English Housing Associations’ finances under pressure
English Housing Associations could struggle to maintain their current financial performance after recent government policy changes made their operating environment more challenging, Moody’s said in a report.
“The cumulative impact of recent changes in government policy have created a more difficult operating environment for housing associations,” said Roshana Arasaratnam, Vice President - Senior Credit Officer, and author of the report. “The sector’s overall credit profile could deteriorate if housing associations are unable to maintain their current financial projections.”
Moody’s report comes after the UK government’s 8 July announcement of a 1% annual reduction in social housing rent. Ongoing welfare reforms and the extension of the “Right to Buy” scheme, where housing associations’ tenants could get the chance to buy their housing association home at a discount, add to the uncertain outlook.
Moody’s forecasts that the rent reduction means housing associations’ turnover will grow more slowly than anticipated; and projects an average loss of 7% of turnover, cumulatively over the next four years, from the proposed rent reductions. Income from new housing will offset the nominal cut in rents, but rental income will grow at a much slower pace in future.
Housing associations’ property sales could form a higher share of their turnover as social housing revenue growth slows. The percentage of the associations’ revenue gained from social housing could fall to 67% in 2017 from 76% in 2014. Median operating margins could also fall to 26% by 2019 from 30% in 2014 as increasing costs exceed the growth in turnover.
The recent policy changes could lead to the housing associations’ eroding their cash reserves more quickly than expected, reducing their short-term liquidity.
Housing associations may tap undrawn credit facilities, which would increase anticipated debt levels. At the same time, planned capital spending on new and existing homes may be postponed or scaled back, reducing the need for new debt and limiting the impact on their balance sheets.