00318-15: NAMA Offsite - speaking notes T e: Minister Status: For Review by Minister Purpose: For Information Division/Office: Financial Services Division Decision By: Author: Declan Reid Owner: SubJFIN Ministers Office Reviewers: Ann Nolan Action Required For Information Seen by Minister for Finance Executive Summary • NAMA's strategy off-site on March 13th will be attended by the NAMA Board and members o f NAMA's executive team • Frank Daly suggested the Minister attend to give the Board an opportunity to hear directly from the Minister in much the same way Frank hears directly from the Minister • Frank expects the Minister to be in a position to discuss his priorities and concerns regarding NAMA as well as any contributions he would like to make to the discussions regarding NAMA strategy during the session. • A briefing for the Minister's consideration is attached and below Comments There are no Comments. Detailed Information Thank you - Continued Positive Momentum • Congratulations and thank you for the hard work and successes to date in achieving the major milestone o f redeeming over 58% o f your senior debt and your continued efforts in the interests o f the taxpayer. (€17.6bn senior debt redemption o f €30.2bn originally issued) • The now established payment o f a coupon on the subordinated debt is a strong indication o f your confidence and has also had a positive effect on the banks' balance sheets • Through the concerted efforts o f all o f us across the State over the last few years, including NAMA, we have generated positive momentum around Ireland's recovery • We must now sustain and build upon this momentum in a way that allows continued productive investment in Ireland that facilitates not just a recovery o f the FDI sector but most importantly a real recovery in the domestic economy • We are all making decisions every day that will impact how and at what speed our underlying domestic economy will recover • We all should remain vigilant for opportunities to sustain and accelerate our recovery Challenges • I am aware o f the significant challenges you have faced and continue to face in achieving your objectives. • It is unavoidable that because o f the important work NAMA performs and the tough commercial approach NAMA must take to achieve its objectives, NAMA will continue to be scrutinized, challenged and criticized and lobbyists will continue to be active in the political arena in this area • You have been proactive and professional in your handling o f this scrutiny and encourage you to continue in these efforts • I share your concerns, as reflected though the Section 227 Review o f NAMA, that the positive outlook for NAMA is premised upon NAMA retaining its operational capabilities through the retention o f key staff. • I also recognise the unique employment situation that differentiates NAMA staff from other public servants, namely that they will be made redundant when their work is complete. • In light o f this and to help safeguard NAMA's continued success I support your proposal for an additional retention payment as I understand you would have learned at yesterday's board meeting NAMA's Important Role • As you are well aware, NAMA plays a key role in various aspects o f Ireland's recovery • The sooner NAMA meets its objectives, the sooner we have provided yet another signal that we have returned to a normalised market • As you know, NAMA bonds remain a contingent liability for the State, which, thanks to your performance to date, have become less of a concern for our Sovereign investors • NAMA's success also has a direct impact on the recovery o f the banks and the value of the banks as holders o f NAMA senior and subordinated debt • As the banks continue to recover, the increased attention we expected NAMA bonds to receive has been lessened by the acceleration o f redemptions and the increased confidence that they will be redeemed at par at least 2 years ahead o f schedule. • I would encourage you to constantly push yourselves to achieve your goals in the shortest timeframe possible to aid in the normalisation o f our market and our banks Property Market • I appreciate your continuing work across the property market, including: ° Your work with the IDA, local government and other agencies and departments across a number o f property related issues ° Providing direct development and acquisition funding in stimulating certain areas o f the market and investor interest 0 Working with other stakeholders to ensure the timely and coherent delivery o f the SDZ in the Dublin Docklands ° Driving forward thinking in the land and property space through your work with the ESRI, my Department, the Department o f the Environment and others 0 Providing social housing - while recognising the significant challenges in this area • As you progress, I would challenge you again to continue to think about the positive impact you can have on the market and how important the decisions you are making on a daily basis are, including: ° the thoughtful supply o f development land for housing construction, ° thoughtful planning and development decisions which will impact our towns, cities and neighbourhoods for years to come, and ° valuable feedback to the Government across these issues as we work through many o f these challenges together. Section 227 & Beyond • As reflected in the Section 227 Review, NAMA's current key strategic objectives, within the overall objectives and the purposes of NAMA under the Act, include: ° redeeming 80% o f its senior debt by end 2016; ° remaining flexible to further accelerating disposals to surpass the 80% debt redemption target; ° delivering 4,500 residential units by 2016 in areas o f most need; and ° ensuring the timely and coherent delivery o f key Grade A office space within the Dublin Docklands SDZ and Dublin's Central Business District. • NAMA is making steady progress toward each o f these commitments • I am encouraged by your confidence that by end 2017 / early 2018 NAMA will: ° redeem 100% o f its senior debt, ° redeem all o f its subordinated debt, and ° likely show a surplus for the taxpayer o f up to €1 billion. • As discussed in the context of the S227 review, as increasing clarity emerges around the composition o f the assets remaining following the 80% redemption target, further analysis should be undertaken to evaluate potential strategic options for those remaining assets in advance o f end 2016. • I assume that you are already evaluating potential strategic options for those remaining assets, both in terms o f generating proceeds to remaining senior and subordinated debt and also in terms o f assets which may not need to be relied upon to generate those proceeds • To the extent the redemption o f senior and subordinated debt will not rely on the realisation o f assets relating to the Dublin Docklands SDZ, the development of residential units, we will find ourselves with increased flexibility regarding the options for value maximisation from those assets • As previously discussed I would like to learn more about vour thinking and developing strategy in this area to help evaluate the level o f flexibility that may be available to us Action Logs Created: 12/03/2015 16:29:20: Submission created by Declan Reid Sent For Review: 12/03/2015 16:34:23: Submission sent to Ann Nolan for Review by Declan Reid Sent to the Secretary General: 12/03/2015 16:41:23: Submission sent to Secretary General for Review by Ann Nolan Sent to the Minister: 12/03/2015 16:41:35: Submission sent to Minister for Review by Ann TSfolan on behalf o f the Secretary General Briefing for the Minister's Consideration Thank you - Continued Positive Momentum • Congratulations and thank you for the hard work and successes to date in achieving the major milestone of redeeming over 58% of your senior debt and your continued efforts in the interests of the taxpayer. (€17.6bn senior debt redemption) • The now established payment of a coupon on the subordinated debt is a strong indication of your confidence and has also had a positive effect on the banks’ balance sheets • Through the concerted efforts of all of us across the State over the last few years, including NAMA, we have generated positive momentum around Ireland’s recovery • We must now sustain and build upon this momentum in a way that allows continued productive investment in Ireland that facilitates not just a recovery of the FDI sector but most importantly a real recovery in the domestic economy • We are all making decisions every day that will impact how and at what speed our underlying domestic economy will recover • We all should remain vigilant for opportunities to sustain and accelerate our recovery Challenges • I am aware of the significant challenges you have faced and continue to face in achieving your objectives. • It is unavoidable that because of the important work NAMA performs and the tough commercial approach NAMA must take to achieve its objectives, NAMA will continue to be scrutinized, challenged and criticized and lobbyists will continue to be active in the political arena in this area • You have been proactive and professional in your handling of this scrutiny and encourage you to continue in these efforts • I share your concerns, as reflected though the Section 227 Review of NAMA, that the positive outlook for NAMA is premised upon NAMA retaining its operational capabilities through the retention of key staff. • I also recognise the unique employment situation that differentiates NAMA staff from other public servants, namely that they will be made redundant when their work is complete. • In light of this and to help safeguard NAM A’s continued success I support your proposal for an additional retention payment as I understand you would have learned at yesterday’s board meeting Briefing for the Minister's Consideration NAMA’s Important Role • As you are well aware, NAMA plays a key role in various aspects of Ireland’s recovery • The sooner NAMA meets its objectives, the sooner we have provided yet another signal that we have returned to a normalised market • As you know, NAMA bonds remain a contingent liability for the State, which, thanks to your performance to date, have become less of a concern for our Sovereign investors • NAM A’s success also has a direct impact on the recovery o f the banks and the value of the banks as holders of NAMA senior and subordinated debt • As the banks continue to recover, the increased attention we expected NAMA bonds to receive has been lessened by the acceleration of redemptions and the increased confidence that they will be redeemed at par at least 2 years ahead of schedule. • I would encourage you to constantly push yourselves to achieve your goals in the shortest timeframe possible to aid in the normalisation of our market and our banks Property Market • I appreciate your continuing work across the property market, including: o Your work with the IDA, local government and other agencies and departments across a number of property related issues o Providing direct development and acquisition funding in stimulating certain areas o f the market and investor interest o Working with other stakeholders to ensure the timely and coherent delivery of the SDZ in the Dublin Docklands o Driving forward thinking in the land and property space through your work with the ESRI, my Department, the Department of the Environment and others o Providing social housing - while recognising the significant challenges in this area • As you progress, I would challenge you again to continue to think about the positive impact you can have on the market and how important the decisions you are making on a daily basis are, including: o the thoughtful supply of development land for housing construction, o thoughtful planning and development decisions which will impact our towns, cities and neighbourhoods for years to come, and o valuable feedback to the Government across these issues as we work through many of these challenges together. Briefing for the Minister's Consideration Section 227 & Beyond • As reflected in the Section 227 Review, NAMA’s current key strategic objectives, within the overall objectives and the purposes of NAMA under the Act, include: o redeeming 80% of its senior debt by end 2016; o remaining flexible to further accelerating disposals to surpass the 80% debt redemption target; o delivering 4,500 residential units by 2016 in areas of most need; and o ensuring the timely and coherent delivery of key Grade A office space within the Dublin Docklands SDZ and Dublin’s Central Business District. • NAMA is making steady progress toward each of these commitments • I am encouraged by your confidence that by end 2017 / early 2018 NAMA will: o redeem 100% of its senior debt, o redeem all of its subordinated debt, and o likely show a surplus for the taxpayer o f up to €1 billion. • As discussed in the context o f the S227 review, as increasing clarity emerges around the composition of the assets remaining following the 80% redemption target, further analysis should be undertaken to evaluate potential strategic options for those remaining assets in advance of end 2016. • I assume that you are already evaluating potential strategic options for those remaining assets, both in terms of generating proceeds to remaining senior and subordinated debt and also in terms of assets which may not need to be relied upon to generate those proceeds • To the extent the redemption of senior and subordinated debt will not rely on the realisation of assets relating to the Dublin Docklands SDZ, the development of residential units, we will find ourselves with increased flexibility regarding the options for value maximisation from those assets • As previously discussed I would like to learn more about your thinking and developing strategy in this area Gmomhaireacht Naisiunta um Bhainistiocht Socmhainm National Asset Management Agency i Seen by Private and Confidential M inister for Finance VVl. \-c^ Mr Michael Noonan TD Minister for Finance Government Buildings Merrion Street Dublin 2 21 April 2015 Dear Minister At the NAMA Board Away Day on 13th March 2015, you requested that the Board revert to you with its views as to initiatives which could be taken to remove impediments to residential construction activity and thereby increase residential supply. The attached report summarises the outcome of the Board's deliberations and we trust you will find it useful. Yours sincerely \ Frank Daly Chairman G nfom haireacht N aisiunta um B h ain istioch t Socm hainnf Treasury Building, Sraid na Canalach M oire, Baile Atha Cliath 2 info@nania.i e www. nama.ic Brendan McDonagh Chief Executive Officer N ational A sset M an agem ent A gen cy Treasury Building, Grand Canal Street, Dublin 2, Ireland T +353 1 665 0000 NAMA ADVICE TO MINISTER FOR FINANCE ON MEASURES TO REMOVE IMPEDIMENTS TO RESIDENTIAL DEVELOPMENT ' Executive Summary \ At the NAMA Board Away Day on 13th March 2015, the Minister for Finance requested that the NAMA Board revert to him with its views as to initiatives that could be taken to remove impediments to residential construction activity and thereby increase residential supply. The severe downturn in the Irish property market over the period from 2007 to 2013 and the associated crisis in the banking system have had a serious impact on the residential development market. As a result, the supply of new housing continues to fall well short of demand, particularly in the Dublin area. Many of the developers who would normally be to the fore in developing residential projects are heavily indebted with no residual equity and are engaged in workout processes to maximise the recovery to their lenders, including NAMA. The Irish banks which would fund residential development in a normally functioning market are also engaged in prolonged recovery processes and currently have little or no appetite to engage in development lending. To some extent, the vacuum is being filled by other providers of development funding but nowhere on the scale required to meet current or prospective supply requirements. The view of the NAMA Board is that these various market dysfunctionalities will correct them selves over time but that a full market recovery is unlikely in the near future. The Board is of the view, given the depth and seriousness of market disorder over the past eight years, that there is no immediate or obvious measure which would be likely to ^ have a major transformational impact on the pace of residential supply, pending gradual market restoration. However, in its response to the Minister's request for advice, the Board suggests that consideration be given to a number of initiatives, outlined below, which focus on how the Government and entities within its control could facilitate and accelerate the market's return to normal functionality: 1. NAMA supports the establishment o f a specific State Infrastructure fund which would advance loans to local authorities to cover the cost o f local infrastructure. The loans would be repayable at a market rate o f interest on a phased basis as residential units were completed and sold. 2. NAMA proposes that the Public Capital Programme should give priority to strategic infrastructural projects which are necessary to unlock the development potential o f certain residential areas where demand exists, particularly in Dublin, Cork, Limerick and Galway. 