Friday, 25 April 2014

Housing association’s loss amounts to almost a third of that predicted for the entire sector

Genesis land values plummet by £20.7m

The value of land owned by Genesis Housing Group has plummeted by more than £20 million - almost a third of the total losses predicted for all housing associations.

The 23,000-home landlord wrote down the value of its landbank in 2010/11 by £20.7 million, almost 30 per cent of the total writedown across the sector, according to the most recent projections from the Tenant Services Authority.

The regulator has been monitoring financial performance of Genesis since 2009, when it deemed the association’s financial viability was ‘of serious concern’. Since the beginning of the credit crunch in 2007, Genesis has been hit by annual writedowns of between £5.8 million and £6.9 million.

Robert Kerse, who took over as the group’s finance director in February following the sudden departure of Mark Gayfer last year, said the increased writedowns were the result of a change in the board’s risk management approach, coupled with the loss of government grant and changes to development plans brought about by the economic downturn that will see it garner smaller returns than anticipated at the time of purchase.

‘Genesis aggressively bought a lot of land as it wanted to provide a significant amount of new homes,’ he said. ‘We have now taken a view that, in terms of the land bank, we will get £20 million less than we thought last year.’

Some of that land bank was stockpiled for use under the Homes and Communities Agency’s affordable homes programme. This week, Genesis signed a contract to develop 285 homes by 2015 under the programme, a number thought to be significantly less than its original bid.

Mr Kerse said that the move should take the ‘bad news out of the accounts’ in future years but he could not rule out future charges.

The TSA expects to publish an updated judgement on Genesis before the end of the financial year.

Accounting regulations allow housing association boards some leeway on the value they ascribe to unused land, resulting in potential differences to so-called impairment charges.

‘There’s a great deal of subjectivity,’ said a finance director at another housing association when asked about impairment charges. ‘Relatively small changes can have much larger outcomes in terms of the final figure.’

Genesis spent just over £200 million on land between 2005 and 2007.

Readers' comments (5)

  • F451

    I bet the wish that they had now developed the land and gained a return on it - and of course provided places for people to live in (which seems to be a by-product for housing associations these days rather than a purpose.)

    As I've said before, landbanking is not in the interest of those requiring housing. I do hope the landbank deniers are awake and come forward to admit they were in error.

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  • Has anyone asked how a housing association out bid private developers at the height of the market (2005 / 7) particularly as they had to buy in technical and construction services? How much of this acquired land was earmarked for social housing (at that time) and how much for private development? Is this not now one of the new models that the HCA is pushing to get more cross subsidy to deliver the unaffordable rent model?

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  • Gavin Rider

    If the NPPF goes ahead, existing land bank values will plummet everywhere as open countryside suddenly becomes available at agricultural prices and more attractive for development than other sites.

    Then when all the institutions sitting on land banks waiting for the best moment for development to arrive realise that they have missed the boat, they will sell their assets on at a loss just to minimise the risk and gain liquidity.

    Aha - but then farmers will wake up to the fact that their land is now a lot more valuable for development than it is for farming, and they will put the price of their land up.

    That means there will no longer be a supply of nice cheap land for rural Affordable Housing developments to exploit.

    It will also mean that nobody will be able to afford to invest in agriculture because the land price will be too high, so farming will decline.

    What a great way to boost the economy that will be!

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  • F451

    Harry, you are correct to point to the benefits of landbanking, but they only apply if the landbank is not held onto endlessly. Without the conversion from bank to development the whole thing just comes to a shuddering halt.

    These people have used public funds to purchase land and then jsut sat on it waiting for the optimum profit window. That window has remained closed and now the land value has fallen. We, the people, have lost money, lost value and not gained housing. To me, that's 3-Strikes - but nobody has called these people on this and they are not out.

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  • Harry's post was removed because it made several claims about Genesis that we have not yet been able to verify.

  • I have just been working at one of the larger HA's and they refuse to land bank. They view it as an unnecessary risk. They also never tried to compete with private companies, as they cannot win. They relied on s106's and small sites that private companies wouldn't bother with.

    It does mean that production comes and goes with the market, but that is the nature of the beast. At least they don't risk huge sums and everyone that relies on them.

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