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Published byMarvin Daniels Modified over 9 years ago
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Successful places with homes and jobs A NATIONAL AGENCY WORKING LOCALLY The regulator’s view of the sector Matthew Bailes Director of Regulation, HCA
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Overview The Regulator’s overall view of sector finances Sector-wide risks What we mean by diversification – what’s different? When things go wrong Changes to the Regulatory Framework and how we regulate What do we want to see?
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Sector finances are healthy… Healthy balance sheet Assets worth £118bn, largely valued at cost Growing surpluses - £1.8bn in 2012 Access to funding at competitive rates, increasingly through the capital markets Available security, albeit not evenly distributed Position will be pretty stable in next global accounts
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.. but thanks in part to unusually benign conditions Very low variable interest rates (1% on variable rate debt is worth c.£200m/annum) Healthy profits from sales in a more buoyant market (profits from sales account for about 1/3 of the sector’s surplus) RPI (rents) rising faster than wages
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Historical perspective (base rates)
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Historical perspective (house prices: earnings)
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Put another way… The sector is in good shape But we can’t bank on current good weather forever
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Sector risks Second sector risk profile published September 2013 Welfare reform –Under-occupation –Benefit cap –Direct payment –Net effect of welfare changes – how will tenants behave? –What’s round the corner? Historic debt and gearing covenants, in a world in which lenders are losing money on pre-credit crunch deals Sales and development risks IFRS, pensions and, for some, loss of rent convergence
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Diversification Exists already, but now driven by end of “vanilla” option Diversification of activities and funding Risk profile of activities varies considerably, e.g: –High turnover, low margin, limited liabilities –long-term liabilities that rely on non-social housing revenues –Exposure on sales receipts Our interest lies in the potential recourse to social housing assets
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When things go wrong Weak internal controls – including on basics Lack of understanding of risk in aggregate Treasury management, including putting in place security Understanding of charity law, including pricing of risk Non-recourse activity that isn’t really non-recourse Poor judgement / inadequate advice Complacency and the case for Board renewal
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Likely Regulatory Framework changes Stress-testing of businesses – e.g. higher interest rate / sales risk scenario Forensic grip of assets and liabilities, including recourse to social housing assets Appropriate pricing of risk, in line with charitable vires/investment powers where appropriate Skills and capability that measure up to market exposures Specific provisions for new for-profit providers
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What do we want to see? Underlying premise – Boards as custodians of assets for long- term provision of community benefits, accountable for meeting our standards Prudent risk taking to meet your objectives, including on new supply Strategic choices grounded in commercial and financial realities Iron grip on risks, and strategy for dealing with a more difficult market Value for money to enable you to continue to meet your objectives. Absolutely not an add on / nice to have Don’t lose sight of the basics – e.g. gas servicing
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Or as George would say… “Fix the roof when the sun is shining.....”
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