Survey finds most housing associations expect to feel public finance squeeze
Associations fear post-election cutbacks loom for entire sector
Housing associations expect housing to plummet down the list of government funding priorities after the general election, an auditor has warned.
Seventy-seven per cent of associations believe housing will be a priority for the government in the run-up to the election but just 45 per cent believe it will remain so afterwards, according to a survey of 113 senior association executives by auditor Baker Tilly.
Sixty-five per cent of associations expect a ‘significant’ reduction in funding from either the Homes and Communities Agency or the Scottish government after the election, the survey, seen exclusively by Inside Housing, reveals. Of the remainder, 34 per cent expect a moderate reduction and just 1 per cent expects no reduction at all.
Gary Moreton, chair of Baker Tilly’s social housing group, said that anecdotally his clients had ‘already factored in a change of government - rightly or wrongly’.
But he added: ‘I think there is a realism in the sector and they are saying “whoever is in power, there is just not the money to go round”.
‘I haven’t seen any [party] where someone has said social housing is the main priority.’
The survey also reveals 52 per cent of housing associations that responded have now experienced problems renewing facilities with lenders or securing funding for new schemes. In a similar Baker Tilly survey, released in June last year, 46 per cent of associations reported problems.
Of those that reported problems this time around, 93 per cent had seen lenders increase their margins (compared with 74 per cent in the previous survey). Thirty per cent had seen lenders demand more security - compared with just 9 per cent in the previous survey.
And associations don’t expect a sustained improvement in the economy any time soon. Eighty-three per cent expected a full economic recovery during the middle of 2011. In the previous survey, 73 per cent thought this would take place by the end of 2010.
Bearing all of this in mind, Mr Moreton said he had been surprised by the survey’s other findings that 44 per cent of associations were looking to make significant cuts in the next 12 months. Two-thirds of all respondents to the previous survey had said they were looking to do this.
Forty-three per cent of respondents expected salaries to stay the same but 57 per cent thought they would rise, with 17 per cent expecting them to increase by 2 per cent or more.
And only 34 per cent thought the fact that associations will have to reduce their rents next year - because they are calculated in line with September’s negative inflation figure - thought it would have an impact on their business.
‘They are saying therefore that they have got sufficient reserves to counter the effects of the rent decrease,’ Mr Moreton added. ‘Even so, I would say you are still using up your reserves and that might impact on future expansion and future investment.’
Expecting to feel the pinch
88%
Associations that expect to see their peers have significant financial difficulties in the next 12 months
44%
Associations that expect to make further significant cuts in the next 12 months
43%
Associations which expect a salary freeze over the next 12 months
14%
Associations that say the credit crunch has affected their ability to service tenants
4%
Associations that say they have refinanced as a direct result of the credit crunch
Opinion
Gary Moreton
Smart landlords know that complacency on future budgets is not an option
Compared with the commercial sector, social housing has so far been largely shielded from the effects of the recession.
However, our latest survey indicates a new sense of realism within the sector and an acceptance among senior social housing executives that their organisations are approaching tougher times.
Since our last survey in [completed in] March 2009, perceptions about the economy have worsened, with 83 per cent not expecting a recovery until mid-2011. A majority (55 per cent) believe that social housing will no longer remain a priority for the next government and there is an almost unanimous expectation that Homes and Communities Agency and Scottish government funding will fall (65 per cent expecting a significant reduction).
Although there is evidence that many associations are battening down the hatches by looking to drive through efficiency savings and adopting strategies to ensure survival, Baker Tilly is concerned that not enough is being done.
Despite recognising tough times are ahead, it was a real surprise that 44 per cent of respondents were expecting to make significant cuts in the next 12 months (down from 61 per cent in March 2009) - while more than half (57 per cent) expected to increase salaries. By contrast to the commercial sector, no one planned to cut salary rates.
Our experience of running Baker Tilly’s back office benchmarking programme is that many associations recognise how important it is to become more efficient. How radical, though, are associations willing to be in driving through cost savings? Is there, for example, a real appetite to mirror the commercial sector and significantly re-engineer systems and operating structures, while entering into cost-sharing and other outsourcing arrangements?
With economic recovery looking slow and the inevitable effects of the public sector squeeze still to come, complacency is not an option.
There has never been a better time for associations to look critically at their strategy and ensure that they are able to withstand the challenging months ahead. Even more importantly, now is the time to make sure they are in the best shape to take advantage of the many opportunities that are also bound to arise.
Gary Moreton is chair of Baker Tilly’s social housing team
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Readers' comments (7)
alex kendall | 22/01/2010 9:00 am
Development will be a thing of the past!! The bloke who dealt grant shapps such a mortal blow on Tuesday night he suggested that fewer than ten thousands new homes would be built in the new era of austerity. Lenders have made key assumptions hence the difficulty experienced by RSLs. Care to offer some insight Mr Orr-we loved your views on localism
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Melvin Bone | 22/01/2010 12:00 pm
It seems everyone has their crystal balls out regarding the next governments policies...
Shall we at least wait for an election date and the manifestos?
So far its just nonsensical punditry...
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Joe Halewood | 22/01/2010 12:39 pm
Melvin, I admire your faith in manifestos...or is that what you mean by nonsensical punditry!!
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Melvin Bone | 22/01/2010 1:13 pm
I know a manifesto is never a guarantee...but at least it is a written intention.
All this stargazy predicting the future mumbo jumbo is nonsensical...
IMHO
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alex kendall | 22/01/2010 1:49 pm
The persons who delta with Grant Shapps on Tuesday night also predicted the credit crunch and the property recession before they occurred as my sources tell me . That’s why the RICS debate is significant
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Melvin Bone | 22/01/2010 2:54 pm
I'm amazed Russel Grant has such an interest in housing issues but it takes all sorts...
Can he tell me if it will be a barbeque summer?
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alex kendall | 22/01/2010 4:01 pm
To Joe Halewood I do agree with you so much!!
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