Policy differences to widen credit gap among U.K. housing associations
English housing associations’ credit strength could increasingly diverge from their counterparts in Wales and Scotland because recent government policy changes have created a more challenging business environment for the sector in England, Moody’s Public Sector Europe (MPSE) said in a report.
“The English policy environment has abruptly deviated from the policy stances taken by the Welsh Assembly and the Scottish Parliament,” said Roshana Arasaratnam, author of the report. “The shift in policy direction, particularly in relation to rent setting, will create a more challenging business environment for English housing associations, compared to that in Wales or Scotland.”
Government policy towards social housing providers is a key rating driver because it shapes the operating environment in which housing associations make their strategic decisions.
In July’s budget, the UK government announced a 1% annual reduction in English social housing rent for four years, reversing the previous 10-year formula which set rents annually at the Consumer Price Index (CPI) measure of inflation plus 1%.
Other UK government policies and announcements, such as ongoing welfare reforms, the extension of the “Right to Buy” scheme and proposals for higher earning social housing tenants to pay market rent rates, have already created a more challenging environment for housing associations in England.
The budget announcement highlighted the different policy choices being made locally in England, Scotland and Wales with regard to rent setting, capital grants and welfare reform. Social housing providers’ borrowing needs are shaped by the response of individual associations to different policy frameworks.
Debt levels have been increasing in all three regions, with declining capital grants and strong investor demand for long-dated bonds fuelling the accessing of capital markets. English housing associations are expected to continue accessing the capital markets directly, while Scottish and Welsh housing providers are anticipated to display a more muted appetite for bond issuance due to their lower funding needs.
While regional regulatory frameworks share similar objectives, the English regulator faces a more challenging operating environment, Moody’s concluded.