Central government is looking at whether councils should be allowed to borrow more, to build more

Last February, Dublin city councillors voted to borrow up to €132.5m spread over a few years to fund its big housing project at Emmet Road in Inchicore, a mix of cost-rental and social homes.

The Minister for Housing okayed it. Since then, work on the site has gradually progressed.

On Thursday, beyond the tall hoarding that advertised the future, there were yellow diggers and fresh mounds of mud.

If Dublin City Council could borrow more, it could probably be building more cost-rental homes in the city, said Green Party Councillor Michael Pidgeon last week.

Cost-rentals are a model of housing that are aimed at middle-income earners, cheaper than a purely private-market rental, and intended also to offer people more security and a sense of home.

The idea is that rents are set based on the costs of delivery – of construction, financing, management and maintenance – and so can fall over time, rather than stay tethered to a rising market.

The version of the model being rolled out at the moment is not without critics. But there are about 4,300 cost-rental homes in the pipeline across the city – to be delivered by the council, approved housing bodies (AHBs), and the Land Development Agency (LDA) – between now and 2033, show official figures.

And the government’s new housing plan, “Delivering Homes, Building Communities”, commits to accelerating cost-rentals.

Dublin city councillors have been talking about converting vacant and derelict buildings in the city centre to cost-rentals too.

For the council to deliver cost-rental at scale though, it has to be able to borrow, says Pidgeon, who sits on the council’s finance committee. And “that doesn’t work within the current government borrowing model”.

Indeed, at the moment, all the 31 councils in the country, between them, can only borrow €118m a year in “non-mortgage loans” – the kinds of borrowings used to fund or part-fund all kinds of building projects, not just cost-rental housing, but also libraries, community centres, and sports stadiums.

The government’s new housing plan also says that it will “streamline funding support schemes for cost rental delivery” and “explore increasing debt ceiling levels for local authority borrowing”.

In other words, look at letting councils borrow more.

A spokesperson for the Department of Finance said earlier this week its officials are engaging with the Department of Housing and the Department of Public Expenditure on borrowing limits for councils.

“The Department of Finance acknowledges that the current metric used to calculate the sectoral borrowing limit, in place since the financial crisis, requires further examination,” the spokesperson said.

“And that a revised framework for local authority borrowing should be developed, which considers the sustainability and affordability of borrowing, and the impact on the general government position, while meeting the overall needs of the local authority sector,” said the spokesperson.

A spokesperson for the Department of Housing gave a similar statement. Councils do get partial funding for cost-rental as a grant through the government’s Affordable Housing Fund, they also said.

But “local authorities generally need to borrow the majority of the delivery cost from the Housing Finance Agency. Repayment capacity for this borrowing arises from tenant cost rental income,” they said.

“The limits on the level of borrowing that local authorities can undertake in any year may cause issues in the future for local authorities that need to borrow to deliver cost rental projects,” said the spokesperson.

Whether councils should be allowed to borrow more is a really core question that is about more than finance, says Rory Hearne, a Social Democrats TD and the party’s spokesperson on housing.

It’s also not just about housing but so many of the other services too that communities need to thrive, he says.

So often, council managers will say that they just don’t have the money for a project, he says. “We'd like to do this. We'd like to repair our paths more. We'd like to build more public housing. We'd like to have more, you know, public swimming pools. But we just can't do it. We don't have the funding.”

“And so the question is, then, where do you get the funding from, and borrowing is a key one,” says Hearne.

Can we build it?

It’s not just cost-rental homes that Dublin City Council has sought, or plans to seek, to borrow to fund.

The council has a whole list of projects that it is looking to borrow for, to get over the line in the next few years – from fire stations to the Smithfield Fruit and Veg Market redevelopment.

All of the items are important, said Victor Leonov, the acting head of finance, at a meeting of the finance committee last May.

But if Dublin City Council goes for all those borrowings and gets sanction for them, it would leave little of the pot of €118m each year for other local authorities, he said.

