Council runs up €18m debt on unsold affordable houses

DUBLIN CITY Council owes more than €18 million in bridging loans and fees on a backlog of 158 affordable houses it has been unable to sell due to the property downturn.

The council is offering most of these houses and apartments for sale without any “clawback” penalties, which means that unlike most purchasers of affordable houses, buyers will be able to sell on their homes without making any repayment to the council.

The costs to local authorities of holding unsold affordable houses have been mounting since property prices began to fall. The affordable housing scheme worked while property prices were high as buyers on lower incomes could secure houses at lower cost to the open market.

In Dublin city the discount offered to qualifying buyers was typically in the region of 30-35 per cent, which meant the city council had waiting lists for for all developments coming on stream and was never left with unsold houses on its hands.

The Housing Acts required developers to provide 20 per cent of any new estate for social and affordable housing.

The affordable houses scheme operated through the council giving the developer lists of people eligible to buy an affordable house in that area.

However, if the first two people on the list rejected the house or apartment, the council was obliged to buy it from the developer at the agreed discounted price. The obligation then fell on the council to find a buyer.

The agreed price of the affordable house was generally set several months, and occasionally more than a year before the development was put on the market.

In 2008 the open market price of a development began to fall to where it was just nominally above the affordable house price. Buyers of affordable houses must pay a clawback to the council of the percentage of discount they received if they sell their house within 20 years. When the gap between the affordable house price and the open market price began to narrow, the prospect of being tied into a deal with the council for 20 years became less attractive.

However, when market prices began to dip below affordable prices, sales dried up altogether.

In January last year the city council admitted it had a backlog of 300 unsold houses that were costing it upwards of €300,000 a month in bridging loans and fees.

At that time it decided it would apply a further 25 per cent discount. It later took advantage of the relaxation of Government rules on affordable housing and began offering houses to anyone who qualified for the scheme, rather than just those who had been on the list for a particular area. The council has decided to cut its losses further by removing the clawback clause.