Social Housing Funding Models In Ireland

Introduction

Approved Housing Bodies (AHBs) have, in recent years, moved from peripheral players in the delivery of housing for the Irish population, to now being the dominant players in acquiring apartments, duplexes and low-rise residential units from developers. As of October 2024, the top six most active AHBs control more than €7bn in property. The AHBs are now the largest investor in high density residential construction, replacing the Private Rental Sector (PRS), which in 2021 showed an annual investment of €1.8bn, dropping to €166m in 2024.

The AHBs and the Land Development Agency (LDA) are now being viewed as the key drivers for ensuring Ireland reaches its target of delivering 300,000 new homes by 2030, which includes a commitment to deliver an annual 12,000 new build social homes. They will do so by unlocking state lands, acquiring shovel ready projects via forward fund arrangements from developers, and acquiring completed developments. This will in turn lead to an increase in the availability of cost rental, social and affordable housing.

Following the publication of the National Development Plan (NDP) Review in July 2025, the Irish Government (the Government) reaffirmed its stance that delivery of housing remains a central objective of the NDP. This is being supported by a Government allocation of €35.96bn to the Department of Housing, Local Government and Heritage (DHLG).

To meet the 300,000 new homes target, funding from central Government will be critical, but will also need to be supported by other funding models. The purpose of this article is to:

1. look at the current capital funding schemes in place to support Local Authorities (LA) and AHBs in the delivery of social housing; and
2. look at other potential avenues which AHBs should be encouraged to explore to allow for delivery of social housing.

Relying solely on state capital funding schemes and financing from the HFA to meet the 300,000 new homes target by 2030 is unrealistic.

The recent decision to pause the Social Housing PPP Bundles 4-7, comprising approximately 2,850 social homes, was due to what James Browne, Minister for Housing, Local Government and Heritage described as a need to review the most appropriate procurement and delivery strategy for these social homes, following the costs incurred in delivering the social homes under Bundle 3. This is despite Bundles 1-3 successfully delivering over 1,400 social homes.

With market credibility on PPP Social Housing Bundles having been so publicly undermined, it will undoubtedly put more pressure on AHBs and the LDA in respect of delivery of cost rental, social and affordable housing.

Current Social Housing Capital Funding Models

The DHLG has six active schemes in place that are available to AHBs to facilitate the provision of social housing via (i) the construction or acquisition of units or (ii) the leasing of units from the private sector. The schemes are:

Private Sector Funding

At AG, our experience has largely been that for the balance of funding to acquire and/or construct these social housing units, the AHBs are securing funding via the HFA. The HFA is a state-owned company providing loan finance to local authorities, voluntary housing bodies and higher education institutions for housing and related purposes. The AHB has full discretion as to how to finance the balance of funding required. However, to date, any successful forward fund or forward commitments that AG has advised on have been exclusively via funding provided by the HFA. This approach aligns with other legal advisors in the Irish market, where we are aware of only three projects where private funding was availed of. There are several factors influencing the decision not to consider alternative funding models, some of which are:

• The HFA is a state-owned agency, as such it has access to low-cost capital and is uniquely positioned to provide AHBs with access to this low-cost fixed rate debt with interest rates ranging from 10 years at 1.75% up to 30 years at 3.75%. For large scale projects AHBs are typically seeking 30 year loans at 3.75%, until July 2025 the interest rate had been fixed at 2.75%. By way of comparison, at the time of writing this article, commercial lenders active in the residential space in the Irish market are offering loans with an interest rate of circa. 5.5% to 6.5%. Whilst interest rates are steadying, it is not conceivable that commercial lenders will be able to offer or compete directly on rates with the HFA, if these rates stay at 3.75% or below;
• The HFA does not have shareholders to satisfy with a return on investment. This allows them to offer long term loans for up to 30 years. In contrast, a borrower from a commercial lender will typically seek to repay the loan once the development is complete and/or the asset is sold, and they have the capital to pay down the loan. This approach is often driven by the interest rate to get the loan repaid as quickly as possible. As the AHBs don't sell off the assets, they lack the capital to pay down the loans. Instead, they rely on lower yield rental income to pay down the loans over time;
• Government influence also plays a part in the overreliance on HFA funding. As indicated above, it is at the AHBs discretion how they fund the balance of their acquisition / development. But in reviewing recent Government policy around housing, it is evident that the Government envisions the HFA continuing to play a central role in funding residential developments and acquisitions for AHBs. Whilst Housing for All and other DHLG circulars do typically reference the ability to obtain funding from the HFA "or from other financial institutions". This is undermined by the publication of circulars by the Department of Housing which are being interpreted as seeking to restrict AHBs accessing Government capital funding schemes where the AHBs obtain private finance at interest rates above those offered by the HFA. When queried by the Banking and Payments Federation Ireland, DHLG stated that its lowest lender principles do not stop AHBs from obtaining finance from a commercial bank, provided the interest rates are as low as what the HFA can provide. Given commercial lenders cannot currently access (more on this below) the same low-cost funding available to the HFA, this is effectively a barrier for commercial banks to lend to AHBs;
• Securing funding from the HFA is a tried and tested model for AHBs. Whilst the HFA has the ability to step-in in a default scenario to take over the development / the asset, the fact it is a state-owned agency that is not primarily commercially driven does provide comfort for an AHB; and
• The perception amongst the general public in Ireland remains that non-performing loans / those in default may be sold to a "vulture" fund, and/or that a commercial lender may be far quicker to enforce over the development, putting those in social housing at risk. Whilst not necessarily the case, framing it this way could drive public frustration around an already heated topic.