Indeed, councils collectively asked to borrow more than the borrowing limit in 2023 and 2024 – but drew down less than the limit, says a report drawn up by consultants Indecon for the Department of Housing.

In 2023, councils sought sanction for €260 million. In 2024, they asked to borrow €150 million.

“This illustrates the self-assessed increased need for borrowing that currently exists within the local authority sector,” the report says.

“As the government programme around infrastructure and housing provision expands in the coming years, there is an expectation that local authorities will need to increase borrowing further,” the report says.

While councils do rely heavily on grants from the central government for capital projects, those aren’t enough, the report says. Councils often have to provide matching funding, and cover operational and staffing costs, it says.

“As expenditure increases due to increasing demand for delivery of housing schemes of various tenures such as cost rental, affordable housing and social housing, local authorities are vying against each other to obtain a larger share of the borrowing limit to meet public service needs within their own areas,” the report says.

Why the cap?

Controls on local government borrowing were brought in because some local authorities in the past got into financial difficulties, says Tom Moylan, executive director of the Association of Irish Local Government.

“But sometimes you come up with a solution to rectify a problem and it goes from one extreme to another,” he says.

Current restrictions exist on a few fronts.

Councillors have to vote to approve any borrowings – but they also require ministerial sanction. This ensures that borrowing does not undermine the delivery of essential local services, that debt levels remain sustainable, and that borrowing aligns with wider Government policy priorities, says the Indecon report.

It also allows the Department of Housing, Local Government and Heritage to track debt across the sector, to ensure that levels comply with national and European Union fiscal rules around the general government balance, it says.

The last of these considerations relates to a second check on council borrowing. An agreement between the Department of Public Expenditure and the Department of Finance requires local authorities to have a neutral impact on the general government balance.

So councils have to run balanced revenue and capital accounts.

That flows from Ireland’s obligations under the Maastricht Treaty, the report says. These mean that Ireland has to limit its general government deficit to 3 percent of GDP, and general government debt to 60 percent of GDP.

The report from Indecon looks at the current sustainability of debt at individual councils, using four different metrics – and finds it does vary from council to council.

“Some local authorities perform consistently strongly across all metrics,” the report says. “For example, Dublin City Council and the county councils of South Dublin, Dun Laoghaire-Rathdown, Kildare, Kerry, and Carlow do not rank in the bottom two quintiles in any of the metrics.”

But overall, the debt is small because of all the restrictions, says Stephen McNena, an economics lecturer at University of Galway who researches local government.

“They’ve a low amount of debt. They’ve a much lower amount of debt than the central government,” he says.

At the meeting of Dublin City Council’s finance committee last May, Leonov went into some detail about the council’s debts, pointing to €162.2m in “non-mortgage loans” at the end of 2024.

Of that, €4.7m related to a loan from 2022 from the Housing Finance Agency to buy land, he said.

Meanwhile, €67.5 million related to a loan in 2021 and 2022 to help fund the North City Operations Depot in Ballymun.

The council plan for repaying that has been to use money from selling the cleared smaller depot sites – from which operations were moved to the new super-depot – to help cover it, he said.

Most of the old depot sites will end up as social housing, he said. “The trick for us is to get the money from the department to cover the cost of the land for those houses.”

The largest chunk of borrowings was €90.1m in loans, from between 2019 and 2024, drawn down to fund the maintenance and refurbishment of social housing.

“This is a substantial issue for us, to continue to borrow that,” said Leonov. The repayments are quite large, he said.

Sinn Féin Councillor Kourtney Kenny asked what kind of maintenance work these borrowings were funding.

Day-to-day maintenance is covered from revenue, said Leonov. This was spent on bigger items, such as wraparound insulation and retrofitting and – he said – to plug the gap between the €11,000 that they get from the Department of Housing to do up each vacant social home between tenants, and the actual costs of refurbishment.

A wider symptom?

The tight reins on council borrowing are a symptom of the high centralisation of government in Ireland, says McNena, the economics lecturer.

Generally, he would be in the camp of those who argue for much more decentralisation, he says. For councils to have more powers, more responsibilities, more taxing powers, and yes, more borrowing powers.

