Cover: Defined by delivery

Beauchamps’ partner and head of its specialised housing team, Fidelma McManus, discusses cost rental housing, forward funding, and accelerating delivery of true mixed tenure schemes through collaboration.

Beauchamps LLP is a full-service law firm comprising commercial real estate, construction, banking and finance and public procurement lawyers. Its housing team is led by McManus, who, while primarily a conveyancer by profession, has significant experience in construction law, project delivery, and funding.

Housing team

One of Beauchamps’ five real estate teams, the housing team is led by three partners – the other two being Caoimhe Banks and Conor McEvoy. With eight solicitors directly focused on housing and a significant number of lawyers, it is supported by a broader administrative team and lawyers from across the firm.

“In my team, we have honed housing specific skills under one umbrella,” she illustrates, adding: “This is what the solicitors who work on my team do day in and day out. They are expert commercial real estate lawyers with a focus on housing. While there are many competent lawyers out there, there are very few people who have the same level of expertise as the Beauchamps housing team.

“We undertake a lot of work with private sector developers, and this benefits our public sector clients because we understand the alternative perspective: projects must be funded, built, and delivered, and time is money.

“Whether acting on behalf of a public sector or private sector clients, we understand the importance of delivery. Success is defined by delivery, and our role is to be a strategic partner in that delivery.”

Experience

Having operated through the Irish economic crisis and recovery, working on various solutions for housing delivery, the overarching priority of Beauchamps’ housing team is to “continue to be at the forefront of housing delivery, including projects that will make a real difference to Irish society”.

“When Part V of the Planning and Development Act was no longer delivering social housing because of a lack of construction, Beauchamps became heavily involved in delivering the National Asset Management Agency’s social housing project through its subsidiary, National Asset Residential Property Services DAC.

“It was through this work that we began to act on behalf of several state agencies, including The Housing Agency, alongside local authorities and the approved housing bodies (AHBs). It was a very collaborative approach, which was essential because it needed to accommodate everyone. We built strong relationships with the AHBs, subsequently acting for several of them, especially around the time when their funding models changed, necessitating funding from third party lenders, particularly the Housing Finance Agency.

“We have been on the journey all along, but now housing is an all-pervasive discussion. As such, Beauchamps’ housing team has grown, as has its expertise,” McManus outlines.

Forward funding

While a relatively new concept in Ireland, Beauchamps has a significant focus on forward funding, primarily on behalf of AHBs. Traditionally, many housing developers pursued a forward sale approach and sought to profit from that sale.

However, with increasing viability challenges amid higher interest rates increasing the cost of funding, along with construction cost inflation, developers are now working collaboratively with AHBs to get funded along the way, meaning they do not have to carry the entire cost of funding.

“Whether acting on behalf of a public sector or private sector clients, we understand the importance of delivery. Success is defined by delivery, and our role is to be a strategic partner in that delivery.”
Fidelma McManus, partner and head of housing, Beauchamps LLP

A contract for the delivery of a large scheme will tend to be a forward sale, whereby a purchase price is agreed in advance. This price is then paid in full once the scheme is delivered and acquired, with the developer having funded construction costs via traditional finance. A forward fund, meanwhile, is different in that the site is transferred before the build and then the developer is paid in stages throughout the build, incentivising completion.

While forward funding can be mutually beneficial, McManus indicates there is an increased risk for AHBs. They must be clear, she asserts, on their required deliverables, as well as the sophistication of their internal expertise to monitor project progress. AHBs must also employ the right advisors – from planners to quantity surveyors, and lawyers – who understand the significance and associated risks of each step of the project.

“It is also important to have a board of directors that is willing to take on a level of risk with knowledge and understanding of the appropriate mitigations put in place to manage such risk and protect the public purse,” she explains.

“Effectively, forward funding provides more control over the end product and adds to the housing stock. This is an important delivery model because it does not include units that were going to be built regardless. While there is less and less speculative building in the current climate, Beauchamps has been working on this specific project model since 2017, with several AHBs involved, in particular Respond.

