Housing Associations:Funding & Risks

In this presentation, we:

• Explain how Housing Associations are funding themselves

• Discuss investment opportunities• Identify potential risks

Housing Association

•What

• Purpose

• Profit?

• Social Housing Providers

Background

state support and bank loans

Financial crisis

government reducing spending

Funding vacuum

Investment Features

Inflation linked debt

Rental Income

