Senior executives within RSLs are generally optimistic that the economy will recover in 2009, according to recent research from Baker Tilly.
Baker Tilly’s ‘Crunch time for the social housing sector’ report found that volatility in the economy had altered the economic outlook of 86 per cent of respondents from housing associations and RSLs, but with a majority of 81 per cent thinking that rates of growth could recover in the next 12 months.
Over three-quarters of respondents thought that the credit crunch had had a significant impact on social housing, primarily in the development of new social housing schemes, sales of new homes at market rates and shared-ownership tranche sales. However, only 31 per cent had encountered difficulties with their bankers, either in renewing existing credit facilities or securing funding for new schemes. This was supported by 76 per cent of respondents who considered that their current funding arrangements were adequate.
76 per cent of respondents thought that social housing will remain a priority for the Government in the run up to the next general election, despite 73 per cent expecting the Housing Corporation, and the subsequent Home and Communities Agency, to freeze or reduce funding compared with present levels. However, the majority thought that the Government (and its agencies) should make additional funds available to allow RSLs to buy ‘hard to sell’ homes from developers in an attempt to help kick start the housing market.
Repairs programmes and the achievement of the Decent Homes standard were not expected to be affected by the credit crunch, according to 88 per cent of Baker Tilly’s respondents.
Respondents appear to have a low level of confidence in the current financial viability of the sector, with three quarters stating that they expect to see other RSLs having significant financial difficulties in the next 12 months. This is compounded by two-thirds of respondents expecting increased problems with rent arrears and bad debts over the next year.
Not surprisingly, commercial development is slowing. 54 per cent of RSLs are no longer pursuing new commercial development opportunities to help fund social housing projects, most likely as a consequence of the difficulty of selling surplus properties on the open market (47 per cent) and having to lower prices to achieve sales. In addition, 69 per cent thought that first-tranche shared-equity schemes would become harder to sell due to individuals finding it difficult to secure funding.
The RSLs’ main strategies for dealing with credit crunch were improving their financial forecasting (86 per cent) and revising their risk management strategies (67 per cent), alongside scaling back their recruitment and some of their largest IT projects.
Baker Tilly suggested the following 10-point plan for housing associations and RSLs to cope with and even take advantage of the current economic situation:
- Forecasting – regularly review and update financial projections to provide an early warning of issues.
- Risk review – ongoing monitoring and updating of risk management strategies.
- Credit control – increase emphasis on timely rent collection to identify and resolve issues.
- Governance – ensure good governance and communication at board and executive levels.
- Treasury – monitor covenants and relationships with bankers.
- Assets – review asset strategy and business appraisal techniques, carefully considering development and sales, including the viability of shared-ownership projects.
- Opportunistic – be ready for any opportunities which could arise at short notice, such as Government initiatives over private developer housing surpluses.
- Advice – obtain and use appropriate professional advice.
- Cost reduction – review cost reduction targets and accelerate reduction strategies.
- Tax and VAT – review your tax and VAT strategy in light of the changing economic conditions.