“A collaborative approach is essential if the requirements of public sector entities – which are acquiring property, development, or housing – are to be met. These requirements are distinct from those in the private sector, where commercial decisions are made based on investors and are for profit. Primarily, public sector clients are driven by delivery, while simultaneously they must meet criteria relating to exchequer expenditure.”

Cost rental

Across different jurisdictions, the affordable rental model has several synonyms. In Ireland, because of its evolution, it is known as cost rental. The Affordable Housing Act 2021 provided for several measures to enhance the delivery of affordable housing, including the introduction of a new cost rental tenure.

Aimed at providing secure, long-term rental properties at below market rents to those caught above the income threshold to access social housing and excluded from the open market to buy or rent, the government has committed to the delivery of 18,000 cost rental homes by 2030.

In April 2023, the government agreed to three extra measures under Housing for All. One such commitment is the allocation of up to €750 million via the Land Development Agency (LDA) and ‘other providers’ so that work can be commenced on cost rental apartments for which planning permission has been granted but has not been progressed.

However, the details of how this cost rental subvention will work in practise have yet to be finalised. As such, AHBs have been disquieted by the ambiguity surrounding the definition of ‘other providers’.

“Now, however, we understand that the ‘other providers’ will include AHBs. Perhaps the intention had been to keep this broad until it became clear as to how exactly the subvention would be delivered and to whom. Our understanding is that equivalent subsidies should be made available to AHBs. How they are made available, we do not know. There is a lot of ongoing discussion,” McManus advises.

In the short term, the Beauchamps partner identifies the LDA as an obvious partner for cost rental delivery, highlighting that the LDA is already acquiring and operating cost rental units from the private sector via Project Tosaigh.

Scaling

To date, however, the cost rental tenure has yet to be delivered at scale in Ireland. The obvious benefits are that rents are maintained at least 25 per cent below the private market rents of a given locale and many people who qualify for cost rental tenures will eventually move on to home ownership. While McManus emphasises the prevalence of “high confidence and demand”, there are several challenges.

Unlike social housing, which has an underlying state-backed guarantee of payment and an availability agreement with local authorities, cost rental is exposed to market risk. Against a backdrop of several recent black swan events, AHBs are particularly cautious.

“There has been a real worry that the cost rental housing delivery could exceed demand and AHBs that have borrowed money to deliver it will be left unable to repay because they are reliant on the private market. With cost rental, sums of money are secured by lending against an asset, and profit is limited because this asset must maintain reductions at least 25 per cent below market rent.

“Simultaneously, the cohort of people eligible to access cost rental is restricted to those whose net household income is below €53,000 per annum, while being diminished by increased migration to home ownership, which the government is supporting in tandem. Ultimately, the success of the cost rental tenure hinges on upfront public investment and our understanding is that recent government announcements will provide some further reassurance,” the Beauchamps partner indicates.

Mixed tenure

Currently, the ideal mixed tenure schemes that the Beauchamps housing team is observing include social, cost rental, affordable for sale, private sale, and various other schemes to appeal to different cohorts of society, particularly key workers. These include focusing on mixed tenure schemes being delivered in other jurisdictions, such as by Homes England in the UK, which could be used to produce a model that attracts investment from outside of the State.

True mixed tenure incorporates each of these models on a single site. “Mixed tenure incorporates people from all sorts of socioeconomic backgrounds together in one community,” McManus asserts, elaborating: “This opens opportunities for social mobility. Whereas when individuals are limited in the options that they can observe in their local communities, they are more likely to be restricted in their socio-economic trajectory. It is a broader perspective, but the delivery of adequate housing is so important to the fabric of society.

“Going further, there is a disconnect in society if the average public sector worker – teacher, garda, or nurse, for example – cannot afford to buy their own home or, at the very least, cannot access an adequate secure property to rent long-term. We must ensure that these key workers have somewhere to live.”

Collaboration

Capacity is a major challenge across both the public and private sectors, but particularly in the public sector. The majority of homes that are currently under construction, including developments led by state agencies, are being delivered by the private sector. In this context, there is no option to not collaborate.

“The key to unlocking housing is for the public sector to enter into agreements with developers to ensure entire schemes are delivered as social, cost rental and affordable homes.”

