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The increase in V2 ratings reflect the fact developing associations are taking on new risks to continue investing in existing and new homes, writes Emma Maier
Recent regulatory judgements in England are a reminder of the new operating risks and challenges increasingly faced by developing associations.
The past few months have seen the number of ‘V2’ ratings for financial viability swell – and this will no doubt have caused some discomfort for organisations used to their V1 ratings.
For many, the change is not a cause for concern and reflects associations increasing their development pipelines and taking on additional risk to do so.
The core finding from this week’s quarterly survey report from the Regulator of Social Housing underlines the point.
It finds that associations have sold 31% more homes on the open market than in the previous quarter – and that at £700m, revenue generated falls short of the £834m forecast.
The drop is mainly attributed to slower sales, emphasising the risks associated with increased exposure.
For those making use of their balance sheet to achieve housing growth and social return, V2 may very well be becoming the new V1.
For a sector positioning itself to play a serious role in housing growth, this is a positive sign of the sector maturing.
However, not all downgrades are equal.
"A rating V1/G2 could show an organisation is not yet prepared to take advantage of its financial capacity"
As more associations take on more risk, it is vital that they are confident they have the governance arrangements and the skills and attributes on their boards to appropriately manage that risk.
While a V2/G1 reflects an organisation successfully managing increased risk to achieve more, a V1/G2 could show it is not yet prepared to take advantage of its financial capacity.
An increase here would be bad news for the associations concerned and for the sector, potentially denting political confidence in its ability to deliver new homes at scale.
All eyes will also be on whether the increase in market sales enables greater investment in new social rented homes.
Meanwhile, a report from Moody’s this week reiterates a finding from the regulator last year: that associations are cutting spend on maintenance and major repairs.
Improved efficiency, cyclical variation and a reaction to the rent cut will all have a role to play. If the change were to become a trend it would be a cause for concern.
Sustainably managing existing homes must remain a top priority alongside developing new ones.
Hackitt review
Few people will envy the task ahead for Dame Judith Hackitt as she pushes ahead with her review of building regulations. There are many views on the factors that contributed to the Grenfell fire, but one thing that most people agree on is the inadequacy of building regulations.
Mounting criticism this week from influential and high-profile bodies including the Royal Institute of British Architects (RIBA) frame the challenge. RIBA and others argue that the regulations must become more prescriptive to ensure that they offer complete clarity and remove the risk of interpretation and misinterpretation.
It is a persuasive point, as the battle rages between government and the industry as to whether cladding systems that have since failed tests were complaint with regulations.
The regulations will also need to be able to evolve to reflect the emergence of new materials and approaches. It is a fine balance – to achieve it, the review will need to listen to, and hear, a wide cross-section of views.
Photo: Tom Pilston/Eyevine
Dame Judith Hackitt’s (above) interim report on building safety, released in December 2017, was scathing about some of the industry’s practices.
Although the full report is not due to be published until later this year, the former Health and Safety Executive chair has already highlighted a culture of cost-cutting and is likely to call for a radical overhaul of current regulations in an interim report.
Dame Hackitt’s key recommendations and conclusions include:
Inside Housing is calling for immediate action to implement the learning from the Lakanal House fire, and a commitment to act – without delay – on learning from the Grenfell Tower tragedy as it becomes available.
We will submit evidence from our research to the Grenfell public inquiry.
The inquiry should look at why opportunities to implement learning that could have prevented the fire were missed, in order to ensure similar opportunities are acted on in the future.