Ireland’s Social Housing

In the first article of this series, our Banking and Debt Capital Markets teams highlight the central role that Approved Housing Bodies (AHBs) will play in the effort to solve the housing crisis in Ireland. In this second part, our Banking and Debt Capital Markets teams take a closer look at the funding environment facing AHBs and the social housing sector. They also highlight some issues with the current heavy reliance on State funding and propose potential avenues for the diversification of funding.

1. Dominance of State funding in the social housing sector

The financing of social housing in Ireland has traditionally been dominated by State-led funding. While AHBs were historically supported through direct Government grants, a policy shift in the early 2010s saw the introduction of loan-based funding structures.

In recent years, a small number of AHBs have taken steps to access private capital.[1] However, loan-based funding for social housing in Ireland is almost exclusively provided by the State. In recent years, the funding has most commonly taken the form of the Capital Advance Leasing Facility (CALF) together with Housing Finance Agency (HFA) loans.

CALF is a loan facility made available by local authorities to AHBs to assist them in funding the construction, acquisition, or refurbishment of social housing units. The CALF facility can support up to 30% of the capital cost of a social housing project. It is only available where the AHB agrees to enter a Payment and Availability Agreement (P&A Agreement) with the local authority. Under the P&A Agreement, the AHB agrees to make the financed units available to the local authority for use as social housing. For as long as the P&A Agreement is in place, the CALF loan is not repayable. Notably however, the principal amount of the CALF loan, plus any accrued interest, will sit on the AHB’s balance sheet as a liability. This liability will remain outstanding at the end of the P&A Agreement at which point, in theory at least, it will fall to be repaid.

The remaining 70% of a project’s capital cost must then be covered by the AHB. In theory, there are no restrictions on how this portion is financed by the AHB. For example, through its own resources, or through bank / external lender debt. In practice however, the vast majority of this funding is funded by HFA loans. The heavy preference for HFA funding can be attributed to a few key factors, including:

• Low cost of borrowing – As a quasi-sovereign entity, the HFA has access to low-cost capital which it can pass on to AHBs in the form of low-cost fixed-rate debt. The HFA’s 30-year fixed rate is currently set at 3.75%, making it difficult for private or commercial lenders to compete. This scenario has particularly been the case in recent years as interest rates have climbed generally.

• Long-term finance – the HFA regularly provides fixed-rate loans to AHBs for terms between 25 and 30 years. Typically, this significantly exceeds anything that could be offered by the Irish pillar banks.

• Familiarity and predictability – the HFA has a long track record of funding AHBs with a well-established working relationship. As a State entity, the HFA also works closely with the Department of Housing, Local Government and Heritage, as well as AHBs. It aims to complement existing State funding schemes such as CALF with its loan finance.

Government policy and preference also play an important role in the current heavy reliance on HFA funding. The ‘Housing for All’ Government strategy specifically calls on the HFA to take a “lead role” in financing social housing delivery in order to meet the Government’s housing targets. This lead role has also been backed by very significant levels of Government funding.

Then there is the practical implementation of Government policy, which can also influence AHBs towards HFA funding. An example can be found in the interpretation of a 2023 Department of Housing circular and associated model assumptions. There, changes made to the calculation of CALF funding were interpreted by many AHBs as meaning that if they obtained non-HFA / private funding for a social housing project at rates above the current HFA fixed rate, then their ability to obtain CALF funding would be adversely affected.

Each of these factors mean that, while AHBs will need to diversify their funding sources and, in our experience, they are keen to do so, they are in reality tending towards reliance on State funding for social housing typically through a combination of CALF funding and HFA loan financing.

2. The implications of dependence on State funding

As the scale of social housing delivery has grown and the loan-based funding structure has become increasingly concentrated in the State, the level of CALF funding and HFA loans has had to keep pace accordingly.

The Government allocated €635 million to CALF across 2023 and 2024. With increased capital funding for social housing promised in the 2025 budget, this level of support will likely continue in the near term. Similarly, HFA funding has grown over recent years: a reported €2 billion was advanced by the HFA in 2024, with its outstanding loan book reportedly now standing at €8.1 billion. To facilitate the required increase in lending activity to meet Government housing targets, the HFA recently raised its statutory borrowing limit from €10 billion to €12 billion. By any metric, these are very substantial investments and represent a large portion of the Government’s resources.

