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Long-term thinking is needed to help us navigate Brexit
The sector is at a moment of opportunity and long-term thinking and collaboration is required in order to overcome current political uncertainty, says David Montague
A couple of weeks ago L&Q’s board had a ‘Brexit special’ meeting.
We put our financial plan up onto a big screen and hit it with everything we could think of – a complete Brexit disaster: sales volumes down, prices down, costs up, interest rates up, handovers down, skills exodus, borders closed, whatever could go wrong, did go wrong.
I won’t pretend it looked pretty, but we have a pretty resilient business model.
My guess is that every housing association board across the country is doing exactly the same thing, and hopefully all of us will conclude that we can make it through 29 March in one piece. But as a sector, will we step forward or back as we approach Brexit?
“Can we combine a planned erosion of operating margin with continued investment in new supply if the country falls off a cliff?”
Will we look beyond the next year and see opportunity, or will we focus on the short term and see risk? The answer depends on the headroom we have in our financial ratios, the confidence of our boards and the courage of government.
At L&Q, everything we do starts with social purpose. We’re tackling the housing and affordability crisis by building 100,000 new homes over 10 years, at least 50% of which will be affordable (60% affordable in London).
We’re transforming our approach to customer service to put customers at the heart of everything we do. We’re working hard to make things better, faster and lower cost for customers. All of these things will have a short-term impact on our key ratios.
Can we combine a planned erosion of operating margin with continued investment in new supply if the country falls off a cliff?
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I believe that this is a moment of opportunity. We are witnessing structural change in the housing market, away from the dominance of one provider group and one tenure and towards much greater variety of providers and tenures – the Sir Oliver Letwin vision.
With a little imagination we could see the borders between tenures becoming more porous – greater variety and greater fluidity. If this is what the future looks like, housing associations have a crucial role to play. But first, we have to deal with Brexit.
On the one hand, housing associations are looking 30, 40, 50 years into the future and forging long-term partnerships which will change the world. On the other, we are assessing whether we have enough cash to last the week if the worst-case scenario crystallises.
There is a risk that market and political uncertainty will drive short-term decision making – if you can only see until the end of the week, you won’t be making plans for Christmas.
Between now and the planned Commons vote on 11th December, there’s bound to be a lot of nail biting. If Theresa May’s deal survives, we could see a market bounce and that bounce might be high enough to jump the Brexit fence. If not, we need another plan.
“If Theresa May’s deal survives we could see a market bounce and that bounce might be high enough to jump the Brexit fence.”
In the short term, housing associations will deal with a market slowdown by converting tenure and holding more stock on their balance sheets. But this approach is not sustainable forever, as balance sheet capacity is spent, fresh commitments become more challenging. We are ambitious, but our balance sheet capacity is finite.
Now, more than ever, government should be bold and decisive. As it was in 1992, as it was in 2008, so it needs to be now.
This year we have already seen the government putting important pieces of the jigsaw in place.
Combining Sir Oliver’s recommendations around build-out rates with new local authority borrowing powers and a newly empowered Homes England, we have the potential to create powerful new partnerships, make long-term commitments stretching beyond Brexit and provide a quality, affordable home for everyone.
“We have the potential to create powerful new partnerships and make long term commitments stretching beyond Brexit.”
Lifting the local authority borrowing cap is potentially massive, with the Local Government Association claiming a £320bn addition to the economy over 50 years and local authorities standing ready to deliver 100,000 homes every year.
This alone could be a game changer, and this week the G15 group launched our ‘Offer to London’ which sets out how housing associations can collaborate with councils and communities to build more genuinely affordable homes for people living in the capital.
This is the sort of long-term thinking that will help us navigate Brexit, however choppy the waters become over the next few months.
If the government, local authorities, housing associations and the private sector form genuine partnerships, we can build a bridge over Brexit but the bricklaying must start now.
David Montague, chief executive, L&Q
Click here to read more about the sector’s planning for a no-deal Brexit
