North East: 'Lack of security should not stifle development'

An absence of security headroom should not prevent housing associations from developing new homes, Social Housing’s north-east seminar heard.

The debate in Newcastle, hosted by Home Group on 4 December 2014, also raised the question of when the sector will ‘push back’ against low levels of grant subsidy.

Alex Gipson, social housing lending manager at Legal and General Investment Management, said ‘one challenging discussion’ with RPs at present is how far associations can take debt capacity in the future.

‘When do you turn off the tap; when do you push back on government and say actually there needs to be a greater balance of subsidy required for what ultimately is a subsidised product that you’re delivering?’ he said.

‘We very much view you as organisations in your own right, that at the moment benefit from government support. What we need to be comfortable with is that you can continue to do that, as invariably government strategy will change over time,’ he added.

Keith Loraine, chief executive of Isos Housing Group, questioned whether the government’s move towards equity investment rather than grant could lead to a regional differential across the country.

‘The reason Scotland has got high grant rates is because HAs refused to work at the punitive levels that are being suggested,’ he said.

‘We [in England] have never done that because there’s always been an association next door who would keep on taking the level further and further down because we’ve all been so keen on developing.

‘We’ve now got some associations working with no grant. I wonder whether that’s going to create a real regional differential; the HAs in the South creating huge wealth, the HAs in the North unable to do that, because we can’t create the margin on sales, or rents.’

Driving asset value

The seminar heard that the North East has a number of similarities to the Scottish market, where there is a lower gearing and debt per unit level, but very little unencumbered stock.

This raised the issue of lenders having ‘leverage’ by holding security on stock, and the need for commercial discussions which may result in a cost to unravel legacy restrictions and existing consents.

Heather Ashton, resources director at the newly formed Thirteen Group, asked investors for a view on the proposed consultation on the S133 restriction, which currently limits the loan security values of transferred properties to EUV-SH.

Mr Gipson said: ‘Absence of security should never stop you developing. The ability to develop or not is about how sustainable your business model is and as a result how sustainable is your income.

‘This isn’t development finance where there are lots of risks if they don’t sell, this is about you being able to deliver a product where there is real and growing rental demand.

‘To have a position where we fund you during construction ought to work very naturally for us.’

Click on the PDF below for more on the north-east event and to view the regional supplement in full.