Institutional investment in housing sends Government running for cover

The issue of international investment funds buying up entire housing estates has the Government running for cover, cowering over the potential political consequences of first-time buyers being squeezed out of the market by tax-efficient financial behemoths.

It emerged in recent days that investment group Round Hill Capital has bought most of a 174-house estate in Maynooth, Co Kildare, while with local investor SFO it also bought an estate recently in Dublin 15.

Institutional buy-to-rent investment is a small but growing part of the market. At the end of last year, institutions owned close to 16,000 units, less than 1 per cent of the State’s total housing stock.

The Government’s opposition, however, has spotted a political open goal and is using the issue to batter the coalition, which like all Irish administrations keeps stepping on landmines in the housing sector.

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Vulture funds

The public debate is reminiscent of a previous controversy surrounding the so-called global “vulture funds” that supposedly feasted on the carcass of the Irish economy after the last crash.

Some perspective is required. It is true that it must be galling for first-time buyers who may have been eyeing up those properties in Maynooth and Dublin, only to find that a faceless, tax-efficient financial entity has snapped up the lot. But this issue must not be conflated with the housing crisis.

The houses bought by the funds will still be available in the market, only they will be rented out to families, instead of sold on the open market. The Irish market has traditionally been short of stable, professional, long-term institutional landlords to service rental demand – there are only so many retired guards and teachers out there to fund buy-to-lets.

Another problem arises, however, if the funds capitalise on the housing shortage to drive up rents to exorbitant levels. A hardening of rent restrictions might soften their cough in this regard.

But international funds also bring capital to the market, and if they are prepared to pre-fund developments without sucking up banking capacity, then they surely have some role to play.

Funds are not the bogeyman. And if the Government delivers on its housebuilding targets and the overall shortage is addressed, most of the problems around the funds’ involvement will go away.