Prime Minister David Cameron has vowed to boost home ownership as part of what he has called a “turnaround decade” in Britain.
Planning changes will have “starter homes” considered as affordable homes in section 106 agreements:– “a home owning revolution to ensure young people are able to buy their own homes” taking them …..“from generation rent to generation buy.”
There can be no doubt that housing associations now face the most fundamental and challenging environment for many years. In fact, in many cases it is not simply a case of re-engineering the business plan to survive rent cuts, but a question of fundamental review of the entire business model.
Hand in hand with this will be new challenges for funding a shifting business model, and changing attitudes from lenders and investors. This is compounded by the potential impact, if any of the ONS’ recent reclassification of housing associations as public corporations. There is talk of some providers considering de-registration and becoming private sector unregulated providers – an extreme but possible strategy, fraught with legal challenge and, above all else, almost certainly requiring consent from lenders, which will come at a cost.
Some may be considering de-risking a portion of their business by adopting unregulated charitable rents, and many will be considering how to respond to the gauntlet that has been thrown down by the government’s home ownership drive. Whatever the “survival” strategy, it will be even more important than ever to be able to demonstrate a coherent financial and business strategy to lenders and/or investors. They will want a convincing story, and to be sure that any business plan has been stress tested to breaking point with evidence of sufficient “what if” scenario planning whether that be when seeking new funding or simply proving that existing borrowing conditions can continue to be complied with. Departure into more commercial activities and a possibly greater level of joint venturing with the private sector will face even more extensive scrutiny and it is likely that lenders and investors will differentiate sector risk from individual risk to an even greater extent.
Aside from funding issues, there is already an accelerating climate of merger discussion and negotiation. The Cosmopolitan experience and the new regulatory governance standard, reminds us that proper due diligence on mergers is essential. Boards, there can be no excuses, if you are surprised at what you acquire or join.
The key to managing through the turmoil, will be focusing on risk, risk management and risk mitigation. After 35 years of managing complex financial deals and treasury management portfolios I know it’s rare for there to be no risk in business and housing associations are social businesses, more than ever, even if reclassification means they are public sector businesses. So, it’s down to how you mitigate your risks understand what risks are worth taking and are able to demonstrate to the outside world that you really do understand variables and their potential impact.