04 April 2008
Social landlords face a tough outlook as the cost of borrowing money rises following the credit crunch, housing finance directors have been told.
Mark Webster, head of housing at Nationwide Building Society, told the National Housing Federation's housing finance conference at Warwick University that lenders were reviewing the rates at which housing associations can borrow funds, with some less keen to work with RSLs than before.
'The continuing uncertainty is causing lenders to be far more prudent and conservative in their approach [to the sector],' he said. 'It's quite possible that we will not see a return to pre-credit crunch markets.'
Nationwide is one of six lenders that together account for about 80% of total RSL borrowing. Earlier this year, Bradford & Bingley became the third lender to announce its withdrawal from the social housing market.
Webster warned that associations might be left with little room for manoeuvre when it came to agreeing private finance deals. 'Sooner or later the sector needs new lenders,' he added.
The government is relying on RSLs to borrow up to £15bn to supplement grants for building about 155,000 new homes by 2011. Landlords will also need a further
£2bn-£4bn over three years to refurbish homes transferred from local authorities.
Earlier, Piers Williamson, the chief executive of the Housing Finance Corporation, which helps RSLs to raise private finance, said associations might borrow less than expected due to the uncertainty facing private builders. 'The whole outlook for the sector will go down because of what happens to residential house builders,' he said.
New Housing Corporation figures show that RSLs borrowed an additional £7.9bn in 2006/07 – up from £6.7bn the previous year and £5.9bn in 2004/05.
This means that, by March 2007, associations had arranged loans totalling £43.5bn in the 20 years since they were first permitted to borrow from private lenders.
RSL non-housing spend still brings financial benefits
Housing associations can recover much of the money that they invest in local communities, the conference heard.
Mervyn Jones, chief executive of Willow Park Housing Trust, said it had seen a significant return on the millions of pounds that it had spent in south Manchester since inheriting part of the city's housing stock in 1999.
By next year, Willow Park estimates it will have spent about £45m on non-housing activities over ten years – of which £16m was funded by grants. But it has also seen an indirect return on about three-quarters of the remaining £29m.
Speaking at a fringe session, Jones said land and property values had risen as a result of job creation schemes and enterprise programmes. This meant the trust received more from asset sales – including homes sold through the right to buy scheme.
With more people wishing to live in the area, homes remained empty for shorter periods and the RSL accrued more rent. And it paid lower insurance premiums because of reduced vandalism and other crime. In total, these benefits were worth about £22.5m.
'You don't get all your money back, but you recover a lot of it through operational savings and higher property values,' he said. When wider benefits to the community and local economy were taken into account, it was probably a 'neutral financial strategy', he added.
The National Housing Federation estimates that RSLs spend about £500m per year on non-housing services. It is currently auditing associations to get a more accurate figure.
But Jones admitted that the trust sometimes faced 'a long and tortuous debate' on whether public sector bodies should foot more of the bill.
You must co-operate with councils, RSLs told
Housing associations must work more closely with local authorities — even if they do not want to, a leading local government figure has said.
Richard Kemp, deputy chair of the Local Government Association, said some RSLs still see councils as bureaucratic and unambitious, while some councils view housing associations as 'plunder merchants' that stole their homes through stock transfers and paid their chief executives extortionate salaries.
Nevertheless, said Kemp, good RSLs see the benefit of co-operating with local authorities, while councils recognise that RSLs can operate more rapidly than local government and have greater access to capital and revenue funding.
'We should be working together because we have lots of common interests,' he said.
'There are only two [types of] organisation that invest long-term in communities — councils and housing associations.'
PFapr2008
