Initiative Ireland’s chief executive Padraig W. Rushe talks to Marc Shoffman about the Irish peer-to-peer lending market, solving the housing crisis and the platform’s overseas growth plans…
The housing supply shortage gets plenty of press in the UK but it is an issue faced by our neighbours in Ireland as well.
Irish peer-to-peer property lending platform Initiative Ireland is looking to fill the gap and help investors meet not just demand for homes, but to ensure supply goes to buyers who genuinely need somewhere to live.
Its model, focusing on sustainable private, social and affordable housing schemes, has attracted backing from major financial institutions including Goldman Sachs.
Chief executive Padraig W. Rushe – who has held senior risk and commercial management positions at Ulster Bank, GE Money and Bank of Ireland – explains how his platform can help solve the country’s housing crisis.
Marc Shoffman (MS): What gap in the market is Initiative Ireland filling?
Padraig W. Rushe (PR): We finance the delivery of social and affordable housing by funding developers and housing associations.
There was a 48 per cent shortfall in supply last year versus annual new housing requirements. After a decade of undersupply, the reality is we need supply to more than double to address the housing crisis and compounded shortfall from the past 10 years.
We’re aiming to support a 16 per cent increase in supply over the next three years.
MS: Do borrowers in Ireland know there is an alternative to banks?
PR: We’ve been working with developers since 2015, building a network of repeat customers.
However, we’ve always been a boutique finance partner. This year, we secured backing from institutional partners and banks, which give us capacity to lend €900m (£760m) over the next three years.
The challenge for us now is ensuring that every developer nationwide understands that there is not only an alternative to the banks, but that Initiative Ireland may be a far more suitable partner.
MS: Why is there a lack of suitable property supply?
PR: Access to flexible finance is key but the housing crisis in Ireland doesn’t just stem from that. While supply has fallen drastically behind demand, planning approvals have had a similar shortfall. There have been some efforts over the last five years to fast-track the planning process for large scale developments but developments below 100 units have been left behind, without reform.
Disruption to supply chains and rising costs are a factor. Delays in utility connections are creating bottlenecks but the number one issue is access to skilled labour. During the recession, Ireland saw an exodus of skilled construction labour. There is a significant opportunity for construction firms in the Irish market.
MS: Are first-time buyers’ property aspirations too high, do they try to purchase larger properties too early? Is there anything wrong with renting?
PR: First-time buyers are subject to strict borrowing limits in Ireland. They can borrow up to 90 per cent loan-to-value but they also cannot borrow more than three times their household income.
This means that the purchasing power of many households is capped below the cost of construction, locking them out of the market and forcing them to rent.
With supply of new housing being low, so too is supply of rental properties, which has seen rents sky rocket along with rates of homelessness. That’s why we’re focused mainly on financing social and affordable housing, as a way to rebalance the scales of supply to meet the urgent social need.
MS: How can P2P and alternative lenders help tackle the housing crisis?
PR: We see P2P and alternative lenders as playing a key role in stabilising the market.
It’s important that they’re governed and managed by teams who understand the market and have proven lending track records.
In past cycles we’ve seen firms enter Ireland without understanding the market, doing more harm than good before leaving again. People often talk about the democratisation of finance, we believe in the responsible democratisation of finance and there is a big difference.
MS: How will the Goldman Sachs backing help your business?
PR: Through our joint lending venture with Fairfield Real Estate and Goldman Sachs, we’re able to lend up to €900m over the next three years. That is a game changer for us and for Ireland as a whole.
MS: Are you seeking further institutional funding?
PR: We are open to engaging with additional institutional funding partners who share our passion for sustainable finance.
We are also speaking with institutional funders who are interested in backing our growth through direct investment in the company over the coming years.
Long-term, our goal is to become a leading finance provider across Europe and we understand the important role our partners will play in enabling that success.
MS: What are your thoughts on EU crowdfunding and P2P regulations?
PR: Regulation is welcome to promote market access and establish minimum standards. It needs to go further to ensure the fitness and probity of platforms themselves, with regard to their management. The art of lending or investing is not about getting money out the door but getting it back again at the other end.
MS: Is the P2P lending market competitive enough in Ireland?
PR: Ireland is a relatively small market. What we need are sustainable and reliable lenders. It’s not a matter of volume but a question of quality.
MS: How has the platform performed during the pandemic?
PR: We’ve worked through challenges faced by our developers. As an impact investor community, our clients lend for returns and social impact.
They have been extremely supportive and understanding of the extra flexibility our borrowers have needed. We still have a zero-loss rate and a zero-enforcement rate.
It helps that we’re ultimately funding social and affordable housing supply, which not only benefits from a first legal charge but demand which has not been impacted materially by the pandemic.
MS: Have borrowers faced shortages of building supplies as a result of the pandemic and Brexit?
PR: There have been delays in some supplies but largely our developers have worked around them.
Brexit has seen delays in deliveries due to come through the UK and indirect impacts to non- UK suppliers. At the same time, developers have shown incredible resilience in overcoming challenges.
MS: What is your focus for the future?
PR: As an environmental, social and governance (ESG)-focused finance and investment specialist, Initiative Ireland is working to become a trust leader in the Irish finance market.
Although we’re a private company, we are building partnerships with global leaders and national bodies to address urgent social and financial needs through innovative ESG finance products.
We definitely see scope to expand our offerings to address other underserved markets and social issues like climate change, housing and healthcare. It’s something I’m personally passionate about and I know I’m not alone.