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NHF Risk Conference - Jonathan Walters
The social housing sector is facing increasing complexity and challenges, with changes in funding models, income sources, and financial management. Providers must adapt their strategies and consider their long-term goals, while the regulator seeks to ensure effective business management and compliance. The future of social housing relies on understanding risks, embracing property sales, and diversifying income streams.
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NHF Risk Conference - Jonathan Walters
- 1. The social housingregulator Successful places with homes and jobs A NATIONAL AGENCY WORKING LOCALLY The key challenges for social housing providers
- 2. The social housingregulator Life was already getting more complex for providers Gone: core assumptions about rented products Gone: the grant/bank debt funding model Going: Rents always going up More market exposure Complex choices for Boards Opportunities and risks A more cyclical model
- 3. The social housingregulator And then this happened…
- 4. The social housingregulator And then that happened…
- 5. The social housingregulator And this is yet to come…
- 6. The social housingregulator Some cyclical factors are helping the sector…for now
- 7. The social housingregulator There is financial strength – in aggregate
- 8. The social housingregulator But financial strength is spread around unevenly…
- 9. The social housingregulator Property sales are increasingly important… 146 85 199 128 251 222 0 100 200 300 400 500 600 700 2014 2013 Surplusonthesaleoffixedassets(£m) Shared ownership staircasing Sales to other RPs Other sales of housing properties
- 10. The social housingregulator And property sales could become more important…
- 11. The social housingregulator But structural change is already underway
- 12. The social housingregulator The sector’s income sources are changing
- 13. The social housingregulator The business model for providers is changing… ASSETS Right to Buy New Develop- ment DiversificationHousing Market Sales Existing Stock
- 14. The social housingregulator And the financing of that business is becoming more complex… LIABILITIES Counterparty Risks Liquidity Existing Debt New Debt Index Linked Debt Hedging Strategies Accounting Issues
- 15. The social housingregulator And the sources of finance more diverse… - 2 4 6 8 10 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Bank Bond Lease
- 16. The social housingregulator Meanwhile, the core business is not getting any easier… INCOME Rents Supported Housing COSTS Differential Inflation Rates Pension costs
- 17. The social housingregulator However… Don’t despair! A well-run social housing provider should not get into serious difficulties
- 18. The social housingregulator There are some key issues for boards and exec teams to consider What is the right strategy for our business? Where do we want to be in 5 -10 years? What do our charitable objects means for us in this new world? What is the right development mix for our business? What is our home ownership offer for our tenants?
- 19. The social housingregulator What is the role of the regulator? We don’t have the answer for your (or anyone else's) business We seek assurance that boards and executives are managing the business effectively and have a thorough understanding of their risks Where we have concerns that this is not happening it is reflected in our regulatory judgements and we look to providers to remedy the situation Where they can’t or won’t respond then we look to use our power proportionately to bring the provider back into compliance with our standards
- 20. The social housingregulator Hopefully this is the future…
Editor's Notes
- #7 Overall borrowing costs continue to decline, one of the main drivers of the increasing net surplus
- #13 Based on Global Account for year ending 2014 Non-social housing income growing steadily, with most growth in build-for-sale and other activities Expect this trend to continue, with expectation that providers will continue to manage their particular risk exposures. As a whole, the sector’s financial strength has grown over the past few years. Larger providers have diversified their income streams and become more sophisticated in their management of development programmes and risk assessment. This means that most providers go into a period of change in a strong position.
- #15 New Regulatory Framework – RP’s understand their housing assets /must maintain up to date records of assets and liabilities Expected change in LIBOR rates from 2016 onwards Credit Ratings under continued review/ potential to increase lending margins Covenants more demanding and price of funding rising/impact of FRS102/SORP2014 Effective cash/debt management is critical to ensure obligations are met as they fall due FRS102/SORP2014
- #16 Graph illustrates that Bonds and private placements continue to be the major provider of finance to the sector. Total reported borrowing facilities at £75.9bn, £12.5bn undrawn 74% of current facilities are bank loans and 67% at fixed rates Total new facilities arranged in 2014/15 £6.8bn, 56% from the capital markets Forecast drawdown of funds for next 12 months £5.3bn Refinancing numbers