone down "the leasing route" and is reducing its social housing waiting lists but means that councils and housing bodies are competing with each other for housing units.

It could make the decision to build directly or strike an agreement with the private sector over a number of years for multiple units instead of taking short term measures, he said.  

Mr O'Leary said it was "politically difficult" when funds buy housing estates but he said that the current debate has to acknowledge that international finance has played a big role in housing. 

It has not been recognised the vital importance that international capital has played and will be required to play in the future." 

Goodbody acts as broker for Hibernia Reit, which focuses on commercial offices. 

A new report by Irish Institutional Property, a business group for investment funds, said that an average of €4.2bn a year has been injected into Ireland's commercial and residential property markets by foreign-owned funds in recent years.