The move to predominantly loan-based funding for social housing has also had an impact on AHBs themselves. An obvious consequence is the impact on AHBs balance sheets, with gearing ratios climbing significantly in recent years. For example, Clúid Housing Association has reported an increase in their gearing ratio from about 5% in 2012, when loan-based funding structures were first introduced, to approximately 76% in 2024. It remains to be seen how these high gearing ratios would be viewed by international private lenders.

In addition, over-reliance on State sources of funding arguably leaves AHBs more vulnerable to macro-economic or geopolitical shocks. While these events were once considered exceptional, recent years have unfortunately demonstrated that significant systemic shocks can occur suddenly and frequently. These shocks often have significant effects on our public finances. Between 2008 and 2014, for example, there was a precipitous drop in State funding for mainstream social housing as a result of the global financial crisis. Funding fell from €1.4 billion in 2008 to just €167 million in 2014 with output severely contracting as a result: from 7,588 units delivered in 2008 to just 642 units delivered in 2014.

The Housing Commission report clearly recognises this trend and notes that:

“The history of public investment into housing in Ireland is characterised by pro-cyclical periods where investment rises strongly at times of fiscal strength and falls sharply when public finances weaken.”

Allied to that, AHBs are uniquely exposed to changes in Government policy, or delays in implementation of that policy: relying on the State as your sole lender means you are subject to timelines and processes which are, in general, not as nimble or pragmatic as those of private lenders. This exposure of AHBs to changes and delays in Government policy has been illustrated on a number of occasions this year:

• In early 2025, a widely-publicised funding dispute between the Department of Housing, the Department of Finance, and the Department of Public Expenditure and Reform led to significant delays in granting of funds for new social and cost rental housing projects. Several AHBs reported waiting over six months to commence work, stalling the delivery of up to 5,000 homes.
• In early June 2025, the Department of Housing cancelled ‘Social Housing Bundle 3’ due to value for money concerns. Social Housing Bundle 3 would have delivered 486 homes under a public-private partnership (PPP) model. However, it has been reported that the project had already passed two Government financial appraisals, with over €8 million having been spent by the PPP consortium on pre-construction work.
• In late June 2025, reports emerged of a wider cancellation of the remaining social housing ‘bundles’ due to similar value-for-money concerns. The bundles were due to comprise over 3,000 social homes. The Construction Industry Federation warned that these cancellations could jeopardise the PPP model and impact future infrastructure projects, including Metro North.

These developments cast doubt on the depth and viability of both the State-led funding model for social housing as well as the PPP model for delivery of social housing. They arguably also indicate a lack of consistency from the Government. A hugely important factor for private investors seeking to invest in social housing is a sense of certainty in the sector. If the Government fails to carry its own projects and initiatives through to completion, then in our view this is problematic from the perspective of attracting international private capital to the sector. In short, the developments this year have not been a good look for “Ireland, Inc.” in this space.

3. Acknowledging the need for diversification of funding

The Government itself has acknowledged the need for diversification of funding when it comes to the financing of housing more generally in Ireland.

In a recent debate, the Taoiseach stated that while more than €6 billion was allocated for housing in State expenditure for 2025,about €20 billion is needed to reach the target of 50,000 units per annum. Recognising the scale of the deficit, he stressed the need for private sector investment:

“I also say without apology that we must look at mechanisms to bring an increased level of private sector investment into house building. Any attempt to deny that is flying in the face of reality.”

The Housing Commission report includes as one of its recommendations the reform of capital funding for social and cost-rental housing, by reducing reliance on Government grants and loans and introducing new sources of private and non-profit finance. Moreover, sector voices, such as Co-operative Housing Ireland’s 2025 Pre-Budget submission, further emphasise the importance of diversifying debt sources, noting that diversification is a sound financial management practice for all borrowing organisations.

These are impressive and prudent aspirations but unfortunately seem to contradict what is happening in Government policy and on the ground. The HFA is being given an ever-increasing role as the apparent sole lender and funder of AHBs. In addition, the practical implementation of Government policy has, inadvertently or otherwise, further constrained AHBs accessing private capital, by virtue of the 2023 Department of Housing circular and standard assumptions mentioned above. All of which is against the backdrop of ever-increasing pressure on the system to delivery housing units rapidly.

And stuck in the middle, amidst the contradictory Government policies, pronouncements and practices, are AHBs and the social housing sector.

