The week started with housing minister Darragh O’Brien insisting that a sovereign government could in no way legislate to plug a loophole that allowed a recently-arrived investment fund, or vulture fund, to build and rent out new houses in residential streets in a Co Kildare town.
The homes would be rented out for 20 to 25 years and, in the midst of the worst housing crisis in the history of the State, would entail little risk for its foreign clients.
But the political row blew up because the investment fund had become a cuckoo fund, and was now effectively using its resources to outbid first-time buyers here.
The week ended with Taoiseach Micheál Martin and Tánaiste Leo Varadkar pledging similar legislation to a draft law that Mr O’Brien had, as an opposition politician, passionately advocated in late 2019.
It would have kicked out vulture funds from building and owning three-bedroom homes, as opposed to banning them from building and renting out apartment blocks.
At the centre of this furore were two recently-arrived investment funds. Round Hill Capital is building family homes in Maynooth, and, in partnership with another fund called SFO Capital, is completing a residential estate in an outer suburb in north west Dublin.
Round Hill bought over 130 new family homes in Maynooth. In global terms, it is a relatively small player. The €2bn it has committed may look like a lot of money, but its projects are however spread across much of the globe: It has offices in locations that include Palm Beach, Madrid, Porto, Munich, and Singapore. It only set up an office in Ireland in 2018, when it announced a project for student accommodation in Cork.
London-based SFO Capital is also a relative newcomer. Its Dublin residential focus was on 112 new-build family homes and involved SFR, which translates from the jargon of the property fund industry as single-family residential homes for rent.
The term is purposely used to stress the difference between building and renting suburban homes as opposed to building and renting apartment blocks, which such funds are regularly involved in.
Round Hill and SFO Capital are just two of the many thousands of funds — from the US and Europe and, increasingly, from China — that are chasing secure investments in bricks-and-mortar projects with billions of euro around the world.
By type, the funds include pension funds which are seeking to finance retirement income of a diverse roster of clients, including professional retirees and trade unions.
They also include funds which have become known as vulture funds, which now play a huge part in the Irish economy. That role extends beyond office and apartment blocks and goes into the heart of banking here.
Making this row politically toxic was that well-resourced foreign funds during a housing crisis were effectively bidding directly against first-time buyers.
It was also politically embarrassing for Government politicians in their failure to act over a loophole that could have been closed years ago.
Mr Varadkar has made clear that the Coalition will close the loophole to stop funds competing with first-time buyers. But the new legislation will not outlaw investment funds from building homes because, he said, they play a part in solving the housing crisis.
Effectively, the Government is sending the message to the investment funds to get back to building apartment blocks in Dublin city centre and its affluent near-suburbs, and not to stray into competing for land with first-time buyers for conventional three-bedroom housing.
The row has been useful nonetheless for throwing a light on what is going on with housing and banking policy — the two industries that were crippled and then failed to return to financial health after the banking and property crash of 10 years ago.
What ministers have failed to explain is that the State’s policy over the last 10 years is now so deeply entwined with foreign investment funds.
The funds help build private apartment blocks, fund whole housing projects, and are now involved with big local authorities to supply social homes for rent amid a desperate housing crisis.
Then there is the endorsement that the Government and the Central Bank have given to the vulture funds to own, albeit indirectly, residential property in another way — buying up large numbers of residential mortgage loans from all the main mortgage lenders.
The row says much about the way that governments and officials have outsourced Ireland’s broken housing and banking markets to investment funds in recent years.
The financial crash entailed the crippling of Irish banks and the destruction of most small Irish housebuilding firms. Ever since, reaching out to foreign investment firms to provide sticking plasters for the running sores of housing and banking has been the policy choice, despite these problems calling for long-term solutions.
Construction of office buildings and then large apartment blocks in the Dublin docklands and its inner wealthy suburbs has been outsourced to foreign-owned funds when it was decided to wind down Nama earlier than first planned.
Sovereign asset recovery agencies are meant to recover value for their citizens over very long term timeframes.
And it’s not the first-time that government politicians have stumbled over a loophole involving foreign funds.
Irish Collective Asset-management Vehicles were introduced under law in 2015 to help US funds, in particular, to transfer monies through Ireland. Within a year, it became clear that a number of the 200 funds used Icav structures instead to buy or invest in Dublin apartment and office blocks, while paying no tax.
There were also the Section 110 tax incentives which were tapped by funds to buy distressed commercial and in some cases mortgage debt.
Lorcan Sirr, a senior lecturer in housing at the Technological University Dublin, said the row this week blew up because it involved residential streets of three-bed homes, as opposed to apartment blocks that, since the crash, funds have built and let out to tenants in the centre of Dublin.
The investment funds haven’t been reined in, and are now at the centre of Irish housing, encouraged by the State to provide local authorities with social housing.
Mr Sirr estimates that a quarter of the approximately 20,000 annual housing units built before the onset of the Covid crisis were one-off homes, while another quarter were built by local authorities and other approved housing bodies.
Of the remaining 10,000 units, over 3,500 a year were bought by investment funds and are mostly new apartments, with at most 7,000 new homes provided for first-time buyers.
Any encroachment into residential three-bed family homes by the funds will likely have consequences for the market, Mr Sirr said.
He said some of the leases involve upward-only rent reviews tied to the consumer price index which provide foreign funds with a low-risk investment of up to 25 years, with the property returned to them at the end of the lease.
Funds are securing “gilt-edged” returns in Ireland that they couldn’t get anywhere else on the globe, having strayed from building upscale apartment blocks for the well-paid staff of multinationals into social housing.
“The State is now the underwriter,” Mr Sirr said.
Ken MacDonald of Hooke and MacDonald said that investment funds will start pulling back from building three-bed residential properties because they will not want to attract further Government restrictions.
The row this week was remarkable for what it didn’t focus on. Ministers weren’t quizzed on the way that vulture funds are embedded along almost every residential street in Ireland.
Senior policy adviser at the Free Legal Advice Centres, Paul Joyce, a leading expert on mortgage debt and the banks, said that 13% of all the 735,000 residential mortgage loans in the Republic are now in the hands of vulture funds — or the so-called non-bank entities and servicing firms.
They were sold to foreign funds by the main mortgage banks after the financial crash.
Worse, vulture funds own well over half of all residential mortgage loans in long-term arrears, he said.
The housing and banking crises are intertwined.
“Essentially, we stopped building social housing during the banking crash and we haven’t recovered since,” Mr Joyce said.