Landlords told to squeeze more income from sales
Housing associations need to gear up for a new era of increased financial risk that will see them more reliant on profits from the sale of private homes, a ratings agency has claimed.
The latest report from Standard & Poor's says that housing associations will have to attract £4 billion of private finance to compensate for diminishing levels of government funding. Average levels of grant available for each affordable home, including social housing and shared ownership housing, would decline by about
30 per cent by 2008, the paper predicts.
The reduction means housing sales will form an increasingly important but unpredictable portion of housing
associations' revenue streams.
This new era of market exposure would come with built-in risks, Robert Robinson, credit analyst with Standard & Poor's, said. ‘The higher costs of private funding compared with grant funding should
encourage developers to build more efficiently, but may also encourage a higher level of cross-subsidisation, using market rental income and income from house sales for social rented housing,' he said. ‘This will expose affordable housing developers to more market risk.'
The report was published days after the Housing Corporation announced that it would place more pressure on associations that did not borrow enough against their assets to fund the delivery of new homes (Inside Housing, 1 December).
Standard & Poor's says many associations, especially stock transfer organisations, have the capacity to take on more debt.
‘Relative to other property developers housing association leverage levels tend to be quite low and balance sheets are managed in a conservative way,' it says.
‘Furthermore a number of large-scale voluntary transfers will emerge through their initial business plan phase over the next few years with capacity to take on more debt.'
But the report warns against the corporation softening its regulatory regime in exchange for associations sweating their assets more. ‘Relaxing regulation, for example, could help increase competition and efficiency but may also negatively affect the favourable borrowing terms currently enjoyed by housing associations,'
the report adds.
Kim Penfold, group director for business and strategy at Harvest Housing Group, said increased dependence on the housing market would be the biggest issue the sector would face in the future. ‘The
market is less simple than it was,' he said. ‘Associations will have to look at stock they have got in particular places and whether it fits the long-term trends for those places.'
And a reduction in regulation in exchange for associations making more use of their assets could also bring its own problems, he added.
‘It [regulation] puts us in a far better position when it comes to borrowing than if we didn't have it,' he said. ‘[Housing associations] would look more risky. It is a two-edged sword.'