The Housing Finance Corporation’s team were out and about at last week’s virtual Housing Finance Conference, with CEO Piers Williamson discussing ESG, development and cross-subsidy models.
Tuesday: Making sense of ESG reporting (roundtable)
A series of roundtable sessions on the first day of the conference demonstrated firmly that, from big to small associations, ESG reporting is firmly on the agenda. Some thought-provoking discussions were had around how reporting will impact treasury workloads, and where this reporting will eventually end up (the consensus seemed to fall in favour of stand-alone reports initially, with a view to being integrated into financial accounts if ultimately a requirement, but to be avoided if possible!). With the establishment of the Sustainability Reporting Standard (SRS) widely talked about, the challenge remains to work collaboratively to share knowledge and best practice so that the sector can take up new reporting expectations with gusto.
Wednesday: Is development expenditure under threat?
Will Perry began this session with some new data from the Regulator’s analysis of 2020 FFRs showing an increased pressure on housing associations’ interest cover metrics and a growth in the prominence of debt in funding for-rent developments, as opposed to for-sale cross subsidy. This follows the focus in recent years on de-risking market sale exposures. New and hefty costs involved in decarbonisation and fire safety works however will put pressure on associations’ business plans and to some degree could crowd out development. Fiona Dickinson from Aberdeen Standard Investments offered a more cautious note, stating that she’d seen little anecdotal evidence of development being under threat, nor cross-subsidy. Both Fiona and S&P’s Felix Ejgel however emphasised the downward trend in associations’ credit ratings. Piers pointed out the regional nuances of some key trends, particularly the concentration of high-volume development and fire remediation costs in London associations. In addition the sector is now exposed, as the UK Government is, to rises in inflation and interest rates, which could put further pressure on credit ratings. Yet while the enormous costs of retrofit and fire safety works will invariably crowd out development spend, there is also a deeper shift in the way we think about development. Instead of a focus on hard numbers which often justified for-market-sale development for cross-subsidization, there is a focus on what ‘good’ housing looks like, in a way echoing the Church of England Housing Commission’s recent report. ESG is now shaping this emphasis on the sustainability of associations’ development as opposed to its sheer scale. The ‘threat’ to development expenditure may turn out to simply be a pressure to rethink and regroup.
Friday: Is cross subsidization still the golden goose?
One of the final sessions of the week focused on future viability of the cross-subsidy funding model. Optivo’s Tom Paul opened with a case for cross-subsidy as “a goose, but not the golden goose”. Continuing with the avian theme, Piers emphasised the “dodos” of fire safety and decarbonisation costs which pressure association’s cashflows and do not, unlike development, offer a financial return on investment. Piers went on to note that, while cross-subsidy remains the only game in town, market sale is not necessarily the only form it can take. Shared ownership in particular remains viable, particularly outside of London, as well as emerging rent-to-buy tenures. Indeed, the changes to Section 106 threatened by the planning white paper place a question mark over the future of cross subsidy through market sale. Eileen Zhang of S&P offered insights on the perceived risks of market sale subsidization: “the goose never comes for free”. A subsequent Q&A focused on other forms of subsidy models, including selling homes to for-profit providers in exchange for management receipts to then spend receipts on development, or strategic land buying. The spectre haunting this robust exchange was not unfamiliar; subsidised housing requires subsidy. For now then cross-subsidy remains ‘a goose’, but not necessarily as heavily characterised by for-market-sale development as before.
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