Housing sector in strong financial shape but providers warned of risks
Published by Max Salsbury for 24dash.com in Housing and also in Central Government, Finance
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The social housing sector is in strong financial health but providers need to understand and manage an "increasing range of risks", according to the Homes and Communities Agency's 2013 global accounts of housing providers.
Published today, the data shows that the sector continues to benefit from historically low interest rates; has improved its operating margin on its core rental business; and has recorded a robust performance in its sales activity.
However, the HCA has warned that housing providers need to be prepared for "changing economic conditions and potentially adverse changes to the operating environment".
The accounts show that the sector grew its asset base and recorded an aggregate surplus of £1.9 billion in 2013 - a £0.1bn (9%) increase.
The increase in surplus was achieved through a combination of increased turnover attributable to inflation linked rent increases and improved operating margins, offsetting additional interest costs associated with increased debt levels.
In total, reserves increased by £2.7bn to £23.3bn, and the total net book value of the sector’s fixed assets increased by £5.2bn to £76.4bn.
As of March 2013, the housing sector had re-invested 82% of its total reserves into its fixed asset base, which included spending on new supply and improvements to existing stock.
And, the accounts reveal, providers continue to raise the significant levels of debt required to deliver their planned growth and continue to represent a good credit risk for investors.
Total debt increased by £3.6bn to more than £52bn. The sector is increasingly accessing bond markets with £3.2bn of bonds issued in 2013, representing over two thirds of the total value of new debt facilities arranged.
Matthew Bailes, HCA’s director of regulation, said: “The accounts illustrate that the strong performance of the sector in 2011-12 has continued into 2012-13.
"However, the sector’s continued strong financial performance will be dependent on providers effectively managing a range of risks. While the sector continues to perform well, low interest rates play an important role in these figures, so providers need to ensure that they can manage higher costs of debt and any impact on sales if and when interest rates go up. And the sector must manage the risks arising from an increased level of development activity that will largely be funded through debt and cross-subsidy from sales.
“The sector needs to be prepared for changing economic conditions and potentially adverse changes to the operating environment – it is vital that boards effectively manage and mitigate an increasingly broad range of risk exposures. They need to understand interrelated risks and have strategies in place to deal with the financial impact of multiple risks crystallising at the same time.
"Providers must deliver, and demonstrate, continuous improvement in value for money in order to meet the challenges of the future.
“Looking forward, the 2013 Global Accounts also include an annex on value for money. This is the first year that providers have had to include value for money in their self-assessments, and that was reflected in our approach. Next year we will raise the bar considerably. The commentary in this annex should help providers prepare for this.”