Reductions to future rental income, the extension of the right to buy policy combined with the impact of welfare cuts has made this one of the hardest hitting Budgets for the social housing sector in living memory.
Mr Osborne scrapped a 10 year deal that allowed associations to raise rents by 1 per cent + CPI, now insisting that they reduce rents by 1 per cent per annum. This means there will be a 1 per cent rent reduction in each of the next 4 years – i.e. by 2020 the rent will be 96.06 per cent (with compounding) of current rents, if we say that this year’s rent is 100 per cent. With estimates of CPI, previous business plans would have been projecting rents of c110.5 per cent by 2020 giving a massive reduction of over 14 per cent. The NHF claim the sector will be faced with a £3.9bn hit as a result.
Benefit Cap Reduction
Benefits will be reduced from £26k per household to £23k in London and £20k in the rest of the country.
Pay to Stay
Social Housing tenants earning more than £40k in London and £30k elsewhere to pay rent at market rates. Potentially this creates a major administrative headache for the sector.
Right to Buy Extension
The extension of RTB to include housing associations is proving deceptively complicated. Housing association tenants will have the right to buy their rented properties with a significant government discount. However, unlike the original RTB policy, the association who owns the home will have to be compensated for those that are sold. The RTB will supposedly be financed by council’s selling their most expensive council homes when they become vacant. The money raised will be used to replace the homes sold and to compensate associations for the properties they lose. The new housing bill which will include the RTB extension has not yet been tabled. In the meantime this creates significant uncertainty for the sector.
Greater Manchester Land Commission
A new Greater Manchester Land Commission with devolved planning powers including CPOs to manage development around publicly owned sites was chief among the latest wave of Devo Manc measures. George Osborne said the city region would get 'more powers over planning subject to the agreement of the Cabinet member representing the district in which the power is used'. The additional measures will, subject to legislation, enable Greater Manchester to take on a range of additional responsibilities: Greater Manchester Combined Authority will work with government to create a Greater Manchester Land Commission. The Commission will have an overview of all publicly-owned land in the region, including that owned by government and other public sector bodies. Manchester City Council said the new body will look at and co-ordinate how that land can be used to support Greater Manchester’s wider ambitions – including the need for 10,000 new homes a year to support its growing economy and communities – and address any barriers to such land being developed. The Commission will be jointly chaired by the Mayor and housing minister and will include ministers from other key landowning departments.
All these announcements will have a profound effect on housing associations – it will clearly affect their income/margins – but, equally worryingly, it will also affect their future housing stock valuations (which are largely based on their rental income streams), so apart from dramatically affecting cash flow, it may also severely affect covenants. This impact only relates to social/affordable rents and not shared ownership or market rent.
Our advice to our clients has been that they need to be re-modelling their business plans and identifying any potential breaches - considering what actions to address in the short and medium term.
Our other advice/actions that we would suggest associations might heed are:
- detailed review of risk maps at exec and board level;
- undertake a reforecasting exercise;
- revisiting their Stress Testing scenarios;
- review their development spend;
- talk to their funders/lenders.
These changes and challenges may well encourage associations to fundamentally rethink not just their business plans, but their business model, service levels and development plans.
Please contact Gary Moreton if you want to discuss how this might impact you.