4. Lessons from overseas: potential avenues for diversified funding

So how can funding for social housing be diversified? And what would a diversified funding model look like?

Leaving aside broader political questions around what the Government must do to encourage diversification, it is useful to look to our nearest neighbours and draw lessons from the UK social housing sector’s experience. The UK social housing sector shares many key structural and cultural features with the Irish social housing sector. In our view, it provides an excellent template for the Irish social housing sector to follow in diversifying funding.

Prior to the 2008 global financial crisis, UK registered providers of social housing (RPs) were largely funded by a combination of Government grant and long-term bank loans. Following the crisis, availability of UK Government grant funding for social housing significantly tightened up as part of the general austerity regime. In addition, UK banks and high-street lenders were severely curtailed in making long-dated fixed-rate loans, due to the higher costs of such loans for banks in terms of regulatory capital. This change in funding environment, ultimately driven by macro-economic shocks, opened up funding gaps for RPs, meaning that fresh thinking was required in order to access capital.

The most significant solution which emerged was accessing the capital markets through bond issuances. The regulated nature of the social housing sector, coupled with a low-interest rate environment, meant that institutional investors were keen to lend to RPs. RPs found that they could access long-term fixed-rate debt via the capital markets, typically with competitive pricing when compared to traditional bank lending. Since then, the capital markets have become a hugely attractive and important source of funding for RPs.

This means that RPs have transitioned away from reliance on state funding and bank lending to a sophisticated mixed funding model. Crucially, this funding model is not dependent on a single source of funding but, instead, RPs fund themselves through a blended mixture of:

• UK Government funding – Government grants continue to play a key role in the sector, typically funding 30-50% of development costs. Similarly, Government loans are important.
• Capital markets – RPs are now availing of long-dated fixed-rate debt raised on the capital markets. This is either via direct issuances by the RPs themselves, or through the use of bond aggregators where a third party issues the bonds and on-lends the proceeds to the RP. Obviously, the length of the debt and the interest rate will vary depending on market conditions when the RP goes to market to borrow. For this reason, many RPs will issue on a regular basis and position themselves to be able to issue quickly when conditions are favourable.
• Bank lending – traditional bank loans remain significant, in particular for short- to medium-term financing needs. These are often revolving loans and can be drawn when needed, in particular, if a bond issuance is not attractive due to the higher interest rates, etc.

Critically, none of these options exclude the others. Many RPs maintain all these routes to financing and draw on each as needed and in line with prevailing market conditions and/or the particular need that the RP faces at a particular time. The lessons here for AHBs, and the social housing sector generally, are clear: the UK experience shows that a sophisticated, mixed funding for social housing is very much achievable.

Considering the strong fundamentals of the sector, our view is that AHBs could very successfully tap into the capital markets and access alternative investment pools. Our conversations with prominent private institutional investors, including pension funds such as Aviva Investors, have shown there is strong appetite for Irish social housing as an asset class. These investors have different lending profile to banks as they are willing and able to make long-term fixed-rate funding available to AHBs. In addition, private pension fund / institutional investors are typically viewed as more responsible, patient and long-term partners and lenders.

Having AHBs access these sources of alternative finance would complement State funding and enhance AHBs’ capacity to meet Ireland’s ambitious housing targets.

5. Continuing the conversation: what is next for social housing finance?

As the urgent need to deliver more social housing units continues to grow, and the funding landscape for AHBs evolves, it is clear that reliance on traditional State funding channels alone will not be sufficient to meet Ireland’s ambitious housing targets. There is growing consensus that a mixed funding model, combining public and private capital, is essential. With the right policy framework in place, Ireland can serve as a promising destination for both domestic and international private investment in the social housing sector.

In the next instalment in our series, we will examine the specific funding structures and sources that AHBs can leverage to diversify their capital base, with a particular focus on the potential to access capital markets through the issuance of bonds.

Read Part 1 of our Series

Watch our CPD On Demand: Unlocking Capital - Financing Our Social Housing Future

For more information and expert financing advice, contact a member of our Banking or Debt Capital Markets teams.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] Including, for example, (1) Circle Voluntary Housing Association’s €16 million financing with AIB in 2022, (2) Clúid Housing’s €54 million financing with Legal & General in 2020, and (3) Oaklee Housing’s €50 million financing with Nord/LB in 2018.