Turnover up, but property crisis sees landlords write down £75.4 million
Top developers’ pre-tax surpluses slump 45 per cent
The housing market crash prompted plummeting surpluses, and £75.4 million impairments and writedowns on land and property among social housing’s biggest developers.
The top 20 housing associations in Inside Housing’s 2009 list of the biggest developing landlords (19 June) have now published their accounts for 2008/09.
The 20 associations made a combined surplus before tax of £201.2 million last year, down 45 per cent on their 2007/08 result of £368.2 million. This was despite a rise in their combined turnover to £3.9 billion, up from £3.6 billion the previous year.
Three of the associations, Circle Anglia, Genesis and Orbit, made losses before taxation.
A further four landlords - Places for People, Home, Metropolitan, and One Housing Group - were dependent on the sale of fixed assets, which typically includes sales of formerly rented housing and staircasing by shared ownership customers, to show surpluses.
Of these associations Home was the most heavily dependent on selling rental stock in order to show a surplus. The landlord made a £20.6 million surplus from sales of social housing properties, but it posted an overall surplus before tax of just £3.9 million.
Alan Park, finance director at Home Group, said the association’s sales surplus appeared high because it had sold social housing properties outside its core locations to other housing associations as part of a three-year stock rationalisation programme.
Mark Sharman, finance director at Metropolitan Housing Partnership, said its current business plan aimed to generate a surplus before sales and that its dependence on sales had fallen between 2007/08 and 2008/09.
The plummeting property market forced most of the 20 associations to make writedowns against their land banks, or against unsold homes developed for sale or shared ownership.
They made combined writedowns of £75.4 million, with Affinity Sutton alone making an impairment charge of £13.5 million - the biggest writedown in any UK housing associations’ history.
Affinity Sutton’s group finance director Mark Washer said a ‘robust financial strategy’ meant the association could absorb its impairment charge without breaching funding covenants and thought the impairments of other groups could have been reduced by government grant.
Among the major developing associations, Home made the second largest writedown - £8.6 million - followed by London & Quadrant, Metropolitan and Genesis.
Both Metropolitan and Genesis made substantial writedowns in 2009 for the second year in a row. Metropolitan made a £7.3 million impairment last year, on top of an £8.1 million charge in 2008. Genesis made impairments of £6.9 million in 2009 and £5.8 million in 2008.
Genesis argued that some of its joint ventures were ‘different in scale and nature’ from other housing associations and should not be included in the group’s core activities.
Overall the 20 associations’ surpluses on sales of fixed assets plummeted 47 per cent, from £250.3 million in 2007/08 to £131.9 million last year.
But the ‘sale of fixed assets’ line in associations’ income and expenditure accounts is an imperfect measure of their exposure to the property market. Associations restated their 2008 turnovers in their 2009 accounts because of a change of accounting policy which means outright sale and ‘first tranche’ sales of shared ownership homes are now included in turnover.
Circle Anglia’s finance director Callum Mercer said the association’s loss was partly explained by the number of stock transfers in the group, some of which are new and so have not yet recouped spending on improvements through rents.
Cash concerns
Landlords’ turnover
£3.6bn
Total turnover of the 20 top developing associations in 2007/08 (restated)
£3.9bn
Total turnover of the 20 top developing associations in 2008/09
6.7%
Rise in turnover between 2007/08 (restated) and 2008/09. The rise was depressed by low sales
Opinion: Jonathan Pryor
This has been a tough year, but brace yourselves for an even trickier 2010/11
The 2008/09 accounts for the 20 largest developing housing associations reflect the turmoil in the property market over the year.
Surpluses on sales of fixed assets have almost halved since 2007/08. The drop is explained by the contrast between very high levels of property sales in 2007/08 and a significant faltering in the latter half of 2008/09.
Impairments for the 20 associations are equal to roughly 2 per cent of their turnover, which is markedly less than the equivalent in the private sector. There is a huge variation from no impairment for several associations compared with Affinity Sutton’s £13.5 million.
Does this mean that the landlord’s development programme is less well thought through than those of associations which made no impairments? I doubt it. It is more likely that Affinity has taken one view on impairment and some of the others have taken a different view.
In addition some associations have been given significant amounts of grant by the Homes and Communities Agency to turn homes intended for sale or shared ownership into homes for rent, and this could have reduced the extent of their losses. This might be perceived as encouraging risky behaviour.
Surprisingly, turnover has only risen by around 6 per cent between restated 2007/08 and 2008/09. Additional income from inflation and new units in the period are partially offset by a marked reduction in income from units built for sale.
2008/09 may have been a tough year, but there are several changes set to hit accounts in 2010/11. One is a drop in rental income because rents must fall in line with September 2009’s retail price index figure, expected to be negative.
The second factor is a change in accounting policy which is likely to increase the level of depreciation. It requires housing associations to depreciate the components of homes, like kitchens and bathrooms, which have shorter lifespans than entire houses. However, it also allows associations to capitalise their spending on major repairs. This means fewer big hits to their income and expenditure accounts.
A number of the developing associations have very high levels of capitalisation of major repairs, in my view incorrectly. This change in policy might well expose any errors in accounting in previous years. Overall, 2010/11 will be the year to watch.
Jonathan Pryor is director of assurance and business services at Smith & Williamson Limited
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Readers' comments (2)
Andrew Fiske | 09/10/2009 11:48 am
Jonathan's comments make interesting reading and no matter how much of a spin anyone puts on the financial outlook the only word which comes to mind is "bleak".
Why would any HA contemplate building again in the future as funding is getting harder to come by from the HCA, private finance more expensive and difficult to come by, and any cross subsidy proposals would be too risky for even the most ambitious Board?
My worry is what will happen when the current development programme comes to an end in 2010/11 as the current windfall HCA funding is spent? How will priority housing needs be met? LA new build might help a bit in the short term but it will be for LA's to pick up the pieces of meeting housing needs with growing waiting lists and nowhere to house the homeless. The edge of the precipice seems to be coming fast and the drop looks more scary as the months pass. Not to mention the likely cuts in the SP programme...
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kass | 09/10/2009 4:21 pm
"Andrew Fiske | Fri, 9 Oct 2009 11:48 GMT... LA new build might help a bit in the short term but it will be for LA's to pick up the pieces of meeting housing needs with growing waiting lists and nowhere to house the homeless...."
that's why RTB should have never been introduced and now better abolish it fast as it is going to happen in Scotland.
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