3. NAMA proposes that the Government should consider the appointment o f a Chief Government Adviser on Residential Delivery to advise it on the measures necessary to ensure coherent and expeditious delivery o f housing, including recommendations as to priorities in terms of infrastructure funding (both strategic and local] and the specific actions required from State agencies and local authorities. Given the current and projected supply shortage, much o f the Chief Government Adviser's work would be focused on the large urban centres. 4. NAMA proposes that consideration should be given to a temporary reduction - from 13.5% to 9% - in the VAT rate applying to residential construction in order to stimulate activity fo r a period of three years. It is estimated that each €1 billion o f activity in construction has the potential to create 10,000jobs. Each 1% reduction in VAT would cost the Exchequer €10m (p e r€ l billion o f activity) but this does not take into account the positive fiscal impact o f any increase in output and employment attributable to a reduction in VAT. 5. NAMA proposes that the Department o f Finance should engage with the financial institutions with a view to establishing whether there are measures which could be taken to expedite the release for sale to the market o f residential land sites which secure hank loans. 6. It is suggested that the Department should also engage with AIB and BOI with a view to advocating the establishment in each bank of specific in-house planning and property asset management teams which would review each site in which the two banks have a security interest and which would advise the banks as to asset management actions that would improve the value o f sites for future development or managed disposal. 7. It is suggested that the State should consider making some €250m in mezzanine finance available at an appropriate rate o f interest to viable development projects that have 70% financing. 8. Many family homes are occupied by one or two persons (often elderly couples whose families have left) and, in that context, consideration should be given to the introduction o f incentives which would encourage 'downsizing' to smaller houses or apartments in such cases. Background The supply of residential housing in Ireland has fallen to very low levels, with just 11,016 completions in 2014, of which 3,259 were in Dublin. It is estimated that NAMA delivered about 40% of the 3,259 residential units completed in Dublin in 2014. The level of completions seen in 2014 is well short of what is currently required or likely to be required over the coming years, particularly in the Dublin area. The ESRI is projecting demand in Ireland at 90,000 units between 2014 and 2021 with 86% of this (77,500 units in total or an annual average of 9,700} in Dublin and the commuter counties1. Projections by the Housing Agency (April 2014} suggest a minimum required supply of 79,660 residential units in urban areas to support the population between 2014 and 2018, an average annual equivalent of 15,932. Analysis of planning applications' data suggests that there is little prospect of a significant increase in supply in the near future. This suggests that the imbalance between supply and demand will deteriorate further before the market can respond adequately, thereby putting additional upward pressure on house prices and on rents. To the extent that it can, NAMA has actively sought to alleviate supply pressures by committing funding which will enable the completion of 4,500 residential units to the Greater Dublin Area ('GDA'} by the end of 2016. Because of its de facto equity position in development projects, NAMA is in a position to generate activity by providing a higher proportion of debt funding than is otherwise available in the market. However, while its contribution may help to ease supply pressures in the near term, NAMA's finite lifespan, as currently envisaged, means that it will not be in a position to contribute directly on a long-term basis. In order to identify measures that could be taken to alleviate the supply problem, it is useful first to outline briefly the main impediments currently constraining residential supply. This paper does not purport to offer an in-depth analysis of the causes of the current supply constraints nor does it seek to identify a comprehensive set of possible solutions to the crisis. Rather, its focus is to suggest a small number of initiatives - all of which are within the Government's control - which could help to accelerate market recovery. ESRI Research Note - Projected Population Change and Housing Demand: A County Level Analysis, Edgar Morgenroth, August 2014. Constraints on supply On the face of it, the residential development market, particularly in the GDA, should currently be attractive to investors and developers. Prices have been rising strongly since 2013 and there are clear supply / demand mismatches which a properly functioning market would normally be quick to address. However, for reasons which are outlined below, the market has been slow to respond in terms of a significant increase in supply. In NAMA's view, the following are the main constraining factors which are currently at work: 1. The lack of availability of finance. 2. The lack of availability of construction platforms. 3. The availability of sites which are commercially viable to develop. Difficulties are currently being experienced in relation to all three of these factors. 1. Lack of availability of finance Most developers with residential development sites are currently struggling to attract construction funding given high legacy debt levels and a lack of access to equity. Traditionally, developers in Ireland operated with only 10% equity or, in some cases, with no equity at all given that full debt funding was being provided by the financial institutions. Perhaps understandably, given their experience over the past decade, banks are making very little funding available for residential construction; even where they are open to providing funding, they will commit to funding only 60% of costs which means that the developer has to find the 40% equity elsewhere. To some extent, other sources of funding are emerging: for instance, specialist financiers are providing development finance which is, to some extent, filling the gap left by the low level of bank funding. Nonetheless, there is still a formidable cultural challenge to be overcome given the traditional resistance of many developers to the participation of external equity providers in development projects. Even in cases where equity is available from investors and developers are willing to consider such arrangements, many projects are not yet sufficiently profitable to enable the parties to agree on profit-sharing arrangements which are mutually acceptable. As the banking system recovers, it is reasonable to expect that these constraints will resolve themselves over time. As bank balance sheets improve and they revert to functioning more normally, banks can be expected to resume development funding for commercially sensible projects. Should residential prices continue to rise in response to the escalating supply/demand imbalance, more and more projects will become commercially viable which, in turn, will mean that they will be less risky for the providers for debt finance and more attractive for providers of equity finance. At this stage, it is unclear how long this reversion to more normal conditions will take but it is reasonable to assume that it could take another tw o/three years. Proposal In the meantime, there may be scope fo r a measured form o f State intervention in relation to funding. One option would be for the State to consider making some €250m in mezzanine finance available at an appropriate rate of interest to viable development projects that have 70% debt financing. 2. Lack of availability of construction platforms One of the consequences of the crisis in the construction sector was the failure of many construction firms. This means that there is a dearth of experienced and competent businesses now available to deliver residential supply. Many of the surviving businesses survived only with 100% funding support from NAMA and NAMA is currently entering into commercial arrangements with some of them so as to ensure, not only that they can deliver their contribution to the 4,500 unit end-2016 target, but also that, by the time they leave NAMA, they have an opportunity to emerge with businesses that can play a major part in future construction activity. As with the availability of finance, it is likely that this issue will resolve itself over time as construction platforms re-form and re-assemble in line with opportunities arising in a recovering market. As debtor connections with construction capability sever their ties with NAMA over the next three years, they will increasingly seek opportunities to apply their construction expertise on projects in which they may not necessarily have a debt or equity involvement i.e. they will be paid to carry out construction work on sites which are not theirs. NAMA considers that the re-assembly of development platforms is simply a function of time and market recovery and that there is no obvious Government intervention which could effectively accelerate the process. 3. Availability of commercially viable sites There are three aspects to this. (a) Many land sites and projects are still marginal in terms of viability Notwithstanding the price recovery seen over the past two years, many residential development sites and projects are still not commercially viable or are only marginally viable. The level of construction costs did not adjust downwards to any great extent during the severe downturn in construction activity: materials are subject to international price trends and labour costs fell only marginally. Accordingly, certain projects can only become viable if other cost elements are reduced or if market prices increase further. One of those cost elements is VAT. While NAMA does not consider that taxation policy has a major role to play in expediting residential development, there may be scope for a time-limited VAT stimulus to order to kickstart development activity. VAT is currently levied on housing at a rate of 13.5%. Given current supply constraints, a temporary reduction to a rate of 9% on completed units would likely have the effect of encouraging the development of sites which are currently marginal in terms of profitability. The imposition of a time limit on the VAT incentive could operate in tandem with the imposition of the proposed vacant site levy - say a three-year window in which to develop sites with a vacant site levy to apply thereafter. This could provide a significant incentive to developers to proceed with projects sooner rather than later. It is difficult to estimate the net fiscal impact of a VAT rate reduction and much depends on the assumptions made as regards the additional construction activity that would be stimulated (please see Appendix). Proposal NAMA suggest that consideration should be given to a tem porary reduction -fro m 13.5% to 9% - in the VAT rate applying to residential construction in order to stim ulate activity. It is suggested that the incentive should apply fo r a period of three years. (b) Lack of suitable site acquisition opportunities. Within the four Dublin local authority areas, there are currently estimated to be sites capable of delivering 46,000 units (please see page 11 below]. Many of the sites are owned by debtors who are indebted to NAMA or to financial institutions. The view of the local authorities is that there is no insurmountable infrastructural impediment to their development. However, that is not to suggest that development is currently a commercially viable proposition for the majority of the 46,000 sites. For some sites, the provision of infrastructure is a major constraint; indeed, the Dublin Housing Supply and Co-ordination Task Force (which includes local authority representatives) has recognised that, for larger projects, significant upfront infrastructure costs cannot currently be borne either by the local authorities or by developers. Sites under the control of NAMA debtors and receivers As regards sites which are under the control of its debtors and receivers, NAMA's strategy is as follows: • NAMA has committed to facilitating the completion of 4,500 new residential units in the period to the end of 2016. These largely correspond to sites classified as Tier 1 sites i.e. sites which are suitable for immediate development. • Sites which are categorised as Tier 22 are being managed so as to ensure that new supply can be delivered as expeditiously as possible, particularly in Dublin. NAMA's approach to Tier 2 sites is to maximise their disposal value through active asset management, including obtaining new, viable and optimal planning permissions. • Since the beginning of 2014, NAMA has disposed of sites which have the potential to deliver 10,000 residential units; post-disposal, there has been construction activity on W " only four of these sites (with a delivery capacity of 371 units]. In addition, NAMA asset and loan sales scheduled for 2015 are expected to release sites to the market which could deliver another 5,700 residential units if developed by the new owners. • The broad policy orientation of the NAMA Board is to maintain a role beyond its 2016 delivery commitment: the nature and duration of its involvement is likely to depend on how quickly the residential development market reverts to functioning normally. In that 2 In April 2015, 23,000 units were classified as Tier 2 residential sites (sites capable of obtaining planning permission within a 12 month to 18 month horizon) context, the Board will be open to assessing various options in terms of how it might best contribute to the provision of supply after 2016, including Joint Venture or licensing arrangements on landbank assets where NAMA has worked to enhance value through improved and appropriately sustainable planning. If required, the Board is npp.n to providing funding to commercially viahle-resklefltial development projects after 2016 subject to any financial constraints imposed by the priority attached to senior debt redemption targets. • If NAMA is not itself involved in funding of residential delivery after 2016, the Board believes that close monitoring and oversight by another State body with specialist expertise and funding (possibly ISIF or another agency within the aegis of NTMA] will be required to ensure that these sites are developed expeditiously. In that context, the Board is open to the option of selling its residual residential interests (based on an independent valuation and assuming alignment with its Section 10 obligations), at some appropriate point in the future, to such an entity. Sites under the control o f debtors with other financial institutions NAMA has exposure to less than 30% of the development land in Dublin. There is little information available in relation to the asset management and development funding activities of other secured lenders and of the owners of the other 70% of development land. Not all land and development loans in the participating institutions were acquired by NAMA: only those debtors whose aggregate debt exceeded €20m qualified. AIB and Bank of Ireland still retain significant land and development loan exposures; it is estimated that these loans are currently carried at values of about €3 billion between them, considerably in excess of the carrying value of development sites controlled by NAMA debtors and receivers. It is unsurprising that the banks would be reluctant to extend further funding to debtors given the large losses already incurred. It is also the case that banks may be reluctant to take any action which would have the effect of crystallising losses against their land and development lending. However, prolonged inertia in terms of dealing with sites securing bank loans is not in the wider public interest given current residential supply shortages and the evident availability of investor funds seeking to purchase such sites. Proposals Sites owned by debtors who are indebted to financial institutions could make an im portant contribution to meeting future residential supply requirements. NAMA suggests that the Department of Finance should engage with the financial institutions with a view to establishing whether there are measures which could be taken to expedite the release fo r sale to the m arket of residential sites which secure bank loans. It is also suggested that the Department should engage with AIB and BOI with a view to advocating the establishment in each bank o f specific in-house planning and property asset management teams which would review each site in which the banks have a security interest and which would advise the banks as to asset management actions that would improve the value of sites fo r future development or managed disposal. (c) A shortage of serviced development sites in the Dublin area as a result of infrastructural deficiencies. Infrastructural requirements fall into two broad categories. Strategic infrastructure comprises regional waste and water systems, transport networks, energy provision and telecommunications capacity and is typically funded through public capital investment. Local infrastructure comprises site-specific infrastructure (internal site roads, pipe works, etc] and district infrastructure (infrastructure requirements which straddle a number of development sites within an overall development area, such as Local Area Plan level). An example of the latter would be a through-road which could open up a number of sites for development and where, accordingly, the ultimate benefit and cost will accrue to a number of development projects. Generally speaking, local infrastructure is funded through development levies payable to local authorities. Based on analysis carried out by the Dublin Housing Supply and Co-ordination Task Force, residential development sites in the Dublin area are classified into three groups: 1. Sites which have the capacity to deliver 21,000 units from planning permission already in place or under consideration. 