“It doesn’t mean we want them to go mad borrowing,” he says. “There’s a reason for controls. Controls and fiscal rules have a place.”

But it would mean changing the fiscal rules.

At the EU level, there are the rules restricting borrowing to 3 percent of GDP, and public debt should be a maximum of 60 percent of GDP. “You could have those rules at a local government level,” he said.

The implication is that the €118m would have to be relaxed, he said.

Hearne, the Social Democrats TD and housing spokesperson, says that he also thinks the borrowing cap has to transform. “We have to massively extend this or get rid of it.”

That of course raises the question of how able councils would be to repay what they borrow, he says, and so should happen in tandem with increases in revenue-raising powers.

Indeed, says the Green Party’s Pidgeon. “Without being a bit Dermot Lacey about the whole thing, you need local government to be able to raise its own finance before it can do this borrowing,” he said, referring to a Labour Party councillor known for pushing for more powers for local councils.

As part of its analysis of local government debt and sustainability, the Indecon report looked at how much “flexible income” councils had.

In other words, how much revenue each brings in over which it actually has control over how it is spent – and so could direct it towards repayment of debt.

Over time, that has fluctuated, the report shows.

The central government could look at allowing or strengthening several streams of revenue, says Hearne. Like getting government agencies to pay rates in Dublin, he says – an issue also flagged regularly by Lacey, the Labour councillor.

Collecting derelict sites levies – to be reformed as the derelict sites tax – would be another source, he says.

Although that is to be moved under Revenue, and it is unclear if the money will be passed back to councils who hadn’t been collecting it efficiently. “It shouldn't be lost from the councils, but I haven't seen a clear answer to that,” says Hearne.

Central government is generally slow to cede powers, but councils have also been pushing for powers to implement a tourist tax or visitor levy, says McNena. And, “do I think it'll be in in five years time? Yes.”

Outside the box, inside another

Dublin City Council is looking at another route to borrow more – following the example of Limerick City and County Council.

Limerick has three special purpose vehicles, which are arms-length companies, set up to manage some projects. Limerick Twenty Thirty, for example, was set up in 2016 to redevelop five city centre sites.

Borrowings by Limerick Twenty Thirty – and the other two SPVs, Discover Limerick DAC, and Innovate Limerick – do not need ministerial approval, says a spokesperson for Limerick City and County Council.

These SPV borrowings also don’t have to be taken into account when ensuring that the council’s annual budget is balanced and neutral, they said.

Last July, Dublin city councillors backed the idea of establishing an SPV to help rejuvenate Dublin’s city centre.

Setting up SPVs is not without issues though, says Moylan, executive director of the Association of Irish Local Government.

There’s a democratic deficit and a lack of transparency, says Moylan. That’s been raised by councillors in Limerick.

And, for councillors who may end up on boards of these SPVs, those responsibilities risk leading to conflicts of interest with their role as elected representatives, says Moylan.

“Whose interests are they representing? The council? Or, under company law, to the company itself? What happens if there’s a conflict with the local authority and the company, what must that elected member do in that case?” he says.

For him, it would be better to be carrying out those activities through the council, he says. “The corporate structure is already there with the local authority.”

A spokesperson for Dublin City Council didn’t say whether the executive would be in favour of increasing the borrowing envelope, or changing the rules around borrowing.

When it comes to funding cost-rental homes, the council and its partners are working on several projects in the city, the spokesperson said.

And, at the meeting last May, the council’s acting head of finance, Leonov reminded councillors that borrowings need to be repaid. “Borrowings is a last resort. We prefer not to get involved. I think that’s the intention,” he said.

But, Moylan says, in the finger-pointing over who is responsible for missed public housing targets, there is often the same dialogue.

The Department of Housing may say that councils aren’t working fast enough and that the approvals process is much smoother than the past. Councils may say that approvals and funding from central government still takes too long to come through.

Allowing councils to borrow more would mean councils just can’t make that argument, says Moylan. “They can’t have any more excuses with regards, oh, we can’t get the money from the department.”