Taxpayers to foot the bill as developers paid up to €120,000 per new apartment by the State

The €500m fund is aimed at unblocking stalled developments and will see 5,000 apartments built between 2024 and 2026.

The move comes amid concern builders are not developing certain sites in cities due to the cost of construction.

Developers will have to apply to have their developments included in the fund and will receive a subsidy of up to €120,000 per apartment.

This is intended to bridge the gap between the cost of construction and the sale price.

However, it is understood that this may be exceeded in some parts of the country.

Cabinet ministers were told this week the aim of the fund is to increase supply but not to reduce the cost of apartment prices.

When a property which has been built under the Croí Cónaithe (Living Heart) Cities fund is being sold, the State will subsidise the cost of the apartment up to €120,000 to bring it to “market levels”.

Government sources emphasised the scheme will not see a “discount” on apartments. In order to be a part of the fund, apartments will have to fit into three strict sets of criteria.

Developers will have to open their books to the State to show they are struggling to meet the rising building costs.

A Government source said the fund will mean building apartments will become financially viable for developers and it will not mean they make extra profit.

Developers will not have to return the funds back to the State.

Apartments only in Dublin, Cork, Limerick, Galway and Waterford cities will be considered and they will have to be at least four storeys high.

There must also be at least 35 dwellings per hectare and the development must be within 1.2km of public transport such as the Luas or regular bus services.

An “open call” will be put out shortly for expressions of interest for developments which have been granted planning permission but where works have not yet started.

Ministers were told this week that the fund will aim to activate planning permissions in cities, as the cost of building new apartments is at times more expensive than their sale price.

This leads to a “viability gap” and the funds given to developers will aim to bridge that gap.

For example, a one-bedroom apartment may cost between €325,000 and €385,000 to build, but it may be only sold for up to €300,000 in a particular part of the country.

This would mean a viability gap of up to €85,000 per apartment for the developer and would mean for a subsidy of up to €72,500 under the fund.

There are 40,000 granted planning permissions in Dublin alone, which is worth four years of housing supply in the capital.

In 2011, apartments made up 12pc of total housing stock, which is very low compared to an average of 50pc in other European countries, ministers were told.

The €500m Croí Cónaithe fund is a key part of the Government’s multi-billion-euro Housing for All strategy aimed at solving the housing crisis.

However, only €5m will be allocated to the fund this year and next year, with funding to increase to €165m in 2024 and €275m in 2025.

The remaining €50m will be used for a separate Croí Cónaithe towns scheme.