2. Sites which are zoned for residential development and which could deliver an additional 25,000 units if planning permission were sought and granted. The Task Force states that these sites involve 'no insurmountable infrastructure constraints’. However, in NAMA's view, the fact that there are 'no insurmountable infrastructure constraints' as seen from the high-level perspective of the local authorities does not necessarily mean that the particular projects involved are yet at a point where they are commercially viable to develop. In particular, it is not clear to what extent a lack of funding for necessary local infrastructure is acting as an impediment to development. NAMA believes that this is a major issue. 3. The Task Force estimated that a third group of sites had potential to deliver 48,500 units over a medium- to long-term horizon. For this group of sites, it is accepted that significant strategic infrastructural deficits exist which mean that the sites are not currently viable for development. Before the market downturn, the normal practice was for local authorities to fund and provide the necessary infrastructure upfront; typically, infrastructure costs were recouped on a phased basis from the site developers as units were sold off. There have been calls - from the CIF, for instance - for reductions in development levies as a means of stimulating residential construction activity. The local authorities point out that there have already been significant reductions in levies over recent years; the four Dublin authorities, for instance, state that they have reduced their levies by 26% since 2013. NAMA's view is that it is appropriate that development levies should remain in place and that, for the most part, they should continue to cover the full cost of local infrastructure. The key issue, in NAMA's view, is that neither local authorities nor developers have the financial resources to fund necessary local infrastructure provision at present and, as noted above, financial institutions have little appetite for lending to the property development sector and none for lending beyond a 60%-65% threshold. Against that background, NAMA considers that a strong case can be made for the establishment of a State fund which would advance loans to local authorities to cover the upfront cost of necessary local infrastructure. The loans would be repayable on a phased basis by local authorities through development contributions as residential units were completed and sold. NAMA considers that this initiative could make an important and effective contribution towards removing a major obstacle to residential development. In addition, it would be necessary to give priority, through the Public Capital Programme, to strategic infrastructure projects which are necessary to unlock the development potential of certain key areas. However, the provision of infrastructure funding would not, of itself, be sufficient to ensure coherent and expeditious delivery of housing supply. It is crucially important that priorities be established as betw een the numerous areas that have been zoned for residential development. It is also vital that the various arms and entities of the State act coherently and in a co-ordinated manner over the coming years to expedite delivery, particularly in Dublin. The following examples illustrate the requirements for alignment between strategic and local infrastructure development planning and for upfront funding to unlock the potential for housing supply in priority areas. Example: W oodbrook Shanganagh Local A rea Plan (LAP) In the area covered by the Woodbrook Shanganagh LAP in Dun Laoghaire Rathdown County Council, there is potential to deliver between 1,400-1,700 units on a site of some 21 hectares. However, for development to take place, a prerequisite is that infrastructure is provided by various agencies including Irish Water, local authorities and developers. The following is an example of the infrastructure required at both the strategic infrastructure and local infrastructure levels: Strategic Infrastructure required • New DART station at Woodbrook • Upgrade of the N il Wilford Interchange and upgrading of the Wilford roundabout • Widening of Old Dublin Road south of the Wilford roundabout, including the provision of a QBC along the Old Dublin Road • Cycleway from Killiney to Woodbrook and Shanganagh Park and from Corbawn Land to Corke Abbey • The provision of upgraded water supply infrastructure throughout the area, including water reservoirs and treatment plants and network improvements • Upgrade of currently deficient pipe network to the new Bray Shanganagh Waste Water Treatment Plant Local Infrastructure required • The provision of a new road linking the old Dublin Road with the location of the proposed DART station at Woodbrook • A primary school site (1.22ha) Example: B aldovle/S tapolin Likewise in the Baldoyle/Stapolin area of Fingal County Council, both strategic and local infrastructure is required to release land that is capable of delivering over 1,000 homes. Some of this strategic and local infrastructure includes: Strategic Infrastructure required • Realignment of the Hole in the Wall Rd with Drumnigh Rd • Enhance capacity of the Clare Hall junction • Improve carrying capacity and free flow on Grange Road and Grange Ave into Baldoyle Industrial Estate • Willie Nolan Road / Baldoyle Main Street junction improved • The east-west distributor road from Malahide Road to Swords Road • Full realignment of the Malahide Road • Public Transport Overbridge Local Infrastructure required • Primary School • Attenuation Pond for entire LAP • Construction of internal roads and streets at the level of the LAP • Construction of public open spaces at the level of the LAP • Remaining site-specific Infrastructure The potential for substantial housing supply in other key parts of Dublin, e.g. Cherrywood SDZ and the north Dublin catchments of Santry/Northwood/Swords is also dependent on the delivery of major strategic and local infrastructure. Crucially, however, it will be necessary to set priorities for scarce public funding for strategic infrastructure and for the funding that a special State fund may provide for local infrastructure. Clearly, there is also a major challenge involved in co-ordinating and driving the delivery of infrastructure and it is doubtful whether the mechanisms currently in place are sufficient to provide that necessary co-ordination and drive. In that context, it may be noted that NAMA's capacity to fund the upfront delivery of both strategic and local infrastructure, and its wider co-ordination/leadership role, are key contributory factors to the progress that is being made in the Docklands' SDZ. NAMA's contribution to the delivery of the Docklands SDZ, both in terms of funding the upfront delivery of strategic and local infrastructure and in terms of its wider co-ordinating role, provides an example of what can be achieved through integrated, targeted and upfront infrastructure development planning. By contrast, as regards residential delivery, there is a r isk, under current arrangements whereby each State entity and authority proceeds at its own pace and in line with its own priorities, of a lack of urgency and cohesiveness on the part of State agencies and authorities in a d d r e s singi n fr astructural require m e n ts. To address this risk and to give cohesion and impetus to the various ways in which State entities can facilitate residential delivery, NAMA suggests that the Government should consider the appointment of a Chief Government Adviser on Residential Delivery to provide leadership and co-ordination across agencies and authorities. The role of the Chief Government Adviser would be to advise the Government on the measures necessary to ensure coherent and expeditious delivery of housing, particularly in urban areas, including recommendations as to priorities in terms of infrastructure funding (both strategic and local) and the actions required from State agencies. Ultimately, it would be for Ministers to exercise the powers available to them to ensure that necessary actions were taken to expedite residential delivery; however, they would be heavily dependent on the authoritative advice and drive provided by the Chief Government Adviser. A more detailed specification of the role is as follows: Chief Government Adviser on Residential Delivery • In the context of the projected residential supply requirements (particularly in the Dublin area) over the medium-term, the Chief Government Adviser would have responsibility for advising the Government on the steps necessary to ensure that State agencies (under the aegis of Government Ministers) act expeditiously, coherently and effectively in facilitating residential delivery. Essentially, NAMA's view is that, in order to meet the significant challenge involved in addressing projected residential demand in urban areas, it is necessary to address the issue with a sense of urgency and dynamism and with a strong business focus. • The Chief Government Adviser would set priorities and make recommendations to Government as to which of the areas zoned for residential development in urban areas should receive funding for strategic or local infrastructure e.g. capital investment on roads, water services, etc. This would facilitate co-ordinated and coherent activity by State agencies with the aim of ensuring that scarce State fiscal resources were deployed to best effect. • He/she would advise the Government on specific actions required of the local authorities, utility companies and other State entities to expedite residential delivery. • The Chief Government Adviser would be independent of Government Departments and State agencies and it is suggested that he/she would have a direct reporting line to a Cabinet sub-committee who would be in a position to approve and give effect to his/her recommendations. He/she would rely on Ministers to direct agencies and authorities to carry out actions or initiatives which had been approved by the Cabinet sub-committee. • To enhance the independence and credibility of the position, it is proposed that the Chief Government Adviser's advice and recommendations to Government would be published. If he/she required specialist support, one option would be to avail of the expertise of the NAMA Residential Delivery and Planning teams and potentially of other centres of expertise within the NTMA. It may be noted that, on at least two occasions in the past - during the 1950s and again in the 1970s - public housing supply shortages in the Dublin area were addressed through the appointment of senior officials who were given special responsibility for identifying obstacles to residential development and who were given the necessary powers and functions to deal with them3. The proposed role would have some parallels with that of the Chief Construction Adviser ("Construction Tsar") in the UK. This position was created by the British Government in 2009 to provide cross-departmental coordination and leadership on construction industry policy. The proposed approach outlined above is not dissimilar to one which has recently been adopted in London which is also faced with a serious housing shortage. In February 2015, the Mayor of London announced the designation of the first nine (of an envisaged twenty] London Housing Zones. The Zones are specific locations which are earmarked for accelerated delivery of new homes. It is envisaged that the Mayor and the Greater London Authority will work in partnership with boroughs, land owners, investors and builders to accelerate residential delivery and that, to this end, there will be intensive engagement with a range of delivery partners, including utility and transport companies. The initiative will be supported by a budget of £400m, part of which will fund necessary infrastructure such as the upgrade of rail stations and the building of schools and bridges. It is envisaged that each Housing Zone will have an agreed delivery framework which will set out the target number of homes for delivery within the zone, the blockages to delivery, the interventions required to remove blockages and the timetable for delivery. It is suggested that a similarly focused and intensive approach may be necessary to address the Irish urban housing supply issue, particularly in Dublin. Proposals NAMA proposes the establishment o f a State fund which would advance loans to local authorities to cover the cost o f local infrastructure. The loans would be repayable on a phased basis as residential units were completed and sold. 3 Mr. T.C. O'Mahoney was appointed Housing Manager during the 1950s and Mr. James Molloy was appointed Housing Co-ordinator during the 1970s. NAMA proposes that the Public Capital Programme should give priority to strategic infrastructure projects which are necessary to unlock the development potential o f certain priority residential areas. NAMA proposes that the Government should consider the appointm ent o f a Chief Government Adviser on Residential Delivery to advise it on the measures necessary to ensure coherent and expeditious delivery o f housing, and in particular recommendations as to priorities in term s o f infrastructure funding (both strategic and local) and the actions required from State agencies to facilitate delivery. The initiatives outlined above are all geared towards accelerating the supply of new residential housing. The NAMA Board's view is that consideration should also be given to measures which would have the effect of ensuring that existing stock is better utilised. For instance, there is evidence to suggest that many family homes are occupied by one or two persons (often elderly couples whose families have left) and, in that context, there may be scope for incentives which would encourage 'downsizing' to smaller houses or apartments in such cases. This issue is currently the subject of a research paper which has been commissioned from the ESRI by NAMA and by Banking and Payments Federation Ireland. The findings of this research are expected to be available in September 2015. APPENDIX: ESTIMATE OF EXCHEQUER IMPACT OF VAT REDUCTION Assuming a pre-VAT construction cost of €250,000 per unit, the loss to the Exchequer from a reduction of 4.5% in the VAT rate would be €124m, assuming annual completions of 11,000 units (as in 2014). Each 1% reduction in sales of €1 billion would cost €10m. If, however, it is assumed that the effect of the VAT reduction would be to increase housing output, there would be a number of positive fiscal effects arising, including additional VAT receipts generated by incremental output that would not otherwise have been delivered, social welfare savings as a result of persons leaving the Live Register for paid employment and an increased tax take from income tax and other employment-related taxes generated by newlycreated jobs. Assumptions: 1. The Construction Industry Council has estimated (March 2009 Submission to Government) that each job created in the construction industry saves the Exchequer €36,712 per annum (€18,254 in social welfare savings; €18,458 in increased tax take). 