With the scale of housing delivery that is required in Ireland, continuing down this road of procuring social housing solely via HFA funding, will most likely result in missed targets and delivery of units being stalled. Being heavily dependent on HFA funding leaves AHBs open to vagaries of internal Government / departmental decision-making processes and potential delays that may cause AHBs in securing funding.

What are the alternatives?

A. Commercial Lenders:

As referenced above, commercial lenders are currently unable to access the same low-cost funding that is available to the HFA. But as we have seen the HFA are itself no longer able to provide long term fixed rate debt at 2.75% and had to increase this to 3.75% in July 2025.

With some of the existing debt held by the HFA maturing over the coming years and new debt needing to be raised, the ability of the HFA to secure long term fixed rate debt at competitive interest rates, which is below those that can be achieved by commercial lenders, is expected to dwindle.

The HFA raises its funding, with the support of a guarantee from the Minister for Finance, largely through the National Treasury Management Agency (NTMA), from local authorities and international agencies such as the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB).

Up to 2022, interest rates were at historic lows. This allowed the likes of the EIB to borrow at very favourable rates across all maturities and pass that low interest funding to its borrowers, such as the HFA. However, as has been widely published, in 2022 interest rates rose sharply, this will impact on the HFA's ability to access long term funding at competitive rates from the EIB.

If these interest rates continue on an upward trajectory, which is expected, this will open the door to AHBs who wish to secure funding from commercial lenders, but whom are currently restricted from doing so because of the lowest lender principles. The likes of Bank of Ireland and AIB want and need to lend to AHBs and will likely be able to match the HFA on lending rates if the HFA are having to borrow and on-lend at higher interest rates.

B. UK Bond Issuance Model:

With a far more established social housing market, it is worth looking at and understanding how funding of social housing in the UK has evolved in recent years. Our overreliance on state funding is in complete contrast to the approach in the UK. The reduction in grant funding, together with the increased demand for affordable housing developments meant that the approach of relying on state funding was no longer feasible if social housing supply was to meet the demand in the UK.

As a result, the funding of social housing in the UK has evolved to a mixed funding approach of government grants and private finance. Pre-2008, that private finance principally took the form of long-term loans from commercial banks. However, following the reduction in availability of longer-dated bank funding, the capital markets have filled the gap – with drawn amounts of private finance to the sector by means of bond finance overtaking that of bank funding in 2021.

Registered Providers and Registered Social Landlords (UK equivalent to AHBs) (RPs) obtain capital markets funding by means of private placements and publicly offered listed bonds – typically bearing a fixed interest rate and with maturities of 30+ years. The interest rate payable will depend on a number of factors, including the credit quality of the issuer and then current gilt rates (which themselves will depend on the maturity date and prevailing market conditions). Current interest rates in the sector are around 6% to 6.5% (made up of the gilt yield, plus margin), though have been as low as sub-2% historically.

