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The financial world has become concerned over a perceived economic output gap.

The argument is over just how much of the economy has been permanently lost – for example, factories which have been bulldozed, and skills lost through long-term unemployment.

If it is perhaps 10 per cent of the economy, as believed by Goldman Sachs, there’s a big problem. Because once demand starts picking up, there won’t be enough capacity to meet it and so we’ll get price inflation. This is what happened after the recession of the early 1990s. Although growth was very subdued inflation wouldn’t go away because so much capacity had been lost.

But the gap could be much less, perhaps 5 per cent or less, as believed by the Bank of England. That’s because they think businesses have been good at being flexible – short hours, moth-balling facilities etc. So capacity would be ready and waiting to take up the slack when demand picks up.

Who’s right? No-one knows.

Although it may seem esoteric, RSL directors should keep an eye on the issue.

How have your local building & services contractors, and their sub-contractors, adapted to the downturn?

If many are closing down, there will be a squeeze on capacity and upward pressure on prices when the recovery comes. For those in the social housing sector who are trying to set five-year business plans, this could result in a significant change in costs.

However, if contractors are able to be flexible and turn out to be survivors, price competition will remain strong and this will hold down inflation – meaning RSLs will have more spare cash to play with.

The economic output gap could therefore present a major uncertainty for the sector’s business planning.

So now we know – the answer is -0.9 per cent.

The question, of course, was ‘What change in rents will RSLs be able to implement in 2010/11?’

After the dire predictions, which maxed out at around -3 per cent, this change is relatively marginal. Very few RSLs will be significantly affected, and those that are were probably sailing too close to the wind in the first place.

However, as usual in the affordable housing business, things aren’t quite as simple as they seem at first sight. Rent levels are tied into legal agreements such as loan covenants, making even a marginal reduction in rental income a potential headache for some.

As our news story this month highlights, this means some RSLs risk re-pricing of their borrowing deals. And cross-cutting agreements mean that one default is often sufficient to trigger defaults across the association’s entire portfolio.

Even those which are precipitated into this situation should however be able to re-negotiate terms. It’s fortunate that margins have been dropping in recent weeks, with lending competition picking up once more.

This year’s political party conference season was dominated by Labour’s disappointment at losing the support of The Sun newspaper. So should Social Housing magazine seek to advise our readers which political party to vote for, based on their affordable housing strategies?

Don’t worry - you won’t be seeing those banner headlines any time soon. Housing has still not crept up the agenda sufficiently to rival education or health, and there’s a clear lack of good candidates offering detailed housing policy proposals.

Traditionally the Labour Party has been the supporter of more affordable homes and improved services. But the speeches in Brighton fuelled a growing sense of unreality: promises of higher spending on education and social services were not accompanied by corresponding proposals for cost reductions or tax increases.

The Conservatives highlighted the need to reduce public expenditure to meet the economic situation, while wishing to encourage the construction industry and local authorities to build more, using less grant. Inevitably that implies an increase in home ownership initiatives rather than renting, and there was no mention of how mortgages could be made available for people with small deposits. The bribe to councils to build more was a multiple of council tax to support infrastructure costs. The maths to this doesn’t seem to be well thought through as rents are unlikely to cover the construction costs. There was mention of reforming housing benefit but little about the way forward.

The Liberal Democrats’ ‘mansion tax’ sounded unworkable. They too emphasised the need to cut costs, although a long list of exemptions threatened to compromise this.

The challenge for all parties will be to maintain at least part of the social housing programme in what are set to be difficult financial times. Public pressure and intelligent debate about the options in detail will go much further than this year’s hackneyed party conference rhetoric.

We are now a year on from the collapse of Lehman Brothers, which triggered international financial instability and heralded a new and vicious phase of the global downturn. Markets have begun to stabilise as the last of the after-shocks die away, and so it's an appropriate time to review the impact on the social housing sector.

The first blow was an epic plunge in equities values, with the Stock Market going through the floor just in time for the triennial Social Housing Pension Scheme valuation. This resulted in its net deficit more than doubling to £663 million. Housing associations are now feeling the consequences with increased contribution rates and changes to scheme benefits. They will have to live with this situation until the next valuation in 2011.

The second consequence to hit the sector was funders' renewed reluctance to lend. By Christmas, the Homes & Communities Agency had recognised that lenders' confidence in the sector could be boosted by an injection of additional development funding while Peter Marsh warned the Department for Communities & Local Government select committee of the danger of RSL covenant breaches.

In view of these problems and international markets' ongoing gloom, the steady success of RSL bond issues was a ray of light. Investors sought reliable, long-term offers and the housing sector proved just the ticket.

By March this year the Stock Market was bottoming out and housing associations prepared their year-end accounts with write-downs in mind. 'Impairment' was the word on everyone's lips.

Whether the US government was right to choose not to step in and rescue Lehmans is something that will be argued over for many years. In the social housing sector, the HCA's decision to leap in the other direction by providing additional finance to prop up RSL balance sheets has similarly attracted debate. It is unquestionably true that the agency's support has smoothed RSLs' path through the ongoing economic hurricane. But with public funding set to fall significantly in future years, this isn't an option that will be available again. The sector must hope that the HCA's one-off cash injection proves sufficient.

Much has been made in recent weeks of signs of stabilisation in the housing market, and even - whisper it! - a nascent recovery.

But a recent analysis of America's housing market in the Economist suggests that the current emergent upswing is a purely short-term feature, and further price falls of 5-10% are anticipated, bottoming out sometime next year.

Given the similarities between the markets in the USA and Britain, what conclusions can we draw about the prospects for our housing market?

Factors identified by the Economist as undermining the US upswing include rising joblessness, fragile consumer confidence, a shortage of mortgage finance and rising mortgage interest rates, the supply glut (which the Economist predicts will be fuelled by a continued high level of repossessions), and a shortage of buyers (worsened by negative equity). Any perceived improvement in house prices is likely to result in an influx of new sellers to the market - people who have been holding off until they scented a recovery. This 'shadow inventory', as the Economist calls it, could trigger a negative feedback loop in the property market.

Most of these factors are definitely also relevant to the UK housing market.

The Economist also warns that the end of the 'ever-increasing prices' myth will result in a much more cautious environment in the medium- to long-term, even after any recovery has properly kicked in.

It's pleasant for newspapers to be able to fill summer-season space with good-news stories of housing market recovery, but developing housing associations would do well to heed the Economist's warning and not get carried away just yet.