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Housing associations urged to focus on strengthening liquidity policies
Housing associations should aim to have clear liquidity policies to help navigate economic downturns, housing leaders have said.
Speaking at a Digital Housing Week event ,Jeremy Earnshaw, chief financial officer at Your Housing Group (YHG), said housing associations need to be clear on how much cash they need hold as a minimum and should be stress-testing their business constantly.
He said: “A liquidity policy is sensible. Many organisations will have a stock policy, a geographical territory policy and sale targets, but I do wonder how many organisations have a liquidity policy.”
Mr Earnshaw suggested that all housing associations need a liquidity policy in order to ride out economic downturns, such as the one expected to follow the COVID-19 crisis.
He said YHG’s “golden rule” is to have enough cash to sustain the business for 24 months at an absolute minimum and that it comes from a variety of sources such as the debt capital markets and debt funders.
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Elizabeth Froude, chief executive of 45,000-home Platform Housing Group, agreed that housing associations should have “really clear golden rules – even in the good times” and said these should not be watered down by organisations.
She said the social housing sector is 40% more liquid today than it was at the time of the 2008 financial crash.
Will Perry, director of strategy at the Regulator of Social Housing, noted that liquidity has continued to grow following the last financial crisis and stood at £6.2bn at the end of March 2020. This increased liquidity is a result of the last economic downturn, before which some were operating on a zero cash budget, he noted.
Mr Perry warned that currently the cost of borrowing is cheap but that this may not always be the case and said: “There’s a question for provider to think about what happens if funding becomes more expensive.”
He said he thinks that most housing associations will have a liquidity policy, “though they may not spell it out”.
“I think what maybe varies is the level of details in those policies and how they are used. Associations need to think about whether these policies are understood at board level,” he added.
