The season for Christmas vintage comedy on the box has been in full swing, so it may be that I had misheard but I’m sure Hardy said to Laurel, this is another fine Pickles you have got us into, although that might have been the sherry!

If Mr Pickles is in the Maoist wing of the Coalition, and there may some evidence to that effect. He certainly seems to be putting the sector on the equivalent of a Long March in 2011.There may be some echoes of the Long March in the Coalition’s determination to move quickly and avoid the mistakes of previous administrations by making the most of their electoral ‘credit’. However we now know that history has not been kind to 20th century Communist dictatorships!

So what are the landmark issues for 2011?

The Decentralisation and Localism Bill of course, the finalising of the HCA guidance on the new grant regime, the finalising of Universal Credit- these are the obvious ones.

What might the implications of Mr Pickles’ Little Blue Book be for the work of housing professionals? What might we have to do differently to make best of the Great Leap Forward?

Local market knowledge – problem?

With the introduction of new affordable rents and re lets up to 80% of market rents it is important that development teams start with an excellent understanding of local housing markets.

What are the local factors that make any new homes attractive?

Excellent market awareness is important if new funding contracts with the HCA are heavily depend on matching homes to customers who are within striking distance of a market rent i.e. the private sector. Are our new homes going to be sufficiently attractive at this discount?

How robust is the market understanding in the varied local authority areas that larger associations work in? We have come a little unstuck on this in the past with low cost homeownership homes that we have not been able to shift as a result of falling demand. It may be the case that the market place for renters at higher rents is not the same as those we have dealt with on LCHO front.

Local authorities – opportunity?

It will become more and more important to get good ‘inside’ knowledge of how local authorities are making their decisions. With big cuts in the pipeline in local authority services, it would pay associations to have excellent formal and informal links with key local authority colleagues. The potential for helping share some of the ‘pain’ by offering for example, a service or a small amount of cash, might pay dividends, particularly if this generates opportunities for further partnership working or just a ‘feel good’ factor about ‘association X’. Important too, if nominations agreements need to be renegotiated.

Unfortunately this is time consuming and should probably extend beyond sitting on the formal liaison boards. This is a challenge to associations with a large number of local authorities to talk to.

Financial covenants – problem?

As the graph of the of capital grant over time begins to dwindle, some association’s gearing covenants may start to look a bit shaky. Gearing limits are usually set into loan documentation and have an upper limit.

A standard calculation is,

Loans divided by (Reserves and grant).

But with less grant in the equation, the gearing figure increases and may not be off- set by a bigger cashflow from higher rents.

So closer monitoring of gearing covenants is essential and some forward thinking about when any covenants start might prompt a discussion with lenders, which these days often means a re-pricing upwards by our banking friends, and so is to be avoided if possible.

Managing homes for others – opportunity?

As localism gets some traction with local authorities, the sheer scale of making this work effectively over a large number of local areas, might mean that larger associations will want to consider devolving housing management to more local, smaller associations. This is an opportunity for those who have argued that smaller associations are more linked in to the ‘community’ (I think they are right), and is therefore an opportunity not to be missed.

So smaller HA’s might want to consider talking to larger neighbours and vice versa about managing homes contracts.

Perhaps consider setting up a wholly owned commercial subsidiary to manage non charitable housing schemes where the income is remitted back to the charity via Gift Aid.

Direct labour organisations – opportunity?

With VAT increased to 20% in January, this might be is a good time to start thinking about what advantages an in house, direct labour organisation might make.

The headline advantages are:

• no VAT and
• better control over the quality of work

But setting up a DLO will require some planning and building up skills in house to manage the DLO effectively. Depending on size of your organisation, perhaps start small and build up the team. What about starting with re lets with an in house team dedicated to do re let repairs and decorations for example?

Ok so it’s not 1949 (or even 1994), but it is panto season; will it be the ‘mediocre middle’ who will find themselves at the back end of the housing pantomime horse as others start climbing up the Beanstalk? [that’s enough mangled metaphors;Ed.].

*An edited version of this article was first published in Inside Housing
Photo: from the author

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

In its analysis of the June 2010 Emergency Budget the Institute for Fiscal Studies highlights that real cuts across the period to 2015/16 will need to be on a scale unseen since at least World War II. The unprecedented difference of this economic cycle is that in parallel to Government cuts, the Banking industry is undertaking unprecedented deleverage at the same time.

