Counting the cost

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.