2. The Department of Finance (Jobs and Infrastructure, April 2009) has estimated that every €1 million invested in construction activity generates between 8 and 12 jobs. Based on these assumptions, it is estimated that an increase in output of 10% would be required to generate sufficient fiscal receipts to offset the negative impact of the cut in the VAT rate from 13.5% to 9%. These positive fiscal effects would derive from increased residential output and from the additional jobs created. This does not take into account the positive social and economic impact that additional housing would create in terms of dampening price and rent inflation. NAMA 28.The NAMA write-down was €42.5 billion. How much of this will the taxpayers see back? Q44 29.Making a profit after a 60% write-down. Is that good business? Q45 30. With shortages of housing, how are NAMA's housing development plans progressing? Q46 Outside scope of request Outside scope of request Outside scape ef request Outside scope of request Outside scope of request Outside scope ef request 28.The NAMA write-down was €42.5 billion. How much of this will the taxpayers see back? 29.Making a profit after a 60% write-down. Is that good business? • The losses incurred by the banks resulted from poor bank lending practices. • These losses are not NAMA losses. • They are bank losses and the banks had to be recapitalised to deal with the losses which amounted to close to €80 billion when non NAMA loan book losses are taken account of. • NAMA has been extremely successful in working out the impaired loans that it acquired - a fact acknowledged internationally by, amongst others, the World Bank, IMF and European Commission, and there is no doubt that the outcome that NAMA will ultimately achieve will be substantially better than could have been achieved through any other option, including the establishment of individual workout subsidiaries for each of the banks. • There are number of reasons why this is the case, including the fact that the banks which had caused the problem in the first place were not the party best placed to resolve it. (The NAMA Chief Executive's Statement to the Banking Inquiry contains substantial detail to substantiate this assertion) • When I took up office some commentators were predicting that NAMA would lose at least €6 billion with additional losses to be borne by the Exchequer which the country could ill afford. • So I am very happy to be talking today about a potential NAMA surplus of circa €1 billion. • It's ironic that many of those who said NAMA would lose money are now questioning the size of NAMA's potential surplus. • NAMA has said that it will repay all its debt, including the senior debt guaranteed by the Government and the unguaranteed subordinated debt and hope to generate a surplus of the order of €1 billion for taxpayers. • Furthermore, NAMA is well ahead of schedule in this respect which I welcome as the State's contingent liability is reduced. It has said it will have repaid 80% of its senior debt and perhaps more by the end of next year and expects to have repaid all of its senior debt by 2018. • The €31.8bn that NAMA paid as consideration for the acquired loans included a €5.6 billion State Aid element, that is, the valuation regulations required NAMA to pay the financial institutions €5.6 billion more than the private sector market would have paid them at the time of the acquisition. • In addition, NAMA acquired assets by reference to a valuation date of 30 November 2009 which meant that it absorbed further losses which arose from the further 25% to 30% decline in Irish property prices which occurred after the November 2009 acquisition valuation date. • Therefore, when the State Aid of €5.6bn and further decline in the property market are taken into account, a €1 billion surplus, would in effect, be an €11bn turnaround in value terms on the assets acquired by NAMA. • A key factor in NAMA's success to date has been the role it has played in helping to generate recovery in the Irish property markets. 30. With shortages of housing, how are NAMA's housing development plans progressing? • NAMA is making a very substantial contribution to housing supply. • Since 2014, NAMA has funded the delivery of more 1,700 new housing units across 39 sites in the Dublin area. Last year alone, NAMA funded the delivery of 50% of all new housing in Dublin. • Construction is currently underway on more than 1,600 additional new units across 40 NAMA sites in the Dublin area which will be delivered by the end of 2016. • Planning approval is in place for a further 1,400 units which will be delivered by the end of 2016 - construction on most of these developments will have commenced by the end of the year. • NAMA is therefore firmly on track to meet its target of funding the delivery of 4,500 new homes in the Dublin area by the end of 2016. • In addition to the 4,500 units targeted for delivery by end-2016, NAMA is also working with local authorities, developers and receivers to secure planning permission and remove obstacles to development for sites which can deliver more than 20,000 units in the Greater Dublin area in the period after 2016. There are various options as to how these could be delivered but NAMA's priority is to ensure that they are delivered as expeditiously as possible given the pressing need for housing. • NAMA is uniquely resourced with expertise across design and planning, project financing and project delivery to drive the delivery of new residential development. • Examples of NAMA funded residential construction projects in 2015 o Royal Canal Park, Pelletstown o Block D, The Grange, Stillorgan o Miller's Glen, Swords Phases 1B/1C/1D o Phase 3, College Square, Terenure o Diswellstown House, Castleknock o Diswellstown Manor, Castlnock o Celbridge Road, Lucan o Piper's Hill, Naas o Ballygossan Park, Miller's Lane, Skerries o Ardilea Crescent, Knockrabo o Newtown, Kill o Dublin Road, Shankill Hazelbrook, Nutgrove Av, Churchtown 11 David Linehan From: Sent: To: Cc: Subject: Declan Reid 15 September 2015 10:28 Ann Nolan Antoine MacDonncha NAMA Residential Delivery - Minister Speaking Points Ann, Have attached links to the two documents below. These links should work now. Let me know if you have any comments. M inister - Sum m ary Speaking Points Officials - Detailed Briefing Thanks, Declan Declan Reid Banking Division Department of Financc] Upper Merrion Street Dublin D02 R583 Ireland Phone: +353 1 6045679 Mobile: Email: decian,reid(5>finance.gov.ie Website: http://www.finance.Eov.ie l r a NAMA & Residential Housing An Roinn Airgeadais Department of Finance Minister meeting with NAMA CEO & Chairman 15 Sep 2015 SUMMARY SPEAKING POINTS • We continue to see a shortage of residential supply in the areas of greatest need in the market. • I appreciate that NAMA is currently playing a key role in providing support to the property market by boosting supply - within the constraints of its overriding mandate. • One area of particular concern to me is the lack of residential development activity and hoarding that may be occurring as a result of expectations of future price increases creating a distortion in the market for development land. • If the market believed that significant supply was coming to the market, expectations of future price increases would be tempered which may lead to a reversal of hoarding behaviour. • The NAMA Act obliges the NAMA Board to have regard for this issue in exercising its functions, namely section 11(2) which states: undue concentrations or distortions in the market for development land." • As a result, I do not believe a direction is required for NAMA to act in addressing this distortion in the market. • In light of this market distortion, I would like you to explore NAMA's ability to increase the scale and pace of delivery of residential units to areas of greatest need. V COMMERCIALLY SENSITIVE FOR FOI PURPOSES "In the exercise of its functions NAMA shall have regard to the need to avoid J DETAILED SPEAKING POINTS • The market's supply response to deliver residential units is lagging demand significantly. • I share NAMA's previously expressed views that the market will correct itself over time, but given the depth and duration of the previous market dislocation a full market recovery is unlikely in the near future. • I appreciate that NAMA is playing a key role in providing support to the property market by boosting supply - within the constraints of its overriding mandate. • NAMA must be guided by the NAMA Act and its purposes and has overriding debt redemption commitments. • I am fully aware of the current commitments NAMA has made while remaining faithful to its objectives, namely: o To deliver 4,500 units from NAMA's Tier 1 sites by YE 2016. o I understand you have already delivered 1,841 of these to end August 2015. • I also understand that there is significantly greater longer term delivery potential within NAMA's Tier 2 sites (c. 20 - 25,000 units). occurring as a result of expectations of future price increases in the residential property market - primarily resulting from the delayed supply response itself. • You have mentioned that from YE2013 to April 2015 NAMA had disposed of sites with the potential to deliver 10,000 residential units and that post disposal there had been construction activity on only 4 of these sites with a delivery potential of 371 units. • It seems that this behaviour may be self-fulfilling - withholding property from development will exacerbate the supply shortfall and drive future prices higher reinforcing developer decisions to withhold property from development. • However, if the market believed that significant supply was coming to the market, expectations of future price increases would be tempered which may lead to a reversal of this hoarding behaviour. COMMERCIALLY SENSITIVE FOR FOI PURPOSES • One area of particular concern to me is the lack of development activity that may be • By effectively making hoarding of development land a less attractive proposition, the promise of significant levels of new supply may be sufficient to encourage a broader supply response. • Now - how to create such a promise / credible threat of significant supply. • I know that to manage down NAMA's exposure expeditiously and meet your debt redemption targets while also achieving best value, NAMA must weigh the value of outright sale versus funding development by its debtors. • In cases where it is most beneficial for NAMA to fund development by its debtors, NAMA is best placed to ensure the timely delivery of supply. • I would like your assurance that in such cases NAMA is doing everything it can to bring these sites to market as soon as practicable. • Where NAMA has identified the sale of development land as the best course of action, it is clear that it is not possible to bind a purchaser to develop the acquired land. • It is also clear that licensing arrangements to insure development will result in reduced proceeds versus an outright sale. • Under the Act I am able to direct NAMA to take action to further its objectives. the NAMA Board to have regard for this issue in exercising its functions, namely section 11(2) which states: "In the exercise of its functions NAMA shall have regard to the need to avoid undue concentrations or distortions in the market for development land." • In addition, any such Direction could be misconstrued and risk NAMA falling within Government with the resulting consequences for the Debt to GDP ratio. • I would like you to explore NAMA's ability to increase the scale and pace of delivery of residential units to areas of greatest need. COMMERCIALLY SENSITIVE FOR FOI PURPOSES • However, in this case I do not believe a direction is warranted as the Act already obliges • For example, the current market distortion may justify NAMA pursuing licensing agreements versus outright sale of development land to protect against the further distortion of the market if land sold is not developed in a timely manner. • I would also like to understand how any such action to correct current market distortions may or may not impact your other objectives, in particular the timing and level of your senior bond and subordinated bond redemptions. • Once we know this we can discuss the level of commitment for delivery of residential units that may be possible from NAMA and whether that level of commitment is sufficient to prime the supply response in the broader market that we are hoping to COMMERCIALLY SENSITIVE FOR FOI PURPOSES achieve. BACKGROUND INFORMATION Residential Delivery • NAMA is playing a key role in providing support to the property market by boosting supply. • Through its role as a member of the Dublin Housing Task Force, NAMA has identified all the lands on its books with Tier 1 (i.e. potential to deliver more than 20 units) residential planning already in place. These, along with all other Tier 1 sites in the Dublin area, have been published via an interactive map on the Department of Environment, Community, and Local Government website. This action has brought greater transparency to the Dublin market by publically providing prospective purchasers detailed information on sites with development potential. • As part of its contribution to address emerging residential supply shortages in the Greater Dublin area, NAMA established a dedicated Residential Delivery team in April 2014 to coordinate and drive the delivery of this commitment and assess the potential for delivery of additional units thereafter. • NAMA does not build houses itself, rather it works with its existing debtors to agree development plans, secure/alter planning permission and fund the debtor's delivery of units. • NAMA is making an outsized contribution to residential delivery relative to its exposure to residential development land • With exposure to less than one-third of Dublin's residential development land, NAMA funding delivered 40% of the 3,259 new housing units in Dublin in 2014 and in the first half of 2015 funded the delivery o f 50% of new output in Dublin. • NAMA has committed and is on track to deliver 4,500 residential units in Dublin by the end of 2016. • A total of 2,500 units are expected to end 2015 - to end August 2015 1,841 have been delivered. • The remaining units to achieve 4,500 are to be delivered in 2016. o Construction currently underway on more than 1,600 additional new units across 40 NAMA sites in the Dublin area which will be delivered by the end of 2016. o Planning approval is in place for a further 1,400 units which will be delivered by the end of 2016 - construction on most of these developments will have commenced by the end of the year. • Most of the units will be delivered on 62 sites where construction has already commenced or which are 'shovel ready' (Tier 1 sites). • In addition, NAMA is engaged in preparatory work with local authorities, developers and receivers to secure planning permission and remove obstacles to development on a second group of sites in the Greater Dublin area which are currently in the planning process or where additional planning work is required (Tier 2 sites). o If all of these 287 sites were to be developed, based on a preliminary analysis, they could deliver over 25,000 units in the years after 2016. o However, for a variety of reasons, including commercial viability, planning constraints, planning authority inflexibility and, for certain sites, an absence of demand for housing in the areas concerned, not all of the sites will prove to be suitable for development. COMMERCIALLY SENSITIVE FOR FOI PURPOSES • Since 2014, NAMA has funded the delivery of more than 1,700 new housing units across 39 sites in the Dublin area. r V • For a third group of sites in Dublin (some 22 Tier 3 sites), significant infrastructural or planning impediments have been identified, which if removed could deliver an additional 5,000 residential units. • NAMA's work in 2015 has focussed on the following: o Overseeing delivery of the 4,500 units targeted for completion by the end of 2016. o Driving progress on planning work on those Tier 2 sites in the Greater Dublin area which are assessed to be commercially viable. o Working to resolve infrastructural and planning impediments to the development of Tier 3 sites. • There are various options as to how these could be delivered but NAMA's priority is to ensure that they are delivered as expeditiously as possible given the pressing need fo r housing. • Earlier this month, a 7.48 hectare (18.4 acre) site in Mount Merrion, with planning for circa.170 houses and apartments, has been brought to market. Sites in prime locations, such as Mount Merrion, are drawing considerable market attention. Furthermore, bringing this class of site (Tier 1) to market with planning permission already secured, can be expected to significantly