The Mayor’s London Plan (“The Plan”) was formulated in sunnier times (October 2009) and targets for delivery of affordable housing are based on (then) established funding mechanisms.

London will have some advantages in the brave new world of ‘more with less’. While localism is (and was) a strong theme in the formulation of borough targets, there is a central investment coordination role for the Mayor and he is likely to have the largest single part of future public investment. However, the validity of the traditional planning gain (S106) provision of Social and Affordable housing is being actively questioned.

On the one hand a large proportion of the volume house-building industry is still recovering from over-extension at the top of the cycle. Their strategy in the short term is defensive, to develop higher margin edge-of-town sites. This is not necessarily consistent with the direction of the Plan for the promotion of balanced communities.

Grant rates in S106 sites reached 50-60% at the tail end of the cycle to compensate for the lack of sales receipts from shared ownership sales (itself due to the unavailability of mortgage finance). At the peak of the market, the lowest grant rates seen were in the order of 33-35%. These rates typically assumed heavy shared-ownership sales receipts.

There is currently a debate about whether there will be any capital grants at all in the brave new post CSR world. This is complicated by widespread changes (and consequent confusion) on local planning and potential wholesale changes in the benefits regime. The affordable homes market has never had to operate in this environment before.

The likely short term impact is for severe falls in output. CLG and HCA data show the heavy dependence on public investment in the construction industry apparent in the first two quarters of 2010. The combination of Homebuy-Direct, Kickstart and the NAHP have underpinned the majority of national housing starts. Current residential construction orders are already tailing off, anticipating the fall off in investment. Decent housing is not just about new build quality – there is still significant work to be done on existing stock to bring it to decent standards in some parts of the capital. This too is already under pressure. There has been one high profile failure of a contractor (Connaught) in recent weeks.

Consequences

So what are the consequences in sustainability terms of potential lower output of affordable housing?
Standards of Development

The Plan sets out high standards, both on space, distribution and eco-standards. There will be inevitable pressure to compromise on all of these. Housing is a long term investment and arguably we are still learning the lessons of sub-standard building in the 1960s/70s, both in London and elsewhere where demolition becomes the only option. In the short term there is little evidence of joined up thinking in Government. Departments are vying with each other for scarce resource. There are new cross subsidy models (eg renewable energy photo voltaic schemes) where cross subsidy can help finance further retro-fit energy saving features in stock. But successful implementation requires DECC to coordinate with CLG in a world of 25-30% cuts.

Price/Affordability

The Plan contemplates mixed communities and London is a global city. One of the consequences of the City’s success and the managed 20% devaluation of Sterling in recent years is that residential property is a valuable investment particularly for Far Eastern investors. Hence properties in Central London (not just Notting Hill) are subject to global price influences, driving affordability out of the hands of traditional first time buyers (who typically have to find 20-25% deposits equivalent to in excess of 1 year’s total salary).

Over-Crowding

The cost of family housing in Central London is already of concern, particularly in Boroughs with large BME Communities, such as Tower Hamlets. The Chancellor has recently flagged an intended cap on benefits at £26,000. The practical impact on any family on Job Seekers Allowance (JSA) with children, living in Central London and renting in the private sector, will be to push them to smaller sized accommodation and/or leave London altogether. In the Social sector there is growing recognition of the extent of under-occupation (tenants continuing to ‘house-block’ larger properties). It is thought that as a stop-gap measure, incentives to encourage tenants to down-size would alleviate some pressure at the top end of the HA sector.

Commuting Distance

Affordability already drives many London workers, including lower paid key worker groups such as teachers, firemen, police to commute significant distances. To the extent that significantly less affordable housing is developed, commuting miles will continue to rise and Central London will become more polarised – dominated at one end of the spectrum by those that can afford to live there and at the other end by those that are prepared to put up with over-crowding.

Was this the world Aldus Huxley had in mind?

