Cash cushion

A journalist recently pointed out to me the symmetry between £1.8 billion of housing association surpluses reported in the Homes and Communities Agency’s global accounts for 2011/12 and the same amount raised by associations on the bond markets in the same year. Could they be in any way related?

The answer is they are not, or to put it another way, they are as related to each other as another ‘magic number’ - 1.8 million households on council housing waiting lists.

Housing association surpluses are either good or bad news depending where on the spectrum you sit. The head of credit research for Legal & General presumably would like housing associations to make more surpluses. He was reported to have said at the National Housing Federation finance conference in Warwick last month that the sector is ‘ridiculously leveraged’ (I disagree).

In fact, a glance at the global accounts of the 400 largest housing associations shows that the sector’s borrowings were still well under 50 per cent of assets at cost in 2012. On any valuation basis, gearing is even lower. With accumulated reserves of more than £20 billion, the sector’s global equity to debt ratio is now 30:70, without taking grants into account.

Acknowledging that, many businesses have been de-leveraging fast since the 2008 financial crash, nevertheless they would be very comfortable if their balance sheets resembled those in the housing association sector.

These numbers are old news and the HCA’s commentary which accompanied them was gloomy on a number of counts (Inside Housing, 22 March). However 2012/13 is unlikely to have registered much change with high rental inflation and low interest rates having prevailed.

Sales have also held up well. It is not until 2013/14 and beyond when we will start to see significant impact in the figures from welfare reform, the direct payment of benefit to claimants and other risk factors highlighted in the HCA’s comments.

And here is the flipside to the argument about housing association surpluses. Those who advocate that bond investors could have had a year off while associations spent all their surpluses on new homes miss a vital point.

Surpluses are not just needed for managing on-going risks and the occasional rainy day. They provide the necessary ballast in our balance sheets to enable homes to be built and borrowing to continue in the future.

David Levenson is group finance director of Network Housing Group