As finance teams plan for the new year ahead, Maame-Yaa Bempah of Notting Hill Genesis outlines six top risks housing associations should keep front of mind
As we begin 2021 looking ahead to the financial outlook for housing associations, it is clear that the challenges we will face as a result of the COVID-19 pandemic are likely to have far-reaching implications, both for our own internal resources and for those of our residents.
How housing associations such as Notting Hill Genesis (NHG) manage long-term funding requirements and balance this against managing the risk profile of our organisations is crucial to our success, as we navigate our way through these turbulent times.
These are the top six risks that we as social housing providers should have at the forefront of our minds at the start of this new calendar year.
1. Crisis management
In the short to medium term, housing providers need to be acutely aware of managing risks associated with COVID-19, some of which have yet to emerge.
At the start of the health crisis, a core group of staff from across NHG convened to pre-empt and successfully manage delivery of all our resident services and back-office activities. With the government vaccination programme now under way and as we arise from the depths of the pandemic, continuing to keep core services available and supporting residents should be a key focus.
Maintaining a suite of KPIs to monitor issues and events that could destabilise the organisation helps to provide clarity on our current status.
2. Building and fire safety
Since the Grenfell tragedy in 2017, enhanced building safety regulations have been introduced, particularly related to cladding and tall buildings, meaning housing associations are facing increased financial pressure. The support available from government via the £1.6bn Building Safety Fund has been heavily oversubscribed, meaning the likelihood of associations needing to remediate at their own cost is high.
Furthermore, outcomes from the recently published Social Housing White Paper, particularly in relation to the Decent Homes Standard review scheduled to take place later this year, may result in further unplanned spending. Stress-testing business plans for the potential additional investment in new building and fire safety requirements and increasing property quality is likely to help mitigate this risk.
3. Tenant engagement
As a result of the pandemic, many residents are suffering from reduced income, food shortages and social isolation, which impact general health and well-being. Now more than ever it is crucial that associations continue to provide a compassionate and dependable service to our residents.
Furthermore, the Regulator of Social Housing has quite rightly emphasised the importance of the voice of social housing tenants and making sure their landlords listen to them.
Housing associations such as NHG aim to provide safe and secure homes coupled with high-quality services to our residents, while resolving issues early and addressing complaints on a timely basis. Managing reputational risks that could arise on those occasions where things go wrong should be embedded in all operations across the sector.
The digital platform NHG has developed, WorkWise, allows residents to interact with us, as and when they like. Becoming more digital and automating repetitive tasks releases resources, allowing associations to provide better, more personalised services.
The pandemic has accelerated these digital ambitions and we anticipate exploring more automation in future. As this shift in engagement takes place, some residents will be less able to move with us. We must adapt and maintain our relationship with residents through new communication channels, developing these in collaboration with our residents to minimise the risk of failure, in addition to the service provided by our patch-based housing officers.
5. ESG and sustainable funding
Over the past few decades, total investment in social/affordable housing has decreased. Nearly 4.5 million social homes were built in the 35 years following the end of World War II, compared with the fewer than 500,000 affordable homes expected across the various 2016-2026 Affordable Homes Programmes.
Registered providers are well versed in sourcing finance, including accessing the capital markets and private placements. However, we must continue to innovate to attract new investors, remain competitive and increase sustainability. More recently, investors have been seeking to partner with those who can demonstrate that their money has a positive social impact.
In the social housing sector, associations must balance their need for funding against their ability to demonstrate these credentials. Approaches include the ‘Sustainability Reporting Standard for Social Housing’ for environmental, social and governance (ESG), through which signed-up associations will voluntarily report their delivery against criteria including affordability, fire safety and net zero-carbon targets, among others.
6. Valuations and impairment
For associations committed to developing more affordable new homes and those developing properties for sale, there is greater uncertainty over a number of variables related to construction, including costs to completion, social distancing on sites impacting delivery timetables, the carrying value of the stock itself, and future sales values.
Both Brexit and the COVID-19 pandemic have contributed to the uncertainty around valuations and impairment, which usually crystallises at each financial year-end. Again, scenario-testing different valuation shifts and impairment charges in the business plan should help mitigate the impact.
Risk management remains a key focus for 2021. Housing associations are attractive partners for investors seeking long-term returns as their liquidity requirements are complementary to our revenue streams.
Provided social housing providers can demonstrate our capability, competence and clarity around our future plans, particularly around the number of homes we are able to build and how we provide support to our existing tenant base, we should be able to mitigate these risks effectively.
Maame-Yaa Bempah, financial services director, Notting Hill Genesis