Photo: thanks to Cookiemouse on flickr.com (CCL)

We have borrowed money from you and have always been careful to keep up with our interest payments. In fact we have such a good record for paying on time the credit rating agencies say we are a better long term credit risk than you are these days. Despite this, matters appear to have been coming to a head in recent weeks and it looks increasingly like you want to weasel out of your side of the bargain.

We were wondering why is that the case, and what, as ‘Relationship’ Bankers, the implications of your proposed cause of action might be.

That nice Mr Peston encouraged me to read the Bank of England’s Financial Stability Report (1), something I don’t often do, but it proved really interesting. According to the Bank of England, the Major UK Banks have maturing wholesale debt of over £600 Billion by the end of 2012. Considering us poor retail savers have only a total of £1Trillion deposited with you, it’s no wonder that you are willing to pay us such a high rate of interest on our deposits all of a sudden. Despite this, it does seem that quite a lot of what you owe to the other banks falls due quite soon!

Speaking of how much you are willing to pay, I couldn’t help notice another of those Bank of England charts (2). That showed that at least one of the big banks (presumably the one that owes the most) was having to pay 2.6% over something called ‘swaps’ (I used to do that with football cards at school, but I’m told you do it with other banks with very large amounts of money) to fund itself for 5 years. Well you very kindly arranged to lend me my money for 25 years at LIBOR + 0.3%. I can’t help feeling you got that the wrong way round, or is that why you now want your money back from us?

I can tell you that we are putting your money to very good use, funding important things. What with the Government suddenly making grant much harder to obtain, we will have to make tough choices too. So we’d really like you to keep your side of the bargain, but you keep on being really pernickety about what we are supposed to do; and you keep on saying that we don’t really have a choice, because there are so few banks around these days. But someone from that nice bunch THFC (The Housing Finance Corporation) came in the other day and told us about the Capital markets and how easy and quick it was to obtain long term funding…

They’ve pointed out that the underlying cost of long term borrowing has only been this low for three short periods in the last twenty years. I am sure you’d agree a bit of certainty seems like a good idea in the next few years!

[Click on the chart above for an enlarged view]

References:
(1) Bank of England Financial Stability Report June 2010 Issue no 27 Chart 4.15: Major UK banks’ maturing funding, Both available in Powerpoint format at: http://www.bankofengland.co.uk/publications/fsr/2010/fsr27.htm#charts

(2) Bank of England Financial Stability Report June 2010 Issue no 27 Chart 4.19 Spread curve for senior debt of the six largest UK banks. Both available in Powerpoint format at: http://www.bankofengland.co.uk/publications/fsr/2010/fsr27.htm#charts

My roles include collation of covenant compliance certificates, analysis of accounts, maintaining and updating THFC’s credit grading system and producing papers for credit committee. Studying Mathematics at the University of Sussex prepared me well for this role preparing my mind for the analytical ways of thinking required. I am now studying for the first stage of my Association of Corporate Treasurers (ACT) treasury exams.

In my spare time I enjoy finding ways to physically challenge myself. So far this year I have run the Brighton marathon, ridden the length of the South Downs Way on my mountain bike and taken part in the Mega Avalanche mountain bike race in Alpe D’Huez, France (widely know as the longest downhill race in the world descending 2600 metres vertically). As you can imagine I was disappointed to join THFC just too late to take part in the 3 peaks challenge but next year I hope to persuade the team to take part in another similarly exhausting charitable endeavour.

Photo: from Will Stevenson’s album, with permission.

This piece looks at a number of the current factors impacting sustainability. Most importantly, it examines the relevance (and difficulty) at the margin of owning a housing stake and the implications for the sustainability of the London economy through the continued political desire to increase home-ownership in the Capital.

HM Treasury has historically set great store by the wealth generation arising from the ownership of a housing asset. Successive governments have advocated home-ownership as the route to underpin wealth creation. The largest single change in home ownership in recent years came with the right-to-buy campaign. Owner occupation peaked in 2003 at just over 70% and is now declining slightly(1). The demographic characteristics of the decile of population on the margins of the rental/home-ownership decision mean that it is unlikely that a significantly greater proportion of this decile are capable of sustaining the financial stability required for a mortgage for an extended period. Instead it is important that we provide a non-punitive, simple and broadly accepted path for these people in and out of home ownership at the margin, providing a means to asset ownership on the upside and a safe path back into rental on the downside of the cycle. At the same time we need to put to rest the political ideology that renting property makes one a second-class citizen.

