Working Capital? The Investment Landscape for Housing Associations in London. Kevin Williamson Head of Policy National Housing Federation

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1 Working Capital? The Investment Landscape for Housing Associations in London Kevin Williamson Head of Policy National Housing Federation

2 Operating in the worst of times - perhaps not Bank of England Base Rate UK House Price to Earnings Ratio

3 Where is the vision?

4 Is there the political will to act? The recent announcements of two new reviews looking at housing supply are to be welcomed. The Lyon Housing Review, set up by Labour, has been tasked at looking how we can build 200,000 homes a year. The Elphicke Enquiry, announced by DCLG, will look at how to encourage City investors, insurers and pension funds to build affordable housing schemes.

5 What about the affordable homes prospectus? Important differences are emerging between GLA and the HCA programmes: The GLA Programme Updated London Housing Strategy (LHS) provides the framework for action. Aim is 42k homes a year for next 10 years (15,000 affordable and 5,000 long-term market rent) Introduces capped rents, set at 50% of market rents, to sit alongside the affordable rents regime. Underpinned by the revised London Housing Strategy (LHS) which continues to apply technical standards to the private housing sector that are above and beyond those contained in the Building Regulations The GLA programme however continues to support the provision of family homes. Indeed 36% of all discount rental homes are expected to be 3 bed and larger. The LHS introduces initiatives like Housing Zones and a London Housing Bank and continues to promote the argument for the partial hypothecation of Stamp Duty raised in the capital. The HCA Programme Arguably operating within a piecemeal approach to national housing strategy Firm steer that bids are based on affordable rents at 80% of market rents. Hampered by a lack of clarity on the applicable technical standards. There is still no indication when the government plans to set out their position on the Housing Standards Review. Emphasis on smaller homes is a significant shift under the new HCA programme. Intended to increase the choice available for owner occupiers considering downsizing

6 Other capacity will need to be tapped to meet ambition Op. margin EBITDA Interest cover Gearing ratio Debt per unit Asset cover Grand Total 23% 182% 84% 18, % Drawing down existing loan capacity - 11bn Increase gearing? More flexible rents? Tighter asset management? Subsidy increased sales/ PRS Alternative sources of funding to keep money cheap Sector operating cost efficiencies VFM Increased capital grant Support for LSVTs/ smaller associations?

7 This image cannot currently be displayed. But our operating environment is not benign Rent CPI + 1%...but An end to convergence formula Universal credit & payment direct Benefit cap 26k..post election? Increasing cash flow risk What rent assumptions beyond 10 years? PRESS RELEASE EMBARGO: WEDNESDAY 12 FEBRUARY 2014 TWO THIRDS OF HOUSEHOLDS HIT BY BEDROOM TAX ARE IN DEBT AS ANNIVERSARY APPROACHES One in seven at risk of eviction despite support from housing associations

8 Some matters can emerge late in the day The Government s Affordable Homes Programme aims to increase the supply of new affordable homes in England by contributing to the delivery of 165,000 new homes by March But housing associations are telling us that the impairment proposal will mean that their overall appetite to develop new affordable homes will be reduced by over 35%. Impact varies according to the circumstances of each organisation. Of those reporting a reduction in delivery the range of impact on programmes is between 20% to over 80%

9 Accounting changes could be a challenge if we are not alert The UK s 100 largest housing associations wrote off million from the value of their land and properties last year - more than double the amount the previous year. 48m 800m Impairment on existing homes estimated by respondents based on SORP proposals 2bn Projected impairment on existing homes if scaled up across all housing association stock 950m Impairment on new development estimated by respondents based on SORP proposals 2.5bn Projected impairment on new development if scaled up across all housing association stock

10 Danger and Opportunity Chinese definition of risk Danger Opportunity

11 Contact Kevin Williamson National Housing Federation Further information: