On Friday, the Housing Finance Agency informed approved housing bodies it would put its lending rate up 0.65% to 3.15% from November. It had previously raised rates 1% in May.
It is thought that because of the move, which comes as interest rates among European lenders increase, thousands of social housing projects may have to return to project assessment stage, even if builders are on-site. While sources say those projects would continue on the assumption they will still be viable even with the higher rate, some projects will be delayed due to assessments being required.
Sinn Féin housing spokesman Eoin Ó Broin said he was concerned that any rise in the cost of finance could make cost rental schemes more expensive, leading to rents of €1,500 per month.
However, speaking to the 'Irish Examiner' at this weekend’s Fianna Fáil ard fheis, Housing Minister Darragh O’Brien said that “significant changes” he has made to the schemes would “subsume” any rate rise.
“The Housing Finance Agency operates independently of Government, so we can’t instruct the agency on their rates, that wouldn’t be appropriate, so we don’t do that,” he said.
“To answer the question specifically on viability post the rate increase, I’ve already made some significant changes on cost rental which the approved housing bodies’ sector looked for in relation to their funding model. So I think the cost rental piece is solid.
"We will work with the approved housing bodies sector to make sure that any projects coming forward aren’t delayed.
"That hasn’t happened here with the previous rate increase,” he added:
The news comes as a new report showed a slight dip in house prices during the third quarter of the year, but flagged a likely increase this year and in 2023. Asking prices for houses fell 1.3% in the last quarter, the property price report by MyHome.ie showed.
The median asking price for new constructions nationally is now €320,000, while the price in Dublin is €420,000 and elsewhere it is €275,000. Despite the recent dip, the report predicts that house prices will rise 6% in 2022 and 3% next year.
In addition to expected rising house price inflation, MyHome.ie is also expecting a drop in supply next year.
Rising input costs and ECB rate hikes are putting strain on development. It is now less likely that 30,000 units will be delivered by 2023, according to the report.
The report also showed that rent controls have been ineffective.
A consumer price index of private rents during the third quarter suggested price pressures in the rental market intensified during the summer, the MyHome.ie report showed.
The index for August rose 1.4% on the previous month and was up 12.5% on last year. The report also showed rent controls contributed to the exit of small buy-to-let investors from the market.
This led to just 416 new buy-to-let mortgages in the first half of the year. As a result, fresh investment into the private rental sector is entirely dependent on large institutional investors, the report stated.
Barry O'Leary from the Housing Finance Agency said that the rate increase was a reaction to fluctuations in the long-term bond market, from where the HFA borrows its money.
He said that the HFA borrows long-term funding and further increases in the cost of funding are anticipated, meaning that locking into a rate now was preferable. However, he said that the HFA remains "very, very competitive".
He said that he is not concerned about the impact of the increase on the viability or delivery of homes.
"I'm not worried about delays to schemes. We're looking at new rates from December 1 and November 1. The old Rebuilding Ireland home loan won't go up until January.
"We have got to introduce these because we're out in the markets borrowing and we're trying to lock into the overall long-term funding to deliver a secure, long-term rate to AHBs.
"The fact that rates are going up could encourage AHBs to finish schemes and draw down funding quicker and we will facilitate the AHBs to draw down this money if they want to."