Today we still live with the expectations and financial structures of older generations. Jobs (and forms of employment/training) are no longer for life, attitudes to debt are markedly different in the ‘Y’ generation, yet mortgages are necessarily very long term obligations. David Willetts, in his recent influential book ‘the Pinch’(3) recognises the prominence of the nuclear family in British society. He notes that it is every generation for itself, yet for London, operating within the Green Belt, there is a scarce supply of housing combined with a global demand for housing in the most up-market areas, has helped to sustain a continued asset valuation bubble – even through the worst recession since the 1930s.

This raises the twin problems of the nature of wealth creation in the Capital and mobility of labour and their implications for sustainability. For first time buyers, only a very small minority can afford to buy a flat in Greater London today. Average debt for a student leaving university nationally in 2010 is £15.8k, with the expectation of current students that this will rise to £23.5k by the time they leave university(4). At the same time the median deposit needed for a first time buyer in London in Q1 2010 is: £55k(5), yet the median gross annual salary for residents in London in 2009 (ASHE latest data) is: £26,910(6). Put simply an average deposit for an average person in London would take over two years of saving, with absolutely no other spending on anything.

Median age for a first time buyer in the capital is now 31(5), although perhaps surprisingly this has not increased significantly in the last 4 years. However, the proportion of first time buyers who resort to parental assistance (the so called ‘Bank of Mum and Dad’) to subsidise their deposit is now (nationally) 85%(5): nearly nine out of ten cases. Home ownership is a serious block to domestic job mobility in and out of the capital. Fuelling this lack of affordability, houses and flats in London remain desirable (partly thanks to the recent 25% devaluation of Sterling). London is consequently becoming more polarised with quality of life a growing issue as a result of increased working and commuting hours.

Social polarisation in inner London is potentially set to be exacerbated with the capping of local housing allowance, forcing housing benefit cases out of Inner London Boroughs. Ordinary working people are being forced by affordability further and further out of London. One simply has to look at pressures on transport interchanges in outer London in the rush hours together with demands for commuter parking to see evidence of increasing commuting distances.

What to do

To date there has been significant investment in the provision of low cost home ownership (‘LCHO’) properties nationally, but particularly in London. Research, including that undertaken for the GLA(7) indicates that the very people who would benefit from this type of housing find the proliferation and complexity of these hybrid mortgage products confusing. With the advent of the credit crunch and subsequent scarcity of suitable mortgages, much of the pipeline of LCHO properties have been converted into rent-to-buy (so called ‘try before you buy’) properties. This may be a fortuitous development.

Whilst Housing Associations (‘HAs’) (who tend to be the largest suppliers of LCHO properties) report continued lower level sales of LCHO properties in London and there is also some evidence of niche Building Society provision of shared ownership mortgages; the growth in completed- but-unsold, stock is forcing HAs to think more creatively about intermediate rental products. As a regulated and financially robust sector developing stock to high standards and subject to external oversight, HAs make better landlords than buy-to-let amateurs (where traditional concerns have been turned on their head and it is now tenants who often have more concern as to the financial standing of their landlord). However, Local Authorities are often behind the curve and despite the continuing shortage of appropriate mortgage finance, continue to focus on both the provision of further LCHO products and are also overly prescriptive in providing planning consent based on rental/sale limited to those who fit tightly defined job definitions of key workers.

A recent report from the charity Shelter(8) highlights a national total (of which a significant proportion will be SE based) of 866,000 “forgotten” households who rent, but are neither in receipt of means-tested benefit, nor can afford the cheapest shared-ownership product.

As we move into the brave new world of localism, if inner London Boroughs are to sustain some of London’s diversity and mixed communities, they need to shift their sights to consider the provision of adequate rental stock, not just for traditional housing-need cases, but for the “forgotten” lower paid workers as well as families highlighted in the Shelter report. A small number of HAs are starting to put forward proposals for the provision of time-limited rent-to-buy stock to fill this market need, but more joined-up thinking is necessary to marry up local political and economic development priorities with potential supply of new rental stock. Time-limited rent-to-buy is an evolutionary rather than revolutionary product. It confers an ownership option to the tenant without obligation and importantly it provides a bridge between the current, dysfunctional mortgage lending market and (hopefully) more stable medium term market conditions.

