Want to know what the future really holds for social housing finance? Inside Housing gathered nine of the sector’s leading finance directors to find out. Jamie Obertelli reports
With last week’s pre-Budget report raising more questions than answers, Inside Housing sat down with some key industry figures, with the help of sponsors Civica, to discuss the financial issues facing the sector.
Q What were your initial reactions to the pre-Budget report?
David Springthorpe It was a bit of a damp squib. From a housing point of view the general economic stimulus is going to be a challenge for the whole sector.
Frank Czarnowski The thing that worries me most is not the detail about housing, it is the talk about ring fences. The fact that housing is not included in the government’s ring-fencing is really worrying.
Martin Heys The chancellor spent more time talking about what he is not going to do rather than what he is going to do. You are left with a fear of the unknown that housing isn’t in this protected envelope.
Philip Toni Potentially we are looking at a 6 per cent cut per year across the other parts of the government spend, including housing. Every year for three years would be 20 per cent which doesn’t sound very healthy.
Mark Washer I think housing benefit comes into that pool of things which might be cut and I think that is far more serious for the housing association sector. We have to question whether Alistair Darling has done enough to fend off the ratings agencies.
Q What impact could changes from the ratings agencies have on the sector? What are the risks?
Mark Washer If the ratings agencies downgrade the UK then what they are saying is that the country is not as credit-worthy as it was. The banks rely on the fact that the government will step in and bail us out.
Alan Park If [the UK’s credit rating is downgraded] then [as a lender] you are more exposed to the core risk of the housing association itself and this risk is probably going to go up if housing benefit is no longer paid directly to associations. We will all struggle with that and it would have a double whammy on the rating.
Q Are banks’ attitudes towards the sector changing?
Alan Park I met with three of our banks yesterday and there is a less threatening atmosphere than a year ago. There had been a risk of repricing and that was blatantly made clear to us.
John Hood We have found lenders very supportive. They are lending to us again, not on a huge scale, but the taps are certainly open again.
Craig Moule The sector needs to keep the bond market interested in a way that it hasn’t in the past. It would be wise to be more active there and ensure a bigger volume of trade.
Mark Washer That is going to happen by default because a few months ago there was no 30-year money available from the banks. You were only guaranteed pricing for five years.
Managing funding cuts
Q Having looked at the report, are you working on an assumption of what the cuts might be? Are you factoring in that government investment might fall by a certain amount?
Frank Czarnowski I would look at the level of rent increases. The level of increase is what gives us the capacity to develop or not. The Communities and Local Government department spends about £7 billion on housing and the housing benefit bill is £17 billion this year so if you want to save money I know where I would start. Whatever capital funding is there, you will spend relative to what is available. Our start is rent increases.
Martin Heys At the moment our planning is a relatively modest continuation of a programme of about 500 or 600 units a year.
Mark Washer Our working assumption is that grant rates will go down roughly to where they were two years ago. If they don’t, we will take a position about whether we build anything but are expecting that broadly we will continue to develop the same number of units we have for the past couple of years [about 1,300 units per year].
Local authority land supply
Q The report pledged to look at expanding the public land initiative and it has been suggested that councils are not managing their land supplies as well as they might. Do you agree with this?
Bob Dagger With the right incentives local authorities are capable of bringing a lot more to the table. When we engage with the county council we find local authorities are fairly significant land holders and it is vital we get support for development across those authorities. However, the ministry of defence and others need to bring their land to the table.
Philip Toni Is now the time to be selling though? The problem is that, strategically, it might not be a good idea to be flogging off large amounts of public land assets in the next three or four years.
Martin Heys We work almost exclusively in London [where] local authorities don’t own much land but government owns huge tracts.
Mark Washer Boris [Johnson, mayor of London] reckons he can free up 30,000 units worth of land. It remains to be seen if it will work.
Martin Heys If you are a local authority you are starved for capital. Why would you sell a piece of land now and get virtually nothing for it?
It is quite clear that banks take a lot of comfort from the regulation currently delivered by the TSA and they are worried about the Conservatives getting rid of it.
We want to know what is happening with decent homes and the sorts of funds we will get for major repairs so we can actually do some planning. We will be keeping an eye on the HRA [Housing Reveenue Account] review.
The one thing that is consoling in the report is a line about reducing consultancy spend. We have all seen efficiency regimes run by consultants and they rarely stick.