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Moody’s reveals housing associations most exposed to market sale
Three of London’s largest housing associations are among the most exposed to market sale in the social housing sector, a report from credit ratings agency Moody’s has revealed.
L&Q, Peabody and Notting Hill Genesis are all in the top four organisations within Moody’s housing association portfolio that are most exposed to the private sales market.
The agency said that the growing exposure to market sale was “credit negative” because it is more volatile financially than social housing.
In the in-depth report on the sector, Moody’s ranked the 40 housing associations it rates by what percentage of their total revenue in 2017/18 was from market sale.
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The most exposed by this metric is Orbit, which manages 42,000 homes in the Midlands, the East of England and the South East. In 2017/18, 37% of its revenue came from market sale.
It was followed by the three large London housing associations, with Poplar HARCA, LiveWest, Longhurst, Radian and Moat making up the other housing associations with a high exposure to sales.
For all of these associations, at least 20% of their 2018 revenue was from market sale.
All of these organisations except Radian also saw their sales margins fall, some by significant amounts.
Peabody’s sales margin plummeted from 43% to 27%. Both Notting Hill and Genesis – now merged – saw margins fall, the former from 36% to 28%, the latter from 32% to just 13%.
Joy Baggaley, group finance director at Orbit, said: “We are a multi-tenure house builder, so the development of homes for sale is one element of our overall programme and we remain on track to build 12,000 new homes by 2020.
“We operate an agile development programme and flex our tenure delivery based on a number of factors, including market conditions. Only 22% of the homes still to be developed towards our 2020 target will be for market sales, as we mitigate the risk of the slowing housing market and increase our investment in affordable homes.
“We continue to stress test our plans for extreme market conditions and are confident that the mitigations available to us are more than adequate.”
Jon Spearing, director of finance at Poplar Harca, the housing association with the lowest credit rating in the sector, said: “Our board applies its internal control framework to assess the impact of a stress scenario and is satisfied the group has sufficient financial resilience and liquidity to manage a combination of risks, including a downturn in the sales market.”
In the report, Moody’s also noted that market sales turnover in the financial year 2018 increased by 7% to £1.61bn and has grown at a compound annual growth rate of 25% over the past five years.
The agency predicted that house price growth will continue to slow in 2019 as Brexit-related market uncertainty, low wage growth and a recent increase in inflation dampens demand.
Nevertheless, it said, “structural undersupply” of housing should prevent prices from falling too dramatically.
Rob Griffiths, deputy chief executive and chief financial officer at Longhurst, said: “The majority of Longhurst Group’s sales activity is focused on our shared ownership sales programme. Our business plan is not reliant on achieving surpluses generated from shared ownership or market sales to meet our covenants.
“Our development and sales programme is extensively stress-tested and has a phased approach to new development commitments, enabling flexibility within our programme if the market changes.”
Anne Costain, executive director of finance at Radian: “This increase and exposure to market sale in 2018 reflected sales at Quebec Park, our successful development in Bordon and Whitehill, Hampshire.
“This has now completed its sales cycle, delivering 100 new homes and a community café for the local area. Our exposure going forwards reflects current market conditions and is below 20% of turnover.”