Looking forward, the question of future housing supply will also be complicated by the probable curtailment of Government grant to subsidise the building of HA housing. However, grant levels for this type of intermediate rent to buy product could be contained at the same levels as LCHO products.

The technical expertise exists to design and deliver housing products that fulfil these requirements, at the same time there needs to be an acknowledgement at a local level that growing housing affordability issues are undermining sustainability in the Capital.

~~~

(1). Source: CLG online Live Tables on Housing: Table 801
(2). http://push.co.uk/Push-releases-figures-for-2009-student-debt-survey/
(3). The Pinch ‘how the baby boomers took their children’s future-and why they should give it back’: David Willetts. 2010
(4). http://push.co.uk/Push-releases-figures-for-2009-student-debt-survey/
(5).Source: Council of Mortgage Lenders statistical data
(6). Source: ONS: Annual Survey of Hours & Earnings (ASHE)
(7).Source: Accessing Intermediate Housing an Ipsos MORI report on behalf of the GLA.
June 2009
(8): The forgotten households: is intermediate housing meeting affordable housing needs: Shelter July 2010

Photo credits, thanks to:
- hey mr glen from flickr.com (CCL)
- L-plate big cheese from flickr.com (CCL)

Mariners Quay wins zero carbon award

Seren Group and Leadbitter Group are celebrating winning the Low/Zero Carbon Award, sponsored by Magnox and TSIF, at the recent Construction Excellence in Wales Awards (CEW) for their Mariners Quay development on Newport riverfront.

The CEW Awards are all about celebrating innovation and achievement in Welsh construction and this year, more than ever before, demonstrated that a collaborative approach to construction procurement and project management delivers outstanding results, on time, on budget and that are sustainable.

Located in the Old Town Dock area, Mariners Quay is a ground-breaking development which will provide 101 attractive, sustainable homes for local people. It is the first development of its size in Wales and one of only a handful in the UK to be built to Level 5 of the Code for Sustainable Homes (CSH).

Some of the features which enabled Mariners Quay to reach CSH Level 5 include an on-site energy centre, wood-chip biomass boiler, triple glazed windows and rainwater harvesting. As well as the enjoyment of a more sustainable way of life, the residents will also benefit from extremely low energy costs.

To date over 94% of site waste from Mariners Quay has been diverted from landfill with approximately 62% re-used on site and 32% recycled.

Photos: by Piers Williamson, with permission

These savings from lower interest costs can also be put to use to build unique features into projects that would otherwise not be viable. For example at Network’s Digby Road site next to Homerton Station in Hackney, Europe’s tallest living wall will be built on the side of this 14 story development. This living wall running from the eighth floor to the top of the building will provide much needed green space in this heavily built up area of North London.

This was my first site visit and I was amazed by the speed at which the developments progress. At Genesis’s Woodberry Down development, within a week of our visit, two show flats would be available for viewings by prospective tenants. At the time of our visit these show flats didn’t have any flooring, working kitchens or bathrooms. At Digby Road the developers have had to cope with a collapsed railway cutting and the Eurostar line running underneath the site into St. Pancras. This is an example of where the cost of EIB funding has allowed a challenging site in a prime location to go ahead.

THFC’s £345m facility has allowed schemes like these to be built all over the United Kingdom. THFC maintains a unique relationship with EIB through which we hope to provide a wide variety of funding opportunities for housing associations in the future.

Photo: by Will Stevenson on flickr.com , with permission.

At a point where housing associations, local authorities and their funders are all watching anxiously to see where Eric Pickles will take the affordable housing sector over the next five years it may seem odd to post an article for investors and others that takes a retrospective look at the development of mix-funded social housing over the past quarter century.

In fact THFC have understood that while history does not repeat itself, planning successfully for the future requires an informed perspective on the past and that a cogent long view going forwards involves coming to grips with the influences that have, over a significant period shaped our present.

With institutional change to regulation on the policy agenda it is not enough simply to assert that regulation matters and that it should not be tampered with. It is necessary to demonstrate, as Investing in Social Housing aims to do, that regulation has been key to maintaining the credit quality of the housing association sector since the Housing Act 1988 gave the Housing Corporation new powers. My article argues that the transition from the Corporation to the TSA in 2008 was successful because the key focus of regulation remained that of ensuring sound governance and financial viability, as well as promoting positive outcomes for tenants. Thus we can go on to argue that institutional change (if really justified) can be pursued successfully so long as the key priorities of regulation and the resources to enforce them are maintained.

