If you ask any Chief Executive what they would like their organisation to be in the next few years the chances are they will answer with one of the following. 1) To be bigger 2) To be more efficient 3) to have a more diverse portfolio in order to spread risk and maximise income. The last week or so has shown that such ambitions are not easy to fulfil in the current operating climate.
Our first example is a small organisation (if you have under 5,000 properties you are small) in the North West, Venture Housing, an organisation now with the dubious honour of joining Cosmopolitan by getting both a G4 and V4 from the HCA. It also appears that both the board and executive have failed in their responsibilities to control the finances of the social landlord despite warnings from the regulator. Having worked for an organisation twice the size, but still small in general terms, I can appreciate budgets are relatively tight. However, just as we advise customers when things get tough for them, spend within your means, if you can’t afford to borrow it, don’t. And whilst welfare reforms, budget cuts and the continued economic squeeze have made things tricky, as a sector we still get 50% + of our income direct to us. So to mess up this badly means something has seriously gone wrong. For the sake of the customers, staff and the sector in general I hope the issues involving Venture can be resolved soon.
At the other end of the spectrum some interesting news has come out of one of the big hitters in social housing. Sanctuary, the 95,000 property behemoth has published its financial statement for 2013/14. Apart from the usual utterly tedious and dry figures is the admission that the housing association’s debt to asset ratio, I believe the technical term is ‘gearing’, stands at 95%*. To someone who has very little knowledge around all things finance that is sodding huge. Though I do concede that it is ability to service debt that is the key issue here, something that does not seem to be in any doubt. Of greater interest to me is the reason for the increase. Inside Housing have cited the landlord going to the private sector to fund its development programme as the prime cause for the high gearing. This is unsurprising due to the massive drop off in capital grant available for building new homes. If central government ain’t good for it, and you want to build it, you gotta go private. That means borrowing against what you own. In the future it is plausible that a number of the bigger organisations follow suit. Particularly as they largely shunned the last round of funding, much to Brandon Lewis’s delight.
It will be interesting to see how the sector will realign its financing. For me mortgaging yourself up to the hilt is only manageable for the short term You may manage to create some self-fulfilling growth but it is a potentially risky, almost reckless approach. Fundamentally you can be creative as you like but to have truly affordable (i.e. social) housing you need central government grant or at least access to cheap credit somewhere in the mix. You can make grant funding go further with additional private finance, something we have done as a sector since the 1980s. You can be more efficient at what you do and the way in which you provide your services, something we don’t always manage. But you need some of that good old home brewed capital grant to make the figures stack in the long run.
Ultimately one must find that Goldilocks moment (don’t worry I was always going to fit it in), where the risks are not too great/hot, or the rewards too cold (sorry), and the means to achieve your ambitions all fit (just right). Yes we should never accept the mediocre, and certainly mustn’t throw the towel in over fighting against the reduce level of funding. But we also need to balance what we can achieve with the means at our disposal. Otherwise you might just find the HCA knocking on your door.
*Correction 15/10/14 Reliable sources have stated this figure could be nearer 85%.