contribute to residential delivery in the Dublin area in the near future. • Examples of o o o o o o o o o o o o o NAMA funded residential construction projects in 2015 Royal Canal Park, Pelletstown Block D, The Grange, Stillorgan Miller's Glen, Swords Phases 1B/1C/1D Phase 3, College Square, Terenure Diswellstown House, Castleknock Diswellstown Manor, Castlnock Celbridge Road, Lucan Piper's Hill, Naas Ballygossan Park, Miller's Lane, Skerries Ardilea Crescent, Knockrabo Newtown, Kill Dublin Road, Shankill Hazelbrook, Nutgrove Av, Churchtown COMMERCIALLY SENSITIVE FOR FOI PURPOSES a J NAMA's Previous Responses "The view of the NAMA Board is that these various market dysfunctionalities will correct themselves over time but that a full market recovery is unlikely in the near future" "The Board is of the view, given the depth and seriousness of the market disorder over the past eight years, that there is no immediate or obvious measure which would likely to have a major transformational impact on the pace of residential supply, pending gradual market restoration." NAMA has indicated that while NAMA cannot provide the solution to the current supply problems, it is well placed to make some constructive suggestions, some of which are set out below: • NAMA supports the establishment of a State infrastructure fund o Neither local authorities nor developers have the financial resources to fund necessary local infrastructure and financial institutions are rightly reluctant to provide lending beyond the 60-70% LTC threshold • NAMA proposes that the Public Capital Programme should give priority to strategic infrastructure projects necessary to unlock residential development potential o There seems to be a lack of prioritisation into the right areas to enable the priority delivery of residential units o Allocation of infrastructure development capital under the capital development programme does not seem to align with development plans o Identify sites fo r priority development and target infrastructure development resources o e.g. The Cherrywood SDZ has the capacity to deliver c.4,000 residential units but is currently stuck in discussions with local authorities around investment in required infrastructure • Consider a Chief Government Adviser of Residential Delivery Help address a lack of cohesive thinking and urgency on the part of State agencies and authorities in addressing infrastructural requirements • Consider a temporary reduction in VAT(13.5% to 9%) • Explore measures to expedite release for sale of residential land sites securing bank loans • Encourage in-house planning and property asset management teams within banks - similar to NAMA's residential delivery team • Explore provision of mezzanine financing • Consider incentives for downsizing from underutilized properties COMMERCIALLY SENSITIVE FOR FOI PURPOSES o r a Develop or Sell • NAMA have previously indicated from YE2013 to April 2015 NAMA had disposed of sites with the potential to deliver 10,000 residential units. Post disposal to April 2015 there had been construction activity on only 4 of these (delivery potential of 371 units). • NAMA decides to sell or to fund the development of a site based on the expected return of each option. • Where NAMA decides to fund development, the expected return to NAMA is greater than the expected return on sale. • Market expectations of continued low levels of supply and resulting future price increases are likely increasing development land sales prices, making NAMA's development option relatively less attractive. • Once sold, NAMA cannot bind a new owner to develop a site nor can NAMA provide funding development by a third party • It would be difficult for NAMA to sell a site through a development licence as opposed to an outright sale as a development licence would attract lower proceeds than an outright sale • Where NAMA has sold a site the buyer may not develop the site for a number of reasons, each primarily relating to an assessment that immediate development may not deliver the expected return to the developer as a result of: o Overpayment o Lack of infrastructure investment by state o Expectations of greater future returns due to expected price inflation • Regardless of the seller, if a developer sees a potential for outsized profits of more than a few percentage points by delaying development, they are likely to delay development. • No funding benefit or tax incentive is going to alter this decision other than at the margin if there is a large gulf between today's and tomorrow's expected return V • Need to create a threat to the expected returns to delaying development by making hoarders believe that significant supply will come onto the market • If developers see a risk to returns of delaying development they be less inclined to hoard COMMERCIALLY SENSITIVE FOR FOI PURPOSES • We need a significant supply response which is not likely to result from funding or tax incentives J Can NAMA accelerate the market's supply response • NAMA's plans to facilitate the development of office and residential accommodation are aligned with its fourth objective (to contribute to the social and economic development of the State) and with its fifth objective (to manage assets intensively and invest in them so as to optimise their income-producing potential and disposal value). • In line with its objectives, NAMA works to bring sites to market with appropriate planning permission to increase site value. • NAMA may be able to fund the development of a greater number of sites by its debtors rather than sell those sites. • NAMA may also be able to licence the development of more sites rather than sell the sites outright. • Section 11(2) of the NAMA Act states that: "In the exercise of its functions NAMA shall have regard to the need to avoid undue concentrations or distortions in the market for development land." • The sale of development land by NAMA without assurances of timely development may contribute to distortions in the market for development land. • As a result NAMA may be in a position to consider measures to better ensure development of sold land, such as entering into licence agreements as opposed to outright sale. • In the context of its broader obligations under the Act, NAMA should explore whether it may be in a position to increase its use of funding its debtors and using licensing agreements upon sale to significantly increase the timely delivery of residential development in the areas of greatest need • NAMA could publicly promise a meaningful supply of residential units over the medium term which could encourage a broader supply response as it may encourage others to deliver sites more quickly. COMMERCIALLY SENSITIVE FOR FOI PURPOSES • The announcement of a credible and significant increase in supply could have a significant positive impact in encouraging development activity and bringing further supply to the market as returns of delaying development will no longer be as attractive. The Risk of a Ministerial Direction • Under the Act the Minister is able to direct NAMA to take action to further its objectives. • However, in this case a direction may not be warranted as the Act already obliges the NAMA Board to have regard for this issue in exercising its functions, namely section 11(2) which states: "In the exercise of its functions NAMA shall have regard to the need to avoid undue concentrations or distortions in the market for development land." • If the Minister were to direct NAMA to take specific action to increase the supply of residential units, there is a real risk that Eurostat would question NAMA's commercial remit which could ultimately result in NAMA being reclassified as within Government. • A reclassification of NAMA as within Government would have significant increase Government Debt figures and widen the resulting Debt to GDP figure in the order of 4+ percentage points, as illustrated in the table below. Impact on Debt / GDP of NAMA Consolidation 2014 2015e 2016e 2017e Senior Debt Subordinated Debt 13.6 1.6 8.1 1.6 6.2 1.6 0.0 1.6 Total NAMA Debt 15.2 9.7 7.8 1.6 GDP (bn) General Government Debt (Bn) 185.32 203.30 198.29 208.20 208.87 209.50 217.79 213.00 General Government Debt (% GDP) 109.70 105.00 100.30 97.80 Adjusted fo r NAMA Classified within Government General Government Debt (Bn) + NAMA Debt 217.90 217.30 214.60 General Government Debt (% GDP) 109.89 104.03 98.53 Adverse A in % GDP (percentage points) 4.89 3.73 0.73 COMMERCIALLY SENSITIVE FOR FOI PURPOSES Current NTMA Forecasts ^10 r a NAMA & Residential Housing An Roinn Airgeadais Department of Finance Minister meeting with NAMA CEO & Chairman 15 Sep 2015 SUMMARY SPEAKING POINTS • We continue to see a shortage of residential supply in the areas of greatest need in the market. • I appreciate that NAMA is currently playing a key role in providing support to the property market by boosting supply - within the constraints of its overriding mandate. • One area of particular concern to me is the lack of residential development activity and hoarding that may be occurring as a result of expectations of future price increases creating a distortion in the market for development land. • If the market believed that significant supply was coming to the market, expectations of future price increases would be tempered which may lead to a reversal of hoarding behaviour. • The NAMA Act obliges the NAMA Board to have regard for this issue in exercising its functions, namely section 11(2) which states: undue concentrations or distortions in the market for development land." • As a result, I do not believe a direction is required for NAMA to act in addressing this distortion in the market. • In light of this market distortion, I would like you to explore NAMA's ability to increase the scale and pace of delivery of residential units to areas of greatest need. V COMMERCIALLY SENSITIVE FOR FOI PURPOSES "In the exercise of its functions NAMA shall have regard to the need to avoid J NAMA Residential Delivery SEPTEMBER 2015 National Asset Management Agency NAMA Residential Development Funding and Asset Management 1. Current NAMA Strategy: 4,500 new residential units by end 2016 Cumulative Target Cumulative Units Delivered 2014 2015 2015 2016 2017 2018 2019 2020 1,000 YTD 1,750 2,500 4,500 (Note 2) (Note 3) (Note 3) (Note 3) 1,349 1,841 2,504 5,000 (Note 1) 7,500 Note 1: Based on current projections, NAMA expects to exceed its target of delivery 4,500 new residential units by end-2016 Note 2: In order to deliver the end-2016 target of 4,500 units, NAMA has agreed strategies with debtors which will involve NAMA funding delivery of a further 2,500 new units in 2017, subject to planning and commercial viability Note 3: In terms of the period beyond 2017, NAMA's focus has been on obtaining/improving planning permissions and otherwise improving the viability of other sites within the Agency's portfolio (see 2 below). In line with the Minister's requirement following the Section 227 review that NAMA's priority should be the redemption of its senior debt, NAMA has, to date, focused mainly on this key objective. NAMA could not have contemplated funding residential development after 2016 until it was satisfied that it would achieve this objective. NAMA's current expectation is that it will have redeemed its senior debt by 2018 and that it will generate a surplus. 2. Residential Development Sites within NAMA portfolio Status Built Under construction With planning permission but not yet under construction Planning applications lodged Planning applications to be lodged within 12 months Pre-planning underway Sub-total (residential sites to 2020) Feasibility and pre­ planning on longerterm sites Total Note 4: Dublin Area (Note 4) Cork, Galway, Limerick Total 1,841 2,649 3,875 102 525 813 1,943 3,174 4,688 2,391 212 2,603 5,050 1,952 5,262 11,781 3,666 27,588 7,270 13,170 3,791 16,961 11,061 51,819 40,758 (Note 5) j ..... 12,147 mmmm' 34,858 i Dublin, Wicklow, Kildare, Meath and Louth Note 5: To dateNAMA debtors and receivers have sold or refinanced other residential development sites with the potential to deliver 11,108 new residential units in the Dublin area. Just 916 of these units have been built to date by the new owners The sale of sites with a potential to deliver 5,936 new residential units in the Dublin area is currently underway 3. NAMA residential development sites as % of projected demand 2014*2020 Total potential supply excluding post-2020 sites Dublin, Louth, Meath, Kildare & Wicklow Cork, Galway & Limerick Total Projected Demand Potential NAMA Supply as % (Housing Agency) 2014 of Projected Demand (Note 6) -2020 (Note 7) 27,588 60,613 46% 7,270 19,495 37% 34,858 80,108 43% Note 6: This includes new output directly funded by NAMA in line with its end-2016 target (see 1 above) and the potential new output generated by NAMA's wider asset management and planning activities (see 2 above). Note 7: This excludes sites on which construction is not expected to commence before 2020. NAMA is currently funding feasibility and pre-planning in respect of such sites and it is possible that as a result of this work, some of these sites may become viable from a planning as well as economic perspective before 2020. Examples of NAMA housing delivery I Coill Dubh, Broomfield, Malahide, Dublin 17 Swords si Matter 0CufiLc, n MumuddoilK £«,<*»« JPPehfmtf**- i F in n f a ; o' j sr ..P " n, r,,,'nt!s^^iasnfc..n forth 3J , * o o - la iiic B l3 n c h a i< J s tc > v /w /{' / CaslltJfi^cUCoLM * aL'yCAn*eFalnfri»f..*ci I'llii! fapws^-*** ^ ^ # i ° f?,vtsl>o ge-- - Acr.jii:(<.n \ *•* 4 CU.X.tllnl(J ^ t o C IP ftj -.IK lii H Ij tiLIN S* N B a lh m f.V y i .O SjnUfm0un V C'cr.n.i t.- cfRietriJn ■ - Oi.tjnioV.ft efto-cr ■ J e w c a c llo \ Tymcfi ty'it'jx iccoI^ O SacA art rtTc.ii.-i.-nn ■ -a \0 A fi 0 ®R«cU rQr jC.il/IIlit**I,- j / Xmne, :knim< fe;aii«t>i4cK ?f - O u o u g h lm ih .-. n iMMlI Diswellstown Manor, Castleknock, Dublin 15 JG o oTlq u o ’ Swords Malahide S t M o r g a r * t 'i! V P Porlmornock I C lc n t' aC /o r d u ff ^lanchorditcAijj, ilosn^vin / ‘ cCarp*M«rs! o p p irilr« *« 5 * B a lT y rn .fr Bcjldoyle Rmede X llm o .ri- ’Djy^nifOUnt-- krt .{OkStOAf* iWoba*n° * Plane 2015: 30 National Asset Management Agency 7 Information Redacted 1 National Asset I, . Management Agency i I. . Information Redacted 2014zo>> 2015:28 2016266 2017+:34> Honeypark, Dun Laoghaire, Co. Dublin C o o lq u 'o i S t M a r g a r e t'* ] Swords Maiabide DoW w ftK lns5ity Portmar nock Cion*' Mulhui C o rd u ff Baldoyle ftm e d e [C o o lo c K i ■yin a ’O o tly m o im l ,^oj,nshtovVn\ ° '*% s an demount o o te rs lo .v n E ft 6 ^ X tila s th u le ^ V j " 00IK%y ‘ K til c4 Thfe 6 r ^ n n « °PiOCk b ro o k S. ) /SHIiney jf f ic fr n in li / 'n 0 ft OJBjnt-iiJlAa. M jlly b r a a 'j O lo im h lln s to w n > \ J s V a n k i, l My National Asset i . Management Agency I V. Information Redacted 2014:23 2015:115 2016:112 The Grange, Block G, Stillorgan, Co. Dublin Swords S t. M a rg a re t's P b rtm a rn o c K 0 i C lo n e ’ > a n try ^ B ^ r n d a l e , ^ q ld o y le jr 0 K ilm o r« ^ D /H i-M fim e d e Donnycamev^ ' / V M a n n n jK I 111 st %r ,. • ' l g ^ / t , / D o ,! y ^ c u n l ftishto.vn V **-* fcx s &«e*fci&nmrw-iffh< o ' ^and/mount o C lc T w o ik irt Rathn)lnVyS V DVnrwbrtfoKp Ji.V'fllMbstOvVn . ilac>.ro£K >'> ^ ,v vVillbroot' HPultiAn ^jloslhule m oc :cnjnsloAn 4 « w c a & t le F tir o lk Kill ot Th« firing* \ N ^HWliCOll focJ.brooti o C a m rM in ri K iltie r n a n iw , ^F a llyb ra cfc joiifjhllnslovvn anK III filf-nnillt-n. 2015: Under Construction College Square, Terenure, Dublin 6 C o o tq u b ; Sw.ords Malahide SI Mafgar«t's{ I n ia le y P o r lm a rn o c k C lc fi* C c rtiu tt BlancharditoiVfjv f I Carpenterjjo.vn L e i x ltp '* v a s x i* K fl< jc ^ u .i f lilOtMK*"*' °~Y _C ? ap fcl»^o< tr lA '* j / I ,8-----^Rcn^st?^, y S o C l c j j ^ M k m 'V ; •w e a s tl* ^S a nd ym o u nl 'i.Ajro^ov^T.M .bKofrnjmcn TymV , J X iM rtrt,',A rb o irr '* O S 0^1 a n .te ^ jio .'v n »* (WobaAti^ ** RoUg nshlcAn 1/ o o te r s lo iv n ila c T r o p idi(tm o f.'C ^GoatT -ittlioigD iiOtoA jl ii 0 1/ ^ 9'I'^tia Ik«y ° KHI o< T in ; o r a n g e vCal>iof*#ly^! ' ’ $ * p J O * C a m r k n iir i i y kmJ ^ S l J SQ p J a lly b rn c v OLouqhllnalown ^ anklll _____ filftn n illfn ______J l A i _________ Bracken Park, Castleknock, Dublin 15 Swords Malahide P o r tm a r n o c k C lo n e C o r d u ff Mulhudd ila n c tia n 'ogf-mtree sa'try tr n d n le , - E o ld o y lt D /> n a o h m e d * DrtRjK ocki oGlain’fCQOlo D o n TiyC Jm ty'' s ' / A iV h ite h n li V\ n^ckjCatKi * JvvlncjKllleiler^^^.' ymoun* rla s n e v in -- L o lx lip 9®—■>ikoi^nstfgnX,----f **?!"*"> ° F c x « JJ» *e ^ .E n r rm r ,fih ° ° W Q _ ^ L -s _ _ ; o C lofU jl.> ikiri R a lh m ir « ! ^ ^ /" « « « « .,. ' \ ^ \j\ in d y m o u n t ! a ,S k n o o t e fs lo w n la c k /o c lv ,, C jia s th u ie ift,:,?.; • V JSii)**'.. 