These bonds can be accessed by RPs in two ways:

1. Own Name issueswhich are subdivided into direct and in-direct issuances.

• A direct issue is where the RP itself acts as the issuer and grants the security itself over the housing stock being acquired and/or funded.
• An in-direct issue is where the RP has a financing vehicle within its structure (the Issuer) which issues the bond and then on-lends the funds to the RP that is actually acquiring / funding the units. The RP grants security to the Issuer over the housing stock. The Issuer in turn grants security to the bondholders over (i) its repayments rights under the intra-company loan with the RP, and (ii) its rights in the security over the housing stock that the RP granted to the Issuer.

2. Pooled Funding issues, which are similar in some respects to an in-direct issue, but the funding vehicle is a third party often referred to as an "aggregator". These aggregators issue the bonds and then on-lend them to various RPs, typically smaller RPs more akin in size to the dominant AHBs in the Irish market. As these aggregators are typically capital market specialists raising finance on an aggregated basis, they can avail of more favourable terms than a smaller RP would be able to get access to. The bondholder is typically granted security by way of a floating charge over all assets of the aggregator. In respect of the on-lending to the RP, the security taken by the aggregator is a fixed charge over the specific housing stock to which the on-lend relates. This allows each RPs loan from the aggregator to be treated severally from any other RPs obtaining a loan from the aggregator under the same bond issue, which avoids any cross-contamination in the event of default by an RP. The UK Government has supported this aggregation via the Affordable Homes Guarantee Scheme. The current (2020) scheme in England provides guarantees by the Ministry of Housing Communities and Local Government (MHCLG) of up to £6bn of loans to RPs to both support delivery of additional new build homes and also to improve the quality of existing stock, but ultimately the loans are funded by the capital markets bond programme. The current 2020 scheme is run by ARA Venn as aggregator whilst the previous (2013) scheme was run by The Housing Finance Corporation and provided guarantees on £3.5bn (providing circa. 32,000 new homes).

In terms of why the private sector would be interested in funding social housing:

• these bonds provide conservative investors seeking stability (such as pension funds) with long term stable assets, with the RPs paying off the interest via rental income;
• RPs in the UK are regulated bodies - the Regulator of Social Housing (for the UK), the Scottish Housing Regulator (in Scotland), the Department of Communities (in Northern Ireland), and the Welsh Assembly Government (for Wales);
• whilst not guaranteed by the UK Government, RPs are viewed as having implicit government support due to the fact they are providing social housing and, as referenced above they are regulated bodies;
• there is a low default risk – the UK housing association sector is a 'no loss' sector, i.e. to date no creditor has ever lost money;
• RPs are credit rated in the UK by bodies such as Moody's, S&P and Fitch, with the majority of RPs falling into a rating of Aa2 to A1. Having such a rating would indicate that these bodies are seen as safe investments, with Moody's reporting on RPs in the A1 rating category as being "of very high default dependence between the group and the UK Government and a strong likelihood of extraordinary support in the event that such an entity faces liquidity stress"; and
• the housing stock serves as collateral in the event of default, meaning the houses could be sold if needed to pay creditors. However as noted above, the perception is that the regulatory and/or the UK Government would step-in in the event of a default.

Conclusion

We do not perceive an immediate shift in how AHBs secure their funding, any move towards the capital markets and to commercial lending will take time. It is positive to know that AHBs we have spoken to are very keen to explore how they can secure funding via alternative funding models. That said, concerns about being able to secure Government capital funding alongside private financing will need to be addressed to ensure AHBs are provided with some comfort that in choosing to move away from the HFA they will not be placed in a less favourable position when it comes to seeking capital funding via one of the DHLG schemes referenced above.

In terms of AG and where we stand on these alternative funding models, it is difficult to see how the social housing targets will be achieved without relying on alternative funding models. With our international presence we will be drawing on our experience and that of our colleagues in the UK to advise AHBs and developers around these alternative funding models to grow market interest and understand how these models operate in the UK. Our AG colleagues in the UK are at the forefront of advising on these models, having acted on more capital markets issues (both private and public) than any other law firm, including:

• acting for arrangers and dealers on £20bn RP bond programmes (both own name and aggregators);
• acting for arrangers / bookrunners, bond trustees and security trustees on the issue of over £10 billion of public listed bonds by providers of social housing since 2017, including issues by Catalyst Housing, Citizen Housing, Futures Housing Group, Housing 21, Karbon Homes, LiveWest, London & Quadrant, Notting Hill Genesis, Orbit, Peabody, RHP, Sanctuary, Southern Housing and Wrekin, to name a few;

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.