Forecast uncertain

It’s difficult to plan ahead when everything seems so uncertain. There’s a general election in a matter of weeks, which could bring a new government and great deal of upheaval. Add to that the global economic downturn and widespread public spending cuts and the whole picture looks hazy.

Here, five individuals responsible for housing finance explain how they are managing to focus on what lies ahead when so little is clear.

Andrew Battrum is finance director of Bromford Group, which manages more than 26,000 homes between Staffordshire and Cirencester
In a career spanning more than 20 years, I’ve never presented plans covering so many plausible scenarios - and with so many different outcomes. Key to success is a clear focus on maintaining the group’s financial strength. Above all, though, we must be ready to take decisive and quick action to mitigate risks.

In the current circumstances, we aim to err on the side of caution. It’s far easier to manage an upside than a downside. That said, a sensible balance needs to be struck - the safest thing would be to hunker down and do nothing, and that’s not an option for us.

Bromford was quick to close its low cost homeownership programme 18 months ago. It has restarted, along with a modest outright sale programme. Our focus is on cash flow more than surplus - it is cash that pays the bills, not the surplus.

Predictions of inflation or deflation are a key issue. Either outlook will affect interest rates, not to mention rent income and wage expectations.

Whatever the election result, public spending will be cut. This will clearly have implications for housing benefit, supporting people and development grant.

Under a Conservative government, policies promoting ‘localism’ may stall development, especially if local people oppose it. Any move towards localism will require more resources for bespoke local services.

With things in such a state of flux, we are looking at a range of plausible worst-case scenarios to make sure our plans are robust if several things go against us at once. There is a huge focus on looking ahead, re-forecasting as events unfold and continually adapting our plans.

Paul Edwards is director of resources and company secretary of the Havebury Housing Partnership, a not-for-profit housing association and charity managing 6,000 homes across Suffolk, Norfolk and Cambridgeshire

Business planning is always a form of crystal-ball gazing, and the current uncertainty in terms of [potential]political and economic changes makes a tough job even harder. Havebury’s business planning will ensure that opportunities for growth are weighed against funding covenants. The board is being proactive and is poring over information regarding the financial and risk implications of any growth plans before it makes any decisions.

In the past few years, many housing associations were comfortable using tried and tested assumptions to underpin their financial plans - inflation at 2.5 per cent, long-term cost of funds at 6.5 per cent and so on. But the recent turmoil has meant that the board has been considering the impact of sustained deflation, or even a quick switch to higher levels of inflation - scenarios that many of us would have barely looked at two years ago.

As a stock transfer organisation with its roots firmly placed in St Edmundsbury, Suffolk, a wider change in focus for Havebury towards localism will have a relatively minor effect on our business plans. We have been working towards excellent local standards in advance of the Tenant Services Authority’s new regulations [which came into force in April] - and we are happy to continue to plan on this basis.

Sandra Coleing is director of quality at arm’s-length management organisation Stockport Homes, which manages 11,500 homes.
In December, it extended its management agreement with the local authority until 2015

The vast majority of our funding comes from the council’s housing revenue account. Resources and rent increases are determined annually by the HRA and our budgets are set in line with that. Stockport Homes and the local council are eagerly awaiting the government’s review of the HRA subsidy system, which could lead to self-financing - [and] is due to be announced imminently. The outcome of the review could potentially offer us a real opportunity to plan for the long term, if the level of resources is right.

There is a degree of uncertainty about the HRA review in the run-up to the general election, because although we believe Labour is keen to see this [HRA reform] implemented and the Conservatives have given positive messages, how high housing is on each party’s agenda is unknown. Until the decent homes programme [to upgrade social homes], investment in council housing had been inadequate, so the big question for us is what happens now the programme has ended?

Alan Park is finance director of Home Group, a national housing association based in Newcastle upon Tyne, which owns and manages 53,000 homes

Business planning undertaken in a period of stability is straightforward. [Recent] economic turbulence is unprecedented and the volatility of previously stable variables that underpinned historical business plans has created many new challenges for our businesses.

In such times, it is important to stay abreast of the most up-to-date economic indicators and forecasts. Recent business plans have had to become more adaptable to changes in inflation, interest rates and housing sales volumes and values. Although key assumptions will be built into business plans, the uncertainty is such that in-year review and re-forecasting should be anticipated. An up-to-date business plan is vital to ensure that resources are being used in the way that best meets the organisation’s strategic aspirations, but they also need to be realigned to any recovery plan that arises out of in-year review.

Getting the balance right between ambition and prudence is important in these circumstances. Good risk management makes sure that underlying planning assumptions are viable. It will also mean measures can be put in place to prevent [too much damage] from any high-risk strategies that go awry.

The old mantra of ‘turnover is vanity, profit is sanity, cash is reality’ has been re-awakened by the credit crunch. If the crunch focuses our efforts on questioning whether every bit of cash we spend is really necessary and how it best benefits our customers and clients then this is no bad outcome.
Although we do not know the complexion of the next government, it is entirely appropriate to understand some of the thinking as set out in
key proposals by the Conservatives since such ideas may be enacted in government. We welcome incentives that will encourage affordable
housing development, because this has suffered as a result of the credit crunch.

We must at least be prepared for localism to take root. This may, for example, entail the launch of bespoke housing policies for each region that see different affordable housing programmes set up depending on local circumstances. Any such moves would be likely to affect our development aspirations and, indeed, our whole operational outlook.

Chris Moore, head of financial services at Carmarthenshire Council in Wales which owns and manages 9,200 homes

In Wales we have a clear direction in how to develop our housing in that the Welsh Assembly Government expects us to bring the housing stock up to the Wales quality home standard by the end of 2012. Carmarthenshire has further enhanced this standard with its own quality home standard which we are progressing and expect to deliver by 2014/2015. To deliver this standard, which requires a investment of more than £200 million in our housing stock, we have had to develop a comprehensive 30-year business plan which commits the authority to substantial prudential borrowing of £123 million.

We need to ensure that the business plan continues to be financially sustainable and this is monitored internally on a continual basis by ourselves and annually by the Welsh Assembly Government.

At present, the HRA subsidy system continues in Wales and while the Welsh Assembly Government has recently commissioned a review of the system, finance and housing officers watch with interest the progress being made [towards reform] in England, which is slightly further advanced than Wales.

Carmarthenshire estimates its negative subsidy next year to be nearly £6 million, which obviously needs to be taken account of in the business plan.

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