What you might need to think about in 2011

Posted by: Mike Wilkins

04/01/2011

The season for vintage comedy has been in full swing. During one Laurel and Hardy rerun, I’m sure I heard Oliver Hardy say to Stan Laurel, ‘This is another fine Pickles you have got us into’ –  although that might have been the sherry!

Now Christmas is over, secretary of state for Communities and Local Government Eric Pickles’ plans are no laughing matter for housing professionals.

So what are the landmark issues for 2011? The Decentralisation and Localism Bill of course, the finalising of the Homes and Communities Agency guidance on the new grant regime, the finalising of Universal Credit are the obvious ones.

Here are the points I think housing professionals need to get serious about:

1. Localism means you need for local market knowledge:

With the introduction of new ‘affordable’ rents up to 80 per cent of market rents on new developments and up to one in four re-lets, it is important that development teams start with an excellent understanding of local housing markets.

What are the local factors that make any new homes attractive?

Excellent market awareness is important if new funding contracts with the HCA are to heavily depend on matching homes to customers who are within striking distance of a market rent i.e. the private sector. Are our new homes going to be sufficiently attractive to private renters at this discount?

How robust is the market understanding in the varied local authority areas that larger associations work in? We have come a little unstuck on this in the past with low cost homeownership homes that we have not been able to shift as a result of falling demand. It may be the case that the market place for renters at higher rents is not the same as those we have dealt with on the low cost home ownership front.

2. Benefits could come with getting to know local authority decision-makers:

It will become more and more important to get good ‘inside’ knowledge of how local authorities are making their decisions. With big cuts in the pipeline for local authority services, it would be extremely worthwhile for housing associations to have excellent formal and informal links with key local authority colleagues.

The potential for helping share some of the ‘pain’ by  offering, for example, a service or a small amount of cash, might pay dividends, particularly if this generates opportunities for further partnership working or just a ‘feel good’ factor about ‘association X’. This is particularly important if nominations agreements need to be renegotiated.

Unfortunately this is time consuming and should probably extend beyond sitting on the formal liaison boards. It’s also a challenge to associations with a large number of local authorities to talk to.

3. Loan to value ratios need careful consideration:

Some associations’ gearing covenants i.e. the upper limit, set by the lender on a borrowers total borrowings, but which is off-set by the reserves and grant,  may start to look a bit shaky as grant diminishes.

Gearing limits are usually set into loan documentation and have an upper limit.

A common calculation for gearing is loans/reserves and grant, but with less grant in the equation, the gearing figure increases and may not be off- set by a bigger cashflow from higher rents.

So closer monitoring of gearing covenants is essential.  Some forward thinking about when gearing covenants might start to nudge up to the limit, if the grant goes down, might pre-empt a discussion with lenders; which these days often means a re-pricing upwards by our banking friends, and so is to be avoided if possible.

4. There could be an opportunity for small housing associations to take on more work:

As localism gets some traction with local authorities, the sheer scale of making this work effectively over a large number of local areas might mean that larger associations will want to consider devolving housing management to more local, smaller associations. This is an opportunity for those who have argued that smaller associations have better links with communities.

So smaller HA’s might want to consider talking to larger housing associations and vice versa about managing homes contracts.

Perhaps organisations could consider setting up a wholly-owned commercial subsidiaries to manage non-charitable housing schemes? Income could be remitted back to the charity via Gift Aid.

5. Taking repairs and maintenance work in-house could be an option:

With VAT having increased to 20 per cent, this might be is a good time to start thinking about what advantages an in-house, direct labour organisation might make.

The headline advantages are:

• no VAT and
• better control over the quality of work

But setting up a DLO will require some planning and building up skills in-house. Depending on size of your organisation, perhaps start small and build up the team. What about starting with re-lets with an in-house team dedicated to do re-let repairs and decorations for example?