It has been another great year at the NHF Finance Conference in Liverpool, which coincided with the Spring Budget announcement on 15 March. The conference centre was packed as delegates braved the National train strikes to attend. Some of the key points included:

Likely no detailed housing policy coming from the government

• A Conservative Party focus on party unity, and a Labour Party keen not to alienate voters, means that detailed housing policy is unlikely from either Party as they try to avoid anything controversial.

Credit ratings for registered providers (RPs)

• Most RPsare keen to develop new homes to meet the needs of local communities, but are taking a conservative approach as they don’t want to risk credit ratings dropping because of exposure to the housing market.
• Credit ratings of RPs are falling because the investors’ perception of the sector has shifted. RPs are no longer seen as being quite as stable or as non-cyclical as some investors previously believed.
• To ameliorate the cost and availability consequences, RPs should actively communicate with funders to demonstrate how they are managing the risks to the business.

Government rating

• For funders, the governance rating from the Regulator of Social Housing (RSH) is the most important measurement (anything below a G1 is a concern), followed by the organisation’s credit rating. The viability rating is less important and a V2 rating will usually suffice.

Recession and joint venture RPs

• In previous recessions, RPs have used the opportunity to acquire land at a cheaper cost, land banking where appropriate. The conditions of the current economic climate are, unfortunately, not as conducive to that approach because land and finance costs are still high. There are, however, increasing opportunities via partnerships/joint ventures with developers to share risk.
• Mergers give rise to additional financial and operational risks and so can mean a slight deterioration in credit rating, in the short term at least. Merging RPs should be very clear, and realistic, about the benefits and potential risks arising from the partnership.

Social Housing Valuation

• Interest rates and inflation are still dominating the valuation narrative and volatility is now the new normal. Savills are predicting a 10% overall reduction in valuations, but the position is continually shifting.
• The rent cap, pressure in wages, management costs, repairs programmes and decarbonisation costs are going to have a significant impact on EUV-SH whereas MV-T is much more stable. RPs should push to get MV-T where possible and should carry out early assessments of their units to see where work needs to be done to uplift.
• Funders are no longer willing to ignore decarbonisation, so RPs are going to have to significantly increase the level of data they are providing.
• Valuers will be asking difficult questions to understand the environmental impact of properties.
• A potential solution is lotting which involves splitting portfolios into smaller lots, which makes them more desirable, for example, less management costs.

Stock quality

• Stock quality is the commonality between tenants, finance and asset management, the sector is considering what more it can do to improve the quality of its stock.
• Post-war stock is now at end of life or has not been adequately maintained and this is impacting the sector now. RPs recognise that a culture change is needed to focus on existing stock and repairs in quarterly budgets, rather than as an afterthought.
• The Social Housing Regulation Bill is expected to set out minimum standards and to hold RPs to account.
• The RSH expects to take a detailed look at an organisations individual homes and repair data and collection methods as part of this. The RSH also considers an updated decent homes standard is needed, to raise the minimum level to match current times and expectations.
• Efficiency, data science and innovation is needed to better aid in assessing repairs and the quality of social housing stock and from this, it is suggested RPs take a business case to the government in order to obtain further investment to support in improving stock quality.

Stakeholder transparency

• The sector needs to be more transparent and honest with its stakeholders, considering how they are viewed from the outside. The sector is value driven but needs to be careful, as this can lead to cognitive bias meaning the tenant’s view is forgotten when considering the organisations operation as a whole.
• Organisations need to make difficult choices as to how they organise their financial resources, there is a need to balance the interests of existing tenants as stakeholders as well as future tenants.
• The Regulator is engaging actively and proactively with organisations below standard to ensure that they maintain their focus on keeping tenants safe and secure.

Joint ventures for not for profit RPs and for profit RPs

• There is an increase in not for profit RPs looking at the option of working with for profit RPs – either by joint venture or partnerships. The concern is how the for profit RPs values align with the sector and the possibility of properties leaving the sector.
• The Regulator will need to change their view so that using for-profit investment becomes more mainstream. Although the current framework works for for-profits in terms of options available for models, the Regulator is sceptical and more attention is needed to change this.
• The traditional view of ownership and management of stock being better than management needs to be reviewed if for profit investment is used; in particular, RPs will need to look at the bigger picture of increasing volume and addressing demand.

How Capsticks can help

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie Rogers, Kayleigh Bradford, Lucy Bradbury or Jen Hankinson to find out more about how Capsticks can help.

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