by Piers Williamson

Around 17 November last year something started happening here at THFC (The Housing Finance Corporation) …..the phone started ringing again! That was CSR (Comprehensive Spending Review) + four weeks, and Housing Associations were coming out of the bunker.

Since then everyone has been feverishly trying to make sense of the new paradigm….much less grant, but potential flexibility with Affordable Rents.

Housing Associations (HAs) have some great advantages. I read today that Peabody has just been awarded an Aa2 long term rating. Congratulations to them. In the eyes of the market they are now on a par with the credit of Japan! THFC has just brought a 29 year deal to market at Gilts + 99bp. That’s a better rate than Councils can borrow from the Government (just….but we’re working on making the difference more than ‘just’!)

The core strength of Housing Associations in the eyes of pension and life companies is their predictable and long term rent-rolls…not their exciting development programmes (although HAs typically utilise the private investment to develop). The current Government appeared to figure this out quite early on and the DWP (Dept of Work & Pensions) have made early moves to protect both the indexing and payment methodology for Housing Benefit specifically for HAs.

Rental Market flexibility

That leaves Affordable Rents (“AR” where the devil is most definitely in the detail) and the cost of finance as major imponderables. All of the following variables (and probably more) are in play with AR:

• Appropriate percentage. The range appears to be anywhere between 50-80%, but low premia over social rentals aren’t a monopoly of the Pathfinder areas. I am told that Thanet has its challenges.
• Percentage Re-lets for AR. This appears to be one of the major areas of current negotiation. Local Authorities are just waking up to the impact of this.
• Shorter tenancies. Again, Local Authorities appear not to like, but HAs facing growing slow-burn partial arrears (e.g. from the 10% top slice of 12m+ Job Seeker Allowance cases), may need to use this flexibility increasingly rather than going through the Courts.
• Nominations flexibility. HAs developing sustainable communities don’t want to be the dumping ground of problem tenancies, but at this point in the Economic Cycle, Council Housing registers will grow fast.
• The nature of the Affordable Rent contract. Pragmatism does show some signs of breaking through, with both the TSA (Tenant Services Authority) and HA’s potentially opting for the capacity to see how it goes.

That leaves a question-mark as to the scale and geographic spread of further development. The Council Staff who are still left also appear to have woken up to some of the implications of severe curtailment of social housing and Supporting People. I also understand that Eric Pickles has coined a new phrase: “Guided localism”. The mind boggles!

Finance

It is dangerous to turn to the cost of finance at this point in an article, but just take a look at this:

This graph shows the core cost of 30 year Sterling funds since 1991. This is a gentle reminder that what appears to go sideways for a long time probably won’t go down much more, but may also stop going sideways. That leaves one direction! Just read a few articles on global inflation! It’s interesting that the average maturity of the UK Government debt is 13 years – that’s much longer than any other major economy….3 times longer than the US. Now if the Governor of the Bank of England has a cunning plan to erode the monetary value of the national debt, he’s doing a pretty good job so far. If this is that last time we are going to see long term interest rates this low – see Hamish McRae in today’s Independent:

Hamish McRae: Downbeat and daunting with turmoil aplenty, but a recovery will come one day

Well maybe it’s the time for more capital markets issuance for Housing Associations!

Photo: thanks to www.ebobdylan.com

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