Possible reform of housing benefit provides another crucial example of the importance of understanding the past. Coming in at a cost of £17.4 billion a year it is almost inconceivable that the housing benefit bill will not be scrutinised carefully by a coalition government committed to serious cutbacks in expenditure. What is needed by the affordable housing sector is a clear understanding of how for over 20 years housing benefit has provided a secure income stream that has underpinned over £60 billion of investment from banks and crucially, the bond markets, who have taken particular comfort from current arrangements. Understanding our financial history enables us to argue convincingly that any reform proposals must maintain some key characteristics of housing benefit if new investment is not to be prejudiced or even existing lending re-priced:

• It is paid directly to the landlord thus minimising arrears and collection costs.
• It covers the whole rent payable where the tenant is eligible and is thus effectively inflation linked.

In writing Investing in Social Housing I have tried to provide the analytical overview that enables such judgements to be made in a convincing way. Through reading it you will be able to decide whether I have been successful; comments would be most welcome.

If we are to convince politicians to stretch their time horizons and to build on our achievements rather than undermine them then we must understand and value our own history. I hope that Investing in Social Housing provides the opportunity to start doing just that.

Andrew Heywood is an independent consultant specialising in Housing finance, mortgage markets, regulation, governance and Europe. He is editor of Housing Finance International and a board member of Chelmer Housing Partnership, a developing housing association.
Andrew Heywood Consulting: 01440 730218/07929512057, a.heywood53@btinternet.com

Photo: thanks to o palsoon on flickr.com (CCL)

The general consensus was that Social Housing Grant will be substantially cut back meaning “focussed” HAs that run development programmes funded by little to no grant will be successful whilst “coasting” HAs and most ALMOs fall into demise. Many HAs have pre-empted this by cutting back development and building up reserves. These reserves are being squirrelled away to protect gearing covenants and to ensure that money is available in future for such things as retrofitting. The other major concern related to Housing Benefit “reform” (ie cutting it) which is a likely prospect given the noises coming from government at the moment.

“Localism” is a watchword at present, describing the philosophy behind “the bonfire of the quangos”. This relates to a potentially major shift towards specifics of housing policy being taken very much at the local level with much more involvement of local councils. Some of this change may be promoted through reform of the Housing Revenue Account (HRA) allowing councils to develop more social housing. However, it is not clear that the Treasury will sanction the further Public Works Loan Board (PWLB) borrowing that is the key to unlocking HRA.

The housing market as a whole is expected to remain flat as undersupply of new build property, the continued economic recovery and low interest rates are countered by fiscal tightening, possible interest rate rises, continued scarcity of first-time buyer mortages and prices still being overvalued compared to long term trends. Inflation should be below the 2% target after 2010 and base rate is forecast to remain on hold at 0.5% this year and probably part way into 2011.

The banks have tightened their belts making pricing less competitive and decreasing flexibility on loans. The banks now set much lower funding limits on Housing Associations and will insist on re-pricing the current loan book before arranging new facilities. There is currently no generic housing association loan product on the market with banks preferring to look at each HA on a case by case basis. With banks tightening covenants, insisting on re-pricing at any opportunity (Mike Jones of Tribal related some specific instances of painful levels of bank repricing) and increasing margins it makes alternative forms of finance more desirable to HAs. The growth of capital markets funding was seen as testament to this trend and Alex Pilato of Traderisks concluded that the capital markets are indeed thriving.

Alternative models for cross subsidy were considered including successful examples of using the Private Rented Sector, procurement savings, investing in overseas rental markets (a high risk given the current nervousness around European markets?) and the strategic acquisition of listed companies.

All in all a very useful conference and even though exact outcomes may not be known likely scenarios have been covered.

Photo: thanks to /\itus on flickr.com (CCL)