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Moody’s: Housing White Paper development push 'credit negative'
Ratings agency Moody’s has warned the Housing White Paper’s emphasis on scaling up housing association development will drive negative credit ratings for the sector.
The agency, which provides ratings to housing associations owning 40% of the sector’s stock, said today in a market update that “continued pressure” on associations to build more homes could result in a “material increase in debt-funded development risk”.
This, it said, would continue to determine credit quality in the sector, because new development is largely – and increasingly – funded by debt and market sales surpluses, as opposed to grant.
The update stated: “The government is explicit in its expectation that [housing associations] build significantly more affordable homes over the current parliament (which runs until 2020), despite the sector reaching a 20-year high of more than 30,000 new homes completed in 2015.
“Housing associations… are already planning an increase in their development pipelines. Political pressure to build is also fuelling internal ambitions to increase development. The result is a material increase in debt-funded development risk, which is credit negative and will continue to drive credit quality for the housing association sector.”
The White Paper, published on Tuesday, said the government expects “all associations to make the best use of whatever development capacity they have to help meet local housing need”.
Moody’s graph showing the increasing reliance on debt and market housing over the next five years
Despite this, Moody’s said that the government’s decision to consult housing associations on changes to the social rent policy from 2020 was a “credit positive” move.
It added: “There is currently a lack of clarity on social rent policy after the government’s decision to cut social housing rents by 1% per year for four years completes in financial year 2020. This uncertainty makes long-term planning difficult, as rent assumptions play a key role in investment decisions and assessing the long-term financial viability of housing associations. Commitment by the government to address this uncertainty, as well as to engage the housing association sector in discussions on rent policy for the years after 2020, is credit positive.”