“Collaboration is the key,” McManus insists. “The key to unlocking housing is for the public sector to enter into agreements with developers to ensure entire schemes are delivered as social, cost rental and affordable homes. Several developers are experiencing planning challenges, but planning aside, there are many schemes with planning approval that could be delivered with the right strategy.”

For instance, a developer might strategise the delivery of an apartment scheme comprising three blocks. This may have included the delivery of one social block to an AHB or local authority, with the second and third blocks typically delivered to the PRS market. However, due to the cost of funding and international funding going elsewhere, that PRS route is blocked. Similarly, the long-term leasing model is no longer on the table as an option.

“Now there is a real hope and expectation that the AHB, which would have taken the first block for social housing, could also take the second block as cost rental. However, AHBs will require further reassurance as this approach changes their risk profile. I am hopeful that the government’s commitment to additional funding – in whatever form it takes – will be able to provide that reassurance. In other words, there would be an injection of money that would enable the AHBs to become more comfortable with the greater risk they perceive,” McManus suggests.

An option for the third block could then be an affordable housing scheme or, more specifically for apartments, the option of Croí Cónaithe, which would mean it could go to the owner occupier market with government supports for home ownership of apartments, which also include the options of the Help to Buy Scheme and the First Home Scheme.

“I am hopeful that developers attempting to deliver such an apartment scheme can discern a real strategy to do so in its entirety. It is a deviation from what might have been originally envisioned, but it has significant public backing.

“There is no doubt that in the short to medium term, the public sector is going to be a collaborative partner. Builders and developers in this space are beginning to come to this realisation. Beauchamps is acting for a wider spectrum of clients who are seeking to understand how this might work in practise.”

Enhanced delivery

In the last 18 to 24 months, the number of builders and developers working collaboratively with the public sector – whether AHBs, local authorities, The Land Development Agency, or The Housing Agency – has increased significantly. People who were not traditionally active in this space have gotten involved, resulting in enhanced delivery of projects.

“The public sector has always been amenable to this collaboration and there is significant opportunity in this sphere. Indeed, most schemes will have some degree of public spending, including fully private schemes that have a Part V social housing element. A majority now also have a First Home Scheme or Croí Cónaithe element at a minimum.

“However, several developers are going further, consciously developing forward fund models, or equivalents, specifically for AHBs or local authorities. In many ways, this is a more certain path to delivery in what is a relatively uncertain market, with omnipresent challenges relating to delivery to multiple private sector end users,” McManus observes.

The head of housing also observes an enhanced awareness among builders and developers. “In my experience, once a developer or a builder completes an initial project with a public sector entity, or an agency that is primarily funded by the State, repeat collaboration is common. They learn from the experience and can apply it to the next project.

“That applies to all of the professionals advising each of the parties as well, be they agents, quantity surveyors, design teams, lawyers, accountants, and all these people. Once they see deals being delivered and returned, they can leverage the experience for subsequent deals.”

Vision

Meanwhile, McManus’ vision for the Beauchamps housing team is to grow its expertise and ensure that it “continues to be the leading housing practice in the State”. “We have already expanded our expertise in construction and funding, but we want to go further in the regulation space. Another area of particular focus is the merger of AHBs, which, as a consequence of the Housing (Regulation of Approved Housing Bodies) Act 2019, is going to become more prevalent. We would love to see more delivery in that space and contribute to greater efficiency. There is always a better way,” she concludes.

Profile: Fidelma McManus is a partner with Beauchamps LLP and heads up its specialised housing team. She is the go-to expert in complex conveyancing and an acknowledged market leader in the acquisition and management of social and affordable housing. Her practice includes all aspects of conveyancing including the acquisition, structuring, financing, disposal, and leasing of all types of property, including multiunit developments, distressed and partially complete residential developments, shopping centres, retail parks, and offices. McManus also advises on landlord and tenant law. In particular, she works closely with local authorities, state agencies, charities, approved housing bodies, lending institutions, pension funds, sporting bodies, receivers, and developers, including institutional and private investors. The Beauchamps housing team has been recognised for its contribution to Irish society, securing the Public Sector Excellence in Business Award for housing services for five consecutive years.