New improved funding model to prompt funding applications for thousands more social homes

revised funding model will facilitate AHB-provided social housing developments in all local authority areas and help deliver more social housing
revised model addresses financial viability issues in rural areas and will help sector overcome challenges caused by construction inflation and interest rate rises

The Minister for Housing, Local Government and Heritage, Darragh O’Brien, today announced changes to the Capital Advance Leasing Facility (CALF) funding model, the main funding scheme used by the Approved Housing Bodies (AHB) sector to provide social housing. The changes will address the challenges faced by the sector in accessing income to build social houses, particularly in rural towns and villages.

Minister O’Brien now expects funding approval applications for thousands of AHB-provided homes to follow for areas where AHB-provided schemes were heretofore less viable.

Announcing the changes, Minister O’Brien said:

“The changes I am making to the Capital Advance Leasing Facility will help Approved Housing Bodies to deliver more social housing in all parts of the country - in particular in rural towns and villages where projects at scale have been curtailed by the current funding model. These changes to how Approved Housing Bodies access government funding will give them - and local authorities - a greater level of financial stability during projects. They will also help the sector overcome challenges arising from recent construction inflation and interest rate rises.

“Approved Housing Bodies are key partners in delivering the ambitious level of social housing envisaged in Housing for All. These reforms will help them to do more of what they do well: delivering high-quality, energy efficient homes and creating sustainable communities. Whilst the revised CALF funding model will remove certain limitations, my department will continue working with Approved Housing Bodies to ensure that we maintain our focus on achieving value-for-money on all social housing projects.”

Among the reforms Minister O’Brien and his department will implement following completion of the CALF funding model review (published today ) are:

discontinuation of the approach of limiting the initial Payment and Availability Agreement (P&A) amount to a percentage of local market rent. The initial P&A amount will be calculated to achieve a debt-service cover ratio (DSCR) target that will provide sufficient borrowing capacity for the AHBs, with a minimum level of 25% CALF funding. This will ensure there is sufficient income within an AHB’s funding model to deliver social housing in all parts of the country
establishment of an internal departmental working group to explore the issue of debt levels within the AHB sector and recommend solutions
creation of a explicit link between applications for financial support under P&A-CALF and the relevant local authority’s Housing Delivery Action Plan

AHBs are independent, not-for-profit organisations who, alongside local authorities, provide housing for people on the social housing waiting list or for particular groups, such as older people or homeless people. 450 AHBs across Ireland are responsible for 53,000 homes (owned/leased and managed). At the end of Quarter 3 2022, there was an estimated 8,124 social homes in the AHB build pipeline. AHBs are expected to provide about 43% of the 9,100 new-build social homes and over 40% of Cost Rental homes targeted in 2023. The CALF review was a commitment under Housing for All, the government’s housing plan to 2030.

The department will shortly issue a Circular and guidance document to accompany the review publication, to both local authorities and the AHB sector. In addition, this department will hold regional information sessions for both local authorities and AHBs to give an overview of the review and the revised financial model.

Notes

Main recommendations of the Capital Advance Leasing Facility (CALF) review

discontinuation of the approach of limiting the initial Payment and Availability Agreement (P&A) amount to a percentage of local market rent. The initial P&A amount will be calculated to achieve a debt-service cover ratio (DSCR) target that will provide sufficient borrowing capacity for the AHBs, with a minimum level of 25% CALF funding. This will ensure there is sufficient income within an AHB’s funding model to deliver social housing in all parts of the country
establishment of an internal departmental working group to explore the issue of debt levels within the AHB sector and recommend solutions
explored options relating to the early repayment of the CALF loan, subject to agreement with the Housing Finance Agency
the CALF Loan to remain a repayable loan but develop and issue specific operational procedures that guide the sector regarding loan repayment at term end
there should be an explicit link between applications for financial support under P&A-CALF and a local authority’s Housing Delivery Action Plan
the definition of when a project is considered to have delivered under P&A-CALF should be revised. The proposed change is that a unit (home) will be considered completed once the sale has taken place and the utility connections are in place

