Social Landlords will no doubt remember 2015 as their own annus horribilis. Admittedly the first half of the year was quite uneventful for what was about to come. In July the changes were dramatic as George Osborne announced that Housing Associations would have to cut social housing rents by 1% each year for the next four years from April 2016. In the same budget he went on to announce tax credit cuts of £12bn in the UK’s welfare budget.
The narrative suddenly changed. Cash flows were questioned, business cases were suddenly void and needed rewriting, credit ratings were called into question as a consequence Moody’s adjusted their outlook for the sector from stable to negative. The outlook was bleak. David Orr, the Chief Executive of the National Housing Federation, said in his annual speech at the NHF’s conference in September, ‘that social housing must plan for a radically different future.’
There was more to come. At the end of September social landlords were given six days by the Government to a ‘voluntary agreement’ on Right To Buy. The sector, led by the NHF, did in the end agree, but with what fallout?
According to 24housing 45% of housing associations’ boards decided to vote against, abstain or not vote at all. The NHF approach was to say 93% voted in favour by virtue of ‘stock’. Social housing veteran, Colin Wiles, commented“Will…the Right to Buy debacle lead to the break-up of the National Housing Federation?” He went on to comment that it could lead to a ‘two tier membership’, believing that NHF was more engaged with its larger members.
Many in the sector were still coming to terms with these monumental changes when the FT lead with a story, before the Chancellor’s Autumn Statement, that George Osborne would announce the 1% rent reduction would actually increase to a 2% reduction. With this in mind there were some apocalyptic predictions for the sector, but this rent cut never materialised, and the Government announced a u-turn on its tax credit policy, which in the short term was good news, although these cuts will still be phased in with Universal Credit.
In the Autumn Statement housing played a central role, and the positive was that the chancellor doubled the housing budget to £2bn a year, with the aim of delivering 400,000 affordable new homes by 2020. This figure has been questioned by senior figures in the sector. Clive Barnett, Managing Director and Head of Housing Finance at Royal Bank of Scotland stated ‘they (RBS)can fund the development of 450,000 homes and Housing Associations can build them but this target is unreachable because of the current planning policy.’
Others have expressed concern that housing associations would not be able to meet this target due to the housing benefit cap that the Chancellor announced. “The rate of Housing Benefit in the social sector will be capped at the relevant local housing allowance – in other words, the same rate paid to those in the private rented sector who receive the same benefit.”
So will 2015 be seen as the transformative year for social landlords? Perhaps not as the Housing Associations were reclassified to public debt by the ONS. This added £60bn to the national debt, which was an extra 4% on to the government’s balance sheet. With this in mind the Government is looking at what legislation they need to change to have housing associations taken off the books. Many lobbyists cite that landlords should be able to set their own rents so this may dominate discussions in 2016.
So for 2016? Well as David Orr said ‘social housing must plan for a radically different future.’ Efficiencies need to be found and new operational ways of delivering services. With the rent cut organisations can either: stall development, extend the lifetime of cyclical programmes (i.e. paint houses every 7 years not 6 years), make cuts and freeze pay. Arguably organisations then enter a period of managed decline. So that’s why they must do things differently and look for new innovative ways of doing things. And unfortunately it looks like 2016 may get worse so time is of the essence. An article published in Inside Housing, on 22 December 2015, encapsulates this conundrum for Housing Associations.
“Agency downgrades association’s credit outlook” is about Aster Group. They are planning to “invest in new housing developments, largely for shared ownership”rather than paying down debt to less than 10 times its pre-tax earnings. So in trying to meet the Governments house building targets they are having their credit rating downgraded as they are choosing to invest in houses rather than pay off debt.
Dare I say, Happy New Year?