2 S2 reX K ) l ^ T«* jC a b iM l^ iN ,o c k b ro o k Fallybft^k o io u g h lln s f ^ n S h a n k 111 1 JEJfinctillfejn. B R A C K E N PARK W 2014:32 Thormanby Road, Howth, Co. Dublin Swords Malahide S t M a rg a re t's : P o r tm a r n o c k Cion®' M u lh u d d ! C o r d u ff ila n c h a r d it o ^ . r ^ < 'Bqldoyle laqhmed? "•d r la s n e v m T Thormdnby Hill O r p * r >»htz L o i x ll ) ’D o H y m o u n t ir is M o w n R c n a n s to w n y . F c j V G e c -:e tEf(rT„ ; . o C lo ir d jlk in • ■ io r o ld :- l i t p i ' Ralhmirte^ " ^ O Newcastle V kSandymount ^ ^ S S ^ o o t. r s to w n ■ lackrock • ^ J llb T o ^ O u r . a / lf n . a ^ e c .it tw , y ' n io r.d , , ° F ,o c k b ro o k ” M ila s th til* K « l of T h ^ r a n q e * ■ X A K. Ill in ^ y « p n > i) * c o ^ i c U n i n f c i ^ i L iy t > r o c k i / K llt f jm a n . J S o L o u g h ltn s lo w n ^ s W lll _fitkaciillan_ 2014:0 2015: 18 2016 : 14 2017+: 5 Miller’s Glen, Swords, Co. Dublin Malahide S i M a rg a r e t's ] D s « in F -b rlm a rn o c k C lo n e NsM'ownP o x *>. p t ^ ' * , g f{ rn n ;)f o C lo n d u ik in 1" - i . v f lM n j to n J o w c a s tlu \ R a th m ii T y m o fl ^ Iaft JoJ&toAn. 0 (M o t> a .v r« °/ KiltIemail Hazelbrook Square, Churchtown, Dublin 14 COMING SOON Swords ! Malahide P v S t M a rg a r e t's ! \ P I DuM tn A u port in s a le y ^ o r t m a r n o c k C lo n e " -Ccrdu" Sjantry ^Wrn ' j* w e a s t l« R a th m in fc jfi C 'D t i n . t f o o te r s to A n Tym on G ia s tn u te u*»r» ^ p tT ito w n tflaLoftn0/ 0 jC LroC^ OolK*y K ill o f T l f t G M f t g * >nd;%ui)J iytord > 3CO ^ U"*SCa&Wi**lyJ^ Ov O' K lllin * y V ORocVbrocK ^Eaiiin* Stepo-side D a m c K n n r i? ; °\ K iltle r n a n y b rn in c fc k tfc ojlllly V. f?-..-.,,.. o l on g h ltn s lo w n S h o n k lll ■QJfeft.aiUjft.ti. 2014:0 2015: 0 2016:80 2 0 1 7 + : 17 Waterside, Swords / Malahide C O O lq uo y I Malahide P o rtm a rn o c K ? 1 vBQldoyle in m e d e J o w c a s i le \ G l a s t h u le ‘Isco III 0 R o ck b ro o k S le p a s id e KM of The O range CobinWuy> K illin e y )tn i / ® p H y t> ra c k f National Asset Management Agency Broadfield Manor, Rathcoole, Co. Dublin J Swords h N D u blin i , ' Malahide 'rTS / * , Kinsaley Porlmarnock Mumuddartb u tiin a o it ° ^ nt.;i€ s/ntry^B^mdnie c A 'd r. : in q la s A6 >rni f VBlanch a rdslo X wrjj^/ •~.,y oCl0nSlll^__ L c lx llp / «k ge- „ I - Ronanstow n V fo x % v_ gwiujlir lll oG JD sneV v in C a s tl% » ^ k C a P $ a >gsr *C“ *^*86! *- ' o C lo n r ta ltiin ^ K llm o r * * \o uo - J m iiif &Tuh^ny _ *• ■, \ ) / KW National Asset Management Agency Information redacted {My National Asset Management Agency Forest Hill, Carrigaline, Cork 4u-?5??f ?Glounih aun! farrigaljy/ .- 2014: 35 2015: 50 2016:50 2017+:89 @33- National Asset Management Agency Maoilin, Ballymoneen Road, Galway V, - i .. 7 6 EWAY I asCOMM .i-sj-Mm?un 2014:o 2015: 33 2016: 22 2017 +:18 Castlepark, Maynooth, Co. Kildare IA d k ( k ; iif : da A ’ 4>1 a a t . « wnmMtafe w >4nr»A M.tt NOOJ f ntp.*iar. linn lNKWIJWI ‘tKII.DAKh ' H W. nMijinl Kc National Asset 9 . Management Agency gigs, Information Redacted 2014:6 2015:15 2016:16>> 2017+:226 Kw National Asset - . Management Agency Roscam, Galway .mat I . 2015: Under . . 2014.9 construction 2016.36 2017+. 36 National Asset Management Agency Information Redacted 2014:o 2015:27 2016:25>> 2017+:81> NAMA Residential Delivery SEPTEMBER 2015 National Asset Management Agency National Asset Management Agency Mr. Michael Noonan TD Minister for Finance Government Buildings Merrion Street Dublin 2. 28 September 2015 Dear Minister, At our meeting with you on 15th September, you requested that the NAMA Board assess the increased contribution that NAMA could make to residential delivery if it were to be given a new mandate to maximise the delivery of housing in the period to end-2020. In particular, you asked that the Board consider whether, through direct funding or otherwise, delivery of 20,000 residential units would be feasible up to the end of 2020 while bearing in mind the Board's statutory obligations under sections 10 and 11 of the NAMA Act. During the meeting, you stated your endorsement of the Board's objective of redeeming all senior debt by 2018 and the repayment of subordinated debt in March 2020 and you indicated that, in your view, achievement of these senior and sub debt repayment targets should take precedence over the provision of funding that would be required for NAMA residential projects in any revised strategy. As you know, the Board is increasingly confident of its capacity to redeem the senior and subordinated debt and, based on its most recent financial projections as at 30 June 2015, it has revised upwards its projected terminal surplus. Subject, in particular, to market conditions remaining favourable, a potential upper-range surplus of €1.75 billion is now projected and, even in an adverse scenario where market conditions deteriorate (within a reasonable range], the projections indicate that a terminal surplus of €0.5 billion would still be generated. This positive financial outlook enables the Board to contemplate the possibility of funding a major residential development programme after 2016, something it could not have done unless it was satisfied that it would achieve its primary debt redemption objective. In response to your request, and subject to the points outlined below, it is the view of the Board that a target of 20,000 units before the end of 2020 is potentially achievable and that over 90% of this would be in the greater Dublin area. While a detailed, site-by-site, review of the portfolio of residential sites controlled by NAMA debtors and receivers will be a prerequisite, the Board considers that NAMA could commit funding for the development of sites capable of delivering about 14,000 units before the end of 2020. On a preliminary, high-level analysis, these sites would appear to be commercially viable based on current sales prices and current completion costs. More detailed granular analysis will be required to confirm this over the next two months. Sites capable of delivering another 7,500 units appear to be commercially marginal to develop at current sales prices i.e. it is by no means certain right now that we could justify funding some or all of them at current prices. If these sites become commercially viable before 2020, NAMA will commit funds to develop some or all of them (consistent with Section 10). In this way, NAMA would aim to reach or exceed by end-2020 the 20,000 unit target that you indicated. Our preliminary estimates suggest that the overall programme - funding the development of 20,000 units - would require total expenditure of €4.5 billion with peak funding in the €2 billion - €2.5 billion range. It is our current view that NAMA can provide such funding without compromising the debt repayment commitments to which I referred above. There is no doubt that achievement of the delivery targets indicated above would be extremely challenging. The scale of the challenge is illustrated by the fact that NAMA would need to have at least 100 sites concurrently active (there are about 40 active sites at present) and that it would need to deliver houses at an average run rate of 80 per week (4,000 p.a.), compared to 30 per week (1,500 p.a.) at present. There are a number of other major issues that would need to be addressed. One of the most important of these is staffing: if NAMA is to undertake a major residential programme involving the construction of up to 20,000 units over the next five years, it must have the flexibility, in terms of remuneration, to retain and recruit the necessary expertise required to plan, fund and manage a programme of this scale across the organisation. Otherwise, there is a significant risk that it will lose expert staff to a recovering market. That would compromise its ability to fulfil any commitment that it makes at this stage in relation to this major economic and social initiative and indeed to the other strategic initiatives of deleveraging and the development of the Dublin Docklands SDZ. (■■■HI u m ^ m ■ in Whilst we would expect to utilise a range of delivery mechanisms and partners, including developers with no current involvement with NAMA, we consider that it will not be possible to deliver on the scale envisaged unless we secure the co-operation of a number of our existing major debtors, including, in particular, about thirty of these who are housebuilders. Given the vital importance of ensuring that new residential supply is delivered as quickly as possible, it will also be necessary to ensure that other State entities contribute in an effective and timely manner to the programme; in particular, it is crucial that sufficient resources are available in the local authorities and in An Bord Pleanala to deal with planning issues expeditiously and that full commitment and cooperation is forthcoming from these bodies and from Irish Water and Transport Infrastructure Ireland. Based on our initial analysis, a high proportion of the sites which are currently commercially viable are located in Dublin and in neighbouring counties and in other large cities. The current residential supply shortage is most acute in these areas and analysis conducted by the Housing Agency and by the ESRI suggests that, in the absence of major initiatives, that situation may continue for some time. However, it will be necessary for NAMA to review its output on an ongoing basis, taking into account the market’s absorption capacity and economic conditions more generally. If, for instance, mortgage availability were to act as a constraint on sales in the coming years and thereby leave us with substantial unsold stock, it would be necessary for us to reduce output pending recovery of the market's capacity to absorb supply. Our funding would be tied up in completed stock and we would not have funds to continue the construction of new stock. Accordingly, the velocity of sales will need to match the pace at which we build. • A target of 20,000 units before the end of 2020 is potentially achievable and over 90% of these would be in the greater Dublin area. • Funding the development of 20,000 units would require total expenditure of €4.5 billion with peak funding in the €2 billion - €2.5 billion range. • The Board considers that, based on current prices, it can commit funding to deliver 14,000 residential units on a commercially viable basis in the period to the end of 2020. • Sites capable of delivering another 7,500 units appear to be commercially marginal to develop at current sales prices. If these sites become commercially viable before 2020, NAMA will commit funds to develop some or all of them (consistent with Section 10], • Supply of new housing product will be heavily dependent on sales keeping pace with the funding of new developments. • Achieving the demanding housing target of 20,000 units will require NAMA to maintain and enhance its infrastructure and expertise and will also require significant debtor co­ operation. in addition, we will, of course, also continue to review and manage other sites in the portfolio and it is possible that some of these will also become viable over the period to 2020. Yours sincerely. Frank Daly Brendan McDonagh Chairman Chief Executive David Linehan From: Sent: To; Cc: Subject: Declan Reid 07 October 2015 18:35 John Palmer; Paul Bolger David Linehan RE: NAMA Speech materia! John, Please find below revised wording for NAMA. Happy to discuss. Declan There is a clear market failure by the private sector in the provision of new housing across the country but particularly in the Dublin area. Driven by demographic demands and strong economic growth, it is estimated that the Dublin area requires about 10,000 new units per annum but the market delivered only about 3,300 units last year. I asked the NAMA Board to review the residential sites under its control and to estimate what it could deliver, in terms of residential units, over the next five years while also acting within its commercial mandate. Based on its initial analysis, NAMA has informed me that it will aim to deliver a target of 20,000 residential units before the end of 2020. This target is based on some 14,000 units which are commercially viable to develop at current prices, costs and achievable planning, in addition to at least 6,000 units from sites which are currently either unviable or marginal but which may become commercially viable in response to intensive asset management and planning work by NAMA and the provision of appropriate infrastructure by the local authorities and by other infrastructure utilities. NAMA estimates that 90% of the 20,000 unit target will be in the greater Dublin area and that about 75% of the units will be houses, mainly starter houses. NAMA is not becoming a developer, nor will NAMA be building houses itself. Rather, NAMA will ensure the delivery of these units through continued work with its debtors to agree development plans, secure/alter planning permission and fund the delivery of these residential units. NAMA will also work on a commercial basis with developers who have no current links with NAMA - it will actively seek out JV and partnership arrangements to ensure that a broad array of Irish developers and contractors have every opportunity to contribute to this residential delivery programme. This commitment will require total NAMA funding of the order of €4.5 billion from its own resources, with peak funding of €2.5 billion - funding which NAMA fully expects to recover. It will not compromise NAMA's existing strategic debt repayment commitments. The NAMA residential funding programme is expected to generate some 30,000 jobs in the construction industry and in ancillary activities. NAMA knows that it is taking on a challenging commitment. It will need to have at least 100 sites active concurrently (there are about 40 active sites at present with funding provided by NAMA ) and will need to deliver houses/apartments at an average run rate of 80 per week (4,000 p.a.), compared to 30 per week (1,500 p.a.) at present. This commitment is entirely consistent with NAMA's statutory mandate under Section 10 of the NAMA Act to deliver the best financial return to the taxpayer, It takes into account the flexibility afforded by Section 11(2) of the NAMA Act which allows NAMA to take account of distortions in the market for development land in achievement of its objectives. Sent from my Windows Phone From: John Palmer Sent: 05/10/2015 19:32 To: Declan Reid: Paul Bolger Cc: David Linehan Subject: RE: NAMA Speech material Declan, Here is what I took from your text. Hopefully, it gives you an idea of the kind of length we need for the speech. Happy to take changes on board and I would be grateful if you could fill in the missing figures in the first line. Regards John There is a clear market failure in the provision of new housing across the country but particularly in Dublin. Driven by demographic demands and strong economic growth, there is a requirement for a minimum of x,000 new units per annum but the market only delivered y,000 units in the last year. So NAMA has decided to commit to delivering a target of 20,000 residential units before the end of 2020. 90% of these units will be in the greater Dublin area. This commitment is entirely consistent with NAMA's mandate to deliver the best financial return to the taxpayer, It takes into account the flexibility afforded by Section 11(2) of the NAMA Act which allows NAMA to take account of distortions in the market for development land in achievement of its objectives. This commitment will require funding of the order of €4.5 billion, which will all be recovered. It will not compromise NAMA's debt repayment commitments. NAMA knows that it is taking on a challenging commitment. In addition to the 30 residential units that NAMA is already delivering under its previous commitment to fund the delivery of 4,500 units, meeting this new target will require it to deliver a further 80 units per week across some 100 active sites. From: Declan Reid Sent: 05 October 2015 14:26 To: John Palmer; Paul Bolger Cc: David Linehan Subject: RE: NAMA Speech material John, Paul, I have attached a link to the long version of the NAMA residential housing contribution to the budget speech. NAMA's Budget Speech Contribution - Long Version I still need to run this wording past NAMA and obviously create a short version more useful for the speech. I am working on the basis that this longer version will end up as speaking points and will whittle down the version for inclusion in the budget speech. Let me know if there are particular aspects of this longer version which you have strong feelings about and would like to make sure are preserved and make it into the budget speech and I will work that into my creation of an abbreviated version. Until then please feel free to use this in square brackets as the NAM A section. Happy to discuss. Declan Declan Reid Banking Division Department of Finance Upper Merrion Street Phone: +353 1 6045C79 Mobile: E mail: declan.reid S)finance.EOv.ie Website: http://www.finance.eov.ie \ Dublin D02 R583 Ireland From: John Palmer Sent: 05 October 2015 11:04 To: Declan Reid Subject: Speech material Decian, Please supply budget speech material as soon as possible. Everything can be in square brackets but we need to put your material in the drafts going to the Minister. Regards John Palmer Principal Officer Department of Finance Upper Merrion Street Dublin 2 D02 R583 Phone : + 353 (1) 6318118 This email may contain legal advice and may be issued in contemplation of potential legal proceedings. In that event it is subject to legal professional privilege and should not be released pursuant to an Fol request, unless privilege is waived. The information contained in this email (and in any attachments) is confidential and is designated solely fo r the attention and use of the intended recipient(s). If you are not an intended recipient of this email, you must not use, disclose, copy, distribute or retain this message or any part of it. If you have received this email in error, please notify me immediately and delete all copies of this email from your computer system(s). Prepared by: Declan Reid 5 October 2015 • It is clear that we continue to face a number of distortions in the housing market as it attempts to find an equilibrium following large value swings of the crisis and as now a lagging supply response is being dampened by expectations of continued future price increases. • This market dysfunction will correct itself over time but a full market recovery is unlikely in the near future. • So when we think about and plan for the recovery of the residential market we must think both structurally - to create a long term sustainable market - and tactically - to create a short term impact without threatening the long term sustainability of the market. • As regards residential delivery, NAMA made a commitment in late 2013 to fund the delivery of 4,500 residential units in the Dublin area by the end of 2016 and with a total of 40 sites now active, NAMA are confident that they will exceed this target and will deliver 5,000 units by end-2016. o • NAMA is currently making an outsized contribution to residential delivery relative to its exposure to residential development land o • Some 1,900 units have been completed to date and planning permission had been secured for another 6,350 units, 1,600 of which are under construction. With exposure to less than one-third of Dublin's residential development land, NAMA funded delivery 40% of the 3,259 new housing units in Dublin in 2014 and in the first half of 2015 funded the delivery of 50% of new output in Dublin. NAMA's work in 2015 has focussed on: o Overseeing the delivery of the 5,000 units by the end of 2016; o Driving progress on planning work on Tier 2 sites in the Greater Dublin area which are commercially viable; and o Working to resolve infrastructural and planning impediments to the development of Tier 3 sites. • In addition to the units already delivered and the units for which planning permission has been obtained, planning permission has been and will be sought by mid-2016 for another estimated 7,200 units. • NAMA has also sold to a range of private sector buyers sites that could potentially deliver over 11,000 units. o It is disappointing that only 900 units have been completed or are under construction on these sites to date. o This has caused NAMA to rethink the way in which it will assess the potential for delivery of additional units after 2016 from the land and property to which it is exposed, o And fulfil its commitment to ensure the maximum delivery of residential units in areas of most need. Prepared by: Declan Reid 5 October 2015 • Following an ongoing dialogue with me and my officials, the NAMA Board has committed to deliver a target of 20,000 residential units before the end of 2020 with over 90% of these units being delivered within the greater Dublin area. • Let me be crystal clear, NAMA's ability to contemplate this action could not have been possible if NAMA had not be so overwhelmingly successful to date. • It is this success that has given the NAMA Board confidence in its capacity to redeem its senior and subordinated debt in full and expect, subject to market conditions remaining favourable, a potential upper range surplus of €1.75 billion. • This commitment is entirely consistent with NAMA's mandate to deliver the best financial return to the taxpayer. It also takes into account the flexibility afforded by Section 11(2) of the NAMA Act which allows NAMA to take account of distortions in the market for development land in achievement of its objectives. • It is also very important to understand that NAMA is not building houses itself. NAMA is not becoming a developer or a builder. • Rather, NAMA is ensuring the delivery of these units through continued work with its existing debtors to agree development plans, secure/alter planning permission and fund the delivery of these residential units. • It is NAMA's exposure to the development land underpinning its debtor's borrowings that allow NAMA to ensure the delivery of residential units through its coordinating role and ability to fund such development. • The delivery of this plan is estimated to require total funding from NAMA of €4.5 billion - which will ultimately be recovered. Due to its success to date, this plan will not compromise NAMA's debt repayment commitments. • I am confident in NAMA's ability to achieve this objective as they have with each objective they have set for themselves in the past. • However, it is clear that this target will be extremely challenging for NAMA. To put this into perspective: • o NAMA will need to have at least 100 development sites active at the same time, and o Will need to deliver on average at least 80 units per week - keeping in mind NAMA is already delivering 30 units per week. In addition, NAMA's ability to achieve this target is heavily dependent upon a number of issues which are largely beyond its control: o Staffing - NAMA must be able to retain the staff to execute on this delivery plan which will become increasingly challenging in the context of a recovering market. This will necessitate the acknowledgement by us all that NAMA must be allowed to address its retention and recruitment challenges. o Commercial Arrangements - to agree the delivery of these units with debtors - which in some cases may deviate from the previously agreed business plans, NAMA will have to be more accommodative to some of its debtors. This will lead to the delivery of these units and Prepared by: Declan Reid 5 October 2015 the further rehabilitation of the residential construction and development segment of our economy. o Planning & Infrastructure - it will be necessary for other State entities - such as local authorities, An Bord Pleanala, Irish Water, and Transport Infrastructure Ireland, among others - to be coordinated in their contribution to the achievement of these targets in an effective and timely manner. • This commitment should leave the market in no doubt that we are committed to addressing the dysfunction present in the current market for residential real estate. • NAMA's commitment demonstrates our will to ensuring a meaningful supply response occurs to the increasing demand for residential units. • I would say to those who are currently hoarding residential development land in the hope or expectation of endless price increases that this should be your wake up call. • Endless price increases will not materialise for you. Now is the time to build. • Be part of the current supply response - or risk being left behind. David Linehan From: Sent: To: Cc: Subject: Attachments: Declan Reid 23 October 2015 18:02 Paul Bolger; Brendan Loughnane; Brian Meenan; Press Office Finance Ann Nolan; Des Carville; David Linehan Project Arrow Key Messages and Briefing Points SNAMAColourl5102317030.pdf Please see below and attached. Let me know if you feel anything else is needed. Project Arrow Key Messages: ■ Very com petitive open m arket process ■ C erberus the preferred bid d er to em erge from th a t process (clear recom m endation of the Loan Sale Broker) ■ Agreed price m eets the Board's expectation of th e retu rn th a t could be obtained from the m anagem ent and sale of over 1,900 individual pro p erties if NAMA w orked them ou t over a threeto five-year tim efram e ■ Sale rep resen ts a fu rth er significant deleveraging and risk m itigation m ilestone for NAMA ■ The cash proceeds raised from the sale will be applied to w ard s redeem ing NAMA's senior debt debt guaranteed by Irish taxpayers - and tow ards funding NAMA’s in v estm en t program m e in th e h ou sin g and com m ercial office space. ■ W hilst 43% of the portfolio by value is residential, this com prises m ainly let principal private residences ■ NAMA d ecid ed to retain a num ber o f loans secu red by resid en tia l d ev elo p m en t s ite s in ord er to facilitate its objective o f funding th e d elivery o f 2 0 ,0 0 0 resid en tial units by 2 020. Also, in ca ses w h ere local a u th o rities ind icated that certain resid en tial units w ere suitab le for social housing, the loan s concerned w ere w ith draw n from th e sale. More Detailed Points Sales Process and Outcome ■ Project Arrow was launched onto the open m arket on 6 July 2015, 17 prospective bidders w ere provided with access to the Phase 1 data room by C&W. Indicative Phase 1 bids w ere received from five bidders on 14 August 2015 and three bidders w ere shortlisted by the NAMA Board for Phase 2. " One of those bidders w ithdrew on 11 September 2015, Binding and valid bids w ere received from the two remaining bidders on 12 October 2015 and clarification on elements of the two bids was sought and received subsequently. ■ NAMA today (Friday 23rd October) announced Cerberus as the preferred bidder, subject to contract for the portfolio loan portfolio. ■ The NAMA Board decision was based on the strong and clear recom m endation of Cushman & Wakefield (C&W), the loan sale adviser appointed by NAMA in February 2015 to oversee the sales process for Project Arrow. ■ The price agreed m eets the NAMA Board's expectation o f the proceeds that could have been realised from the m anagem ent and sale of over 1,900 individual assets if NAMA had worked them out over a three- to five-year workout period. ■ The Project Arrow loan sale has obtained the best achievable return for the State from these assets, in line with the NAMA Board's obligations under Section 10 of the Act. ■ It also represents another significant deleveraging and risk mitigation m ilestone in NAMA's progress towards fulfilling its key strategic objectives. The cash proceeds raised from the sale will be applied towards redeem ing NAMA's senior debt - debt guaranteed by Irish taxpayers - and tow ards funding NAMA's investm ent programme in the housing and com mercial office space. Portfolio Characteristics » The Arrow portfolio com prises loans with par debt balances of €6.25 billion. The loans in the Arrow portfolio, which w ere acquired by NAMA in 2010 and 2011, had been advanced to 302 debtor connections and secured against 1,906 assets. There has been a significant deterioration in the value of these assets since acquisition. ■ Just 2.5% of the loans are performing. • By location, 90% of the assets are located in Ireland, with 67% outside o f Dublin and 23% in Dublin. Assets comprising another 6% of the portfolio are located in the UK with the remaining assets located outside of the UK and Ireland. ■ Whilst some 43% of the assets, by value, are residential properties, the majority of these are currently let or occupied. Many of the units are in locations where there is limited housing demand. NAMA decided to retain a num ber of loans secured by residential developm ent sites in order to facilitate its objective of funding the delivery of 20,000 residential units by 2020. Also, in cases w here local authorities indicated that certain residential units w ere suitable for social housing, the loans concerned w ere withdrawn from the sale. The current Arrow portfolio is approximately 40% of the size of the portfolio as it stood at the beginning of 2015. This reflects the substantial num ber of asset sales and loan refinancings and the removal, as set out above, of residential developm ent sites and residential properties for social housing. Project Arrow Estimated Portfolio 21.09.15 Cm Other 1% Development 2% Hotel & 3% Project Arrow Estimated Portfolio 21.09.15 €rn Rest of BRIEFING POINTS o The Bill proposes the establishment of a National Mortgage and o o o o o o o o o Housing Corporation (NHMC); The Bill’s stated purpose is to, inter alia, support housing affordability and choice, protect the availability of funding for housing and to contribute to the well-being of the housing sector The Bill proposes to give the NHMC authority to borrow (from the Exchequer and or other sources) up to €15bn for housing purposes (including social housing); The issues of housing and housing finance are obviously very important subjects for this country, and the opportunity to discuss these matters in this House today is to be welcomed; However, this is a complex Bill and the precise measures it contains would need to be teased out further and it would not be appropriate to accept any such Bill in advance of any such a detailed consideration and evaluation; The Bill has a number of similarities to a Canadian Act which provides for the “Canada Mortgage and Housing Corporation”; Like the Irish housing and mortgage market, the Canadian housing and mortgage system is unique to that country and proposals to apply a housing measure and body that is in place in one country and apply it to Ireland would need to be considered in some depth; Ireland already has a long standing and well developed housing policy and an institutional framework for the provision of social and affordable housing; The Government’s Social Housing Strategy 2020, has returned the State to its central role in the provision of social housing through a resumption of building on a significant scale and putting in place financially sustainable mechanisms to meet current and future demand for social housing supports. Over €1.7 billion in Exchequer and local authority self-funding has been committed to the Strategy in 2015 and 2016 to support the provision of over 33,000 units in that period. The Government’s Capital Plan goes beyond 2016 and commits €2.9 billion towards social housing out to 2021. o It is not clear how this Bill would relate to the existing and comprehensive suite of general financial stability, macro and prudential supervision and consumer protection legislation; o The issue of mortgage insurance has been considered in Ireland but the role that such insurance could usefully play in the Irish mortgage market would have to be considered in depth with the Central Bank; o The Bill would have significant financial implications for the State; the possible impact of the measures would need to be considered in some depth and the impact on the General Government Deficit and Debt positions set out in detail; o The proposed Bill seeks to impose a significant liability/contingent on the Exchequer and therefore the extent to which it could be regarded as having a money bill status would need to be considered further; o The Government accepts that the key step that is now required is to provide additional homes to meet the existing and growing demand for housing. The Government is conscious of this, and public initiatives are required to stimulate the provision of new housing. o In Budget 2016, the Minister for Finance outlined plans by NAMA to deliver a target of 20,000 residential units before the end of 2020. 90 per cent of these units will be in the greater Dublin area, and about 75 per cent of these units will be houses, mainly starter homes. NAMA will deliver these units by working with developers. This commitment will require funding from NAMA of the order of €4.5 billion; o The Government has an obligation to carefully analyse any financial legislative proposal that comes before the Oireachtas and it seeks to do so in a constructive manner, but it also recognises and appreciates the constructive way such an important matter is raised for public consideration and which will help contribute in a meaningful way to the further consideration of housing and mortgage policy development. 4 November 2015 Minister’s Speech 4 November 2015 I would like to start by thanking Senators Barrett, Quinn and Crowne in bringing this Bill before the Seanad today. The issues of housing and housing finance are obviously very important subjects for this country, and I very much welcome the opportunity to discuss these matters in this House today. Mortgage credit is a large and key component of the overall banking system, and when problems arise in this area it can pose significant problems for financial stability and the wider economy. I do not need to outline to anyone in this House the impact of the Irish property bubble and the subsequent banking crash has had for the Irish people. This caused significant difficulty for many households, but of course was particularly acute for people who took out large mortgages and who then faced genuine difficulty in meeting their repayment commitments on those mortgages. In the light of this experience, we should always be open and willing to look at the situation and practice i in other countries to see if there are better ways of solving problems in Ireland and, even more importantly, to avoid getting into such problems in the first instance. The long title of the Bill makes reference to Government mortgage agencies in Canada and the United States. It is indeed appropriate to consider the situation in other countries and Canada is a country that can provide information and guidance to assist us in efforts to improve our mortgage and housing markets. In particular, Canada’s financial system has worked its way through the global financial crisis in a more successful manner than most other countries. Indeed, it successfully avoided the worst of the financial problems encountered by other countries. For example, Canadian mortgage arrears and non­ performing loans remained at very levels through-out the financial downturn. Therefore, I welcome the opportunity presented by this Private Members’ Bill to look at the Canadian system to see if there is any particular insight that could be of benefit to the Irish system. However, we should also recognise and accept that, due to their fundamental character and historic backgrounds, the housing and mortgage markets of countries will also differ from one another, and often in a very significant way. Ireland and Canada have different legal, financial, regulatory, political and social characteristics, not least through our membership of the European Union, and these factors need to be taken into account when considering any proposal - such as the one before us - to provide for a significant change to the institutional framework for Irish housing and financial services. This is a very complex Bill and there was only a short time available for its consideration. However, from a preliminary analysis there are many significant issues arising and I regret that the Government cannot accept the Bill as proposed today in its totality. Nevertheless, I do look forward to listening to and contributing to the debate and to consider whether there are elements of the proposal that could feasibly be investigated for consideration at a future point for incorporation into the Irish system. The Mortgage and Housing Corporation is clearly an important institution in Canada and it has a number of important functions. It was established in the 1940s around the end of the second world war and it has been central to the Canadian government’s housing policy since then. One of its core functions is to provide assistance to low income and to other disadvantaged households to meet their housing needs, and to that end it provides funding for social housing. O f course, there is also an unmet social housing requirement in Ireland. This is fully recognised and accepted by Government. Primary responsibility for policy and the provision of social housing, and of course housing policy more generally, rests with the Minister for the Environment, Community and Local Government. In that regard, Minister Kelly through the Government’s Social Housing Strategy 2020, has returned the State to its central role in the provision of social housing through a resumption of building on a significant scale and putting in place financially sustainable mechanisms to meet current and future demand for social housing supports. Over €1.7 billion in Exchequer and local authority self-funding has been committed to the Strategy in 2015 and 2016 to support the provision of over 33,000 units in that period. The Government’s Capital Plan goes beyond 2016 and commits €2.9 billion towards social housing out to 2021. The Minister for the Environment Community and Local Government is supported in this task by his Department, the Housing Agency, local authorities and other relevant bodies. However, it is not clear what “added value” would be provided to this existing institutional framework by the adoption of the proposed new “National Mortgage and Housing Corporation” as provided in this Bill. The Housing Finance Agency - the HFA - also plays a key role in raising finance to enable local authorities meet their statutory functions. In the area of housing, it advances loan finance to local authorities and the voluntary housing sector to be used by them for any purpose authorised by the Housing Acts. The HFA plays a particularly important role in securing new funding sources for social housing. For example, in February 2015 Minister Kelly and Minister of State with Special Responsibility for Housing, Paudie Coffey, formally announced a €300m housing investment programme, jointly backed by the HFA and the European Investment Bank. Such funding enables the HFA to offer 25-year fixed rate funding at very competitive interest rates, currently 1.5% and 3.25%, to local authorities and approved housing bodies. However, I note that some of the functions proposed to be assigned to new “National Mortgage and Housing Corporation” in this Bill would appear to be already be carried out effectively and efficiently by the HFA. The Bill, as presented, does not propose to replace the HFA and it would, therefore, give rise to the duplication of public agencies involved in the raising of finance for social housing purposes. I would have serious concerns about such a development from an efficiency and effectiveness perspective, and this provides an example of the concerns and risks that would arise in seeking to transpose a particular framework from another country directly into the existing Irish framework. More generally, Ireland has now a well-developed legislative and regulatory framework governing the provision of financial services, including the provision of mortgage credit. Also, it now has more intrusive legislation and practices to regulate the providers of mortgage credit and other financial services. Much of this overall financial services regulatory framework now derives from our membership of the European Union. A further enhancement of this framework in the area of consumer mortgage credit, and which has been designed to provide minimum protections to consumer mortgage borrowers across the EU, is the Mortgage Credit Directive. Earlier this year, the Minister for Finance made decisions on various national discretions contained in that Directive and these were subsequently published on the Department’s website. Work is now at an advanced stage on the transposition of this Directive into Irish law with a view to ensuring that it will come into full effect from March next year. There is now a significant corpus of national and EU legislation in the area of financial services but unfortunately this proposed Bill does not appear to address this issue and outline how its provisions should be read in conjunction with that legislation. Another key function of the Canada Mortgage and Housing Corporation is in relation to mortgage loan insurance. As a public mortgage insurer, the Corporation has a mandate to provide service in all parts of Canada and for a range of housing forms. Accordingly, it is the largest mortgage insurer in the Canadian market. This approach suggests that the government stands behind the full amount of the Corporation’s mortgage insurance obligations and as such could represent a significant contingent liability for its public finances. It is not apparent from the proposed Bill if it is intended that the Irish “National Mortgage and Housing Corporation” would have a function in the provision of mortgage loan insurance in Ireland. In Canada, we understand that such a function essentially derives to the Canadian authority from the National Housing Act, rather than the Canada Mortgage and Housing Corporation Act and which has some similarity to this Bill. Ireland’s Housing Acts do not contain any provision to provide public mortgage loan insurance to regulated banks either with or without a State guarantee. I would assume, therefore, that it is not proposed that the relevant Irish body would have a statutory role in the provision o f mortgage loan insurance. However, perhaps that could be clarified by the Bill’s proposers. However, the sustainability of any mortgage system ultimately rests to a very large extent upon the underwriting policies and loan criteria that is applied to mortgage credit applications. The provision of mortgage insurance in itself does not remove the risk associated with the extension of mortgage credit, but of course would have a bearing upon who bears the losses consequent upon a mortgage default and subsequent foreclosure and repossession of the secured property. Indeed, in the absence of significant oversight of the mortgage credit creation process by a mortgage insurer and/or a regulator, there is always the risk that mortgage insurance could over time in fact encourage and facilitate the adoption of more risky mortgage lending practices by creditors. O f course, in any public policy consideration of the merits or otherwise of mortgage insurance it should be noted that the provision of mortgage insurance would not act as a direct means of protecting the mortgage borrower, but rather would act to protect the lender and often with cost of the premium being passed on to the consumer. As Senators will be aware, the issue of mortgage insurance was a matter under discussion around this time last year at a time when the Central Bank proposals for macro prudential measures for residential mortgage lending were the subject of a public consultation process. Indeed, the role that mortgage insurance could play in a proposed new macro prudential environment was one of the specific questions posed for consideration by the Central Bank. As Senator Barrett will be aware, the issue of mortgage insurance was also the subject of a report by the Oireachtas Joint Committee on Finance, Public Expenditure and Reform last December. Following its evaluation, the Central Bank considered that the most appropriate and effective way to secure sustainable and safe mortgage lending would be achieved by the adoption of sound underwriting practices in the first instance as opposed to utilising insurance that would seek to cover for risk after the event. The Central Bank, which has a statutory and independent mandate to safeguard financial stability, did not consider an exemption from the loan to value rules for insured mortgages to be an effective practical amendment at this point in time. While it noted that mortgage insurance schemes have had varying degrees of success in other countries, and often backed by a government guarantee as is the case in Canada, this does not remove the risk of losses on mortgage lending but rather only transfers those risks and potential losses to the insurer. An insurance system would therefore continue to leave insurers vulnerable - and the State where it acts as a backer to the system - in the event of widespread falls in housing prices, as happened in Ireland during the crisis. In this regard, it should also be noted that the Canadian government has recently taken steps to reduce the contingent risk that could arise from mortgage loan insurance, and also from the Canadian Mortgage and Housing Corporation’s mortgage securitisation programs. Nevertheless, if it is decided that it would be appropriate to revisit the issue of mortgage insurance in Ireland at some future point, it is possible that the Canada Mortgage and Housing Corporation framework would be worth evaluating. However, even if such a situation did arise for consideration at a future point, the Minister for Finance has stated that the State should not assume any ultimate backstop responsibility for such an insurance system. I would also have some other concerns about the provisions of this Bill if adopted. The Bill, which proposes in section 21 that the Corporation could borrow up to €15 billion for its statutory purposes, could be regarded as a Bill that would fall within the scope of Article 17.2 of the Constitution. If so, it would have to meet the particular constitutional requirements associated with a money bill. I also note that the same section in the Canadian Act also has a borrowing cap of 15 billion Canadian dollars. That borrowing cap represents slightly over 1 per cent of the overall Canadian residential mortgage market. This Bill also proposes a €15 billion cap for the proposed equivalent Irish body. However, in Ireland, such a cap would equate to around 11per cent of outstanding residential mortgage credit. This would have very significant implications for the overall Irish mortgage market, and also for the State’s balance sheet. It is not clear if it is proposed that the Irish Mortgage and Housing Corporation should have a much greater role in the mortgage market than the Canadian Corporation, but if so that would be a matter that would require significant evaluation and consideration. By way of a comparison, it should be noted that the total outstanding loan book of the Housing Finance Agency is around €4.1 billion euro, and this includes HFA loans for non-residential purposes. Also, there are a number of other drafting and legal issues that would arise if this Bill is to be progressed further such as giving the proposed Corporation the power to exercise and perform all rights, powers, functions etc. of the Minister for Finance under any contract entered into. This would represent a significant delegation of a Minister’s power and responsibility to a statutory body. In the corresponding Canadian Act, it is noted that it is the powers of the relevant Minister under the Housing Acts, or any contract entered into under those Acts, that is transferred to the particular Canadian Corporation. There is no such limitation in this Bill, and even if there was the Minister for Finance would not as a matter o f course enter into individual contracts under the Irish Housing Acts or would otherwise have a significant range of statutory powers under the Irish Housing Acts to delegate to this body. While I outline these points as reasons for the Government not supporting this Bill, I nevertheless fully accept the genuine merits behind the proposal and the real public service that is being demonstrated by raising such an important issue for discussion and consideration by this House. The current housing and mortgage issue is indeed one o f significant importance to this Government, the Oireachtas and the public at large. However, the key step that is now required is to provide additional homes to meet the existing and growing demand for housing. The Government is conscious of this, and public initiatives are required to stimulate the provision o f new housing. Accordingly, in Budget 2016, the Minister for Finance outlined plans by NAMA to deliver a target o f 20,000 residential units before the end of 2020. 90 per cent of these units will be in the greater Dublin area, and about 75 per cent of these units will be houses, mainly starter homes. NAMA will deliver these units by working with developers. This commitment will require funding from NAMA of the order of €4.5 billion. The Government remains open to considering new initiative and funding sources to assist in the provision of housing and Senators will be aware that a commencement order in respect of Activate Capital, which will provide a fund of €500 million and be capable of financing the construction of over 11,000 new homes, is also before this House today. To conclude, I would again like to thank the proposing Senators for the opportunity to discuss this Bill. As a Government our obligation to carefully analyse any financial legislative proposal that comes before the Oireachtas. I know the proposal is very well intended, and it will be of much benefit in the more general consideration of measures to improve the housing and mortgage markets. However, I hope the proposing Senators and this House will also appreciate that my contribution to this debate and the Government’s reasons for opposing this Bill are equally well intended. However, for the reasons I have outlined it is regretted that the Government cannot support the Bill proceeding from Second Stage to Committee Stage but nevertheless feel that we can take much from the proposal and this debate to consider in the ongoing evaluation of housing and mortgage policy issues. Thank you. End.