Background and operation of CALF

CALF funding is capital support provided to AHBs by local authorities to facilitate the funding of construction, acquisition or refurbishment of new social housing homes. This loan facility can support up to 30% of the eligible capital cost of the housing project, with the homes provided to local authorities for social housing use under long-term lease arrangements known as Payment and Availability Agreements (P&A)
a nominal interest rate of 2% fixed per annum is charged by the local authority on the initial capital amount. Repayments on either the capital or interest are not required during the term of the loan (between 10 and 30 years), although where an AHB chooses to, repayments can be made during the term. At the end of the term, the outstanding capital amount plus the interest accrued, is owed and repayable to the local authority
in recent years, the CALF-P&A funding programme is the main source of funding to AHBs for social housing delivery. The balance of the investment required is borrowed separately by the AHB either from the Housing Finance Agency or other senior lenders as required
AHBs can only avail of this funding if they enter into a P&A agreement with the local authority for the same period, making the relevant properties available for social housing - providing accommodation for people on the relevant local authority’s waiting list, for the same period of time
all funding provided to AHBs to support social housing is made available by the Department of Housing, Local Government and Heritage (DHLGH) through local authorities. Local authorities, as the statutory housing authorities, are the decision makers in relation to the suitability of a proposed social housing project. They are required to ensure that any project (1) appropriately reflects the housing need in that particular area and that there is sufficient need in the area to support the homes over time; (2) the properties comply with relevant standards and regulatory requirements; and (3) the objectives of creating and maintaining sustainable communities are being met
applications for P&A-CALF funding are made by AHBs directly to the DHLGH following their consultation with the local authority. During this period the local authority confirms their support for the proposed homes and agrees the need and the terms and conditions of the availability agreement around the homes. The application submitted to DHLGH normally consists of a completed application form and a financial model showing the capital cost, income and operational costs projected over the P&A term sought, and other relevant supporting documentation
DHLGH assesses each project proposal for suitability as determined by the local authority, value-for-money and compliance with the various requirements of the funding programme. In the case of CALF applications, the Housing Agency undertakes an independent assessment of the financial aspects of the application. This assessment involves analysing the capital costs, projected income and projected expenditure against a standard set of assumptions agreed with the department. Under the revised model, the appropriate level of CALF is set at a minimum of 25%
detailed approval, payment and performance monitoring arrangements are in place across all departmental funding arrangements, including those supporting AHB activity. Following approval, letters of sanction include detailed terms and conditions relating to payments, and onward payments to AHBs are issued to the local authority and AHB. In the case of CALF and P&A supported projects, once approved, the local authority then enters into two agreements with the AHB, as follows:

o The P&A Agreement that will cover the conditions under which the properties will be made available for the term of the agreement; and

o A Capital Advance Agreement (CAA) that stipulates the terms and conditions on which the money is being made available from the State and also stipulates the repayment conditions

it should be noted that all payments are made to AHBs by local authorities in accordance with the various approval letters, and DHLGH recoups these costs to local authorities. Accelerated CALF payments (advancing up to 95% of the CALF funding) may also be approved for projects for including turnkey developments. Accelerated CALF can be applied to facilitate site purchases or stage payments to a developer, deposits for properties under construction or for sale and to facilitate the acquisition of homes requiring works. In such cases, the milestones may vary depending on the requirements of the project and will be set out by the DHLGH in its approval letter. The local authority will seek an acknowledgement of the associated risk along with details on any mitigation measures to be taken by the AHB. The turnaround time for CALF applications from submission to approval is approximately 6 weeks

New improved funding model to prompt funding applications for thousands more social homes

Notes

Main recommendations of the Capital Advance Leasing Facility (CALF) review

Background and operation of CALF

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