Nama warns 'soaring construction costs' undermining viability of building new homes

Nama is also set to tell the Public Accounts Committee that it cannot stop cuckoo funds buying properties as it is legally required to accept the highest bid

Nama chief executive Brendan McDonagh: 'Soaring construction costs coupled with pandemic-related delays and labour shortages are all putting upward pressure on the cost of delivering housing in Ireland.' File picture: Larry Cummins

The National Asset Management Agency (Nama) has said building more homes is very challenging as it can only support projects that will achieve a profit.

Nama chief executive Brendan McDonagh is due to tell the Public Accounts Committee (PAC) on Thursday that the agency can only finance developments where it expects to make money. However, he will point out commercial viability is becoming more "challenging" across the sector.

He will also say Nama cannot prevent cuckoo funds from buying up apartment blocks or other residential units put up for sale as it is legally bound to achieve the top price for properties.

Mr McDonagh will tell TDs and senators that delivery of 2,400 homes which have received planning permission and some of which are now under construction, will be "extremely challenging".

Nama also now plans to make three other sites that would provide about 7,800 homes "as shovel-ready as possible by achieving planning" before they are sold on.

"The issue of commercial viability is key; under our legislation, this is the most important and relevant criterion for Nama-funded residential development. This basically means that Nama can only finance developments that we expect will yield a profit – this is an important demonstration that we are in compliance with EU state aid rules," he will say in his opening statement.

While the Government’s recently announced Housing for All plan will seek to address some of the issues currently hindering supply and affordability, Mr McDonagh will stress that Nama must continue to operate under the constraints of only funding profitable projects.

"Commercial viability is becoming more challenging across the sector; even sites that have planning permissions in place are currently not viable to build on, especially apartments. Soaring construction costs coupled with pandemic-related delays and labour shortages are all putting upward pressure on the cost of delivering housing in Ireland," he will say.

Nama is to transfer another €250m to the exchequer on Thursday and will have paid a total of €3.4bn by the end of 2021.

Selling Nama property to cuckoo funds

On the issue of selling Nama property to cuckoo funds, Mr McDonagh will tell the committee "the reality is, we have to operate to the clear and unequivocal mandate set for us by the Oireachtas.

Under our legislation, we are obliged to get the best price; we could not have limited the field of potential buyers or refused to sell to funds if the effect of doing so was to reduce the return. 

"Furthermore, the absence of such funds committing capital to purchase developments would simply mean certain residential projects would not be viable and otherwise never built," he will say.

However, he will also argue that the "vast majority" of Nama-funded newly built residential units are sold to individual purchasers, many of them first-time buyers.

"From our perspective, the key takeaway from Nama’s residential delivery programme is that it has resulted in the supply of more than 20,000 new residential units in Ireland; whether owner-occupied, rented or used for social housing, these are homes that primarily exist because of Nama’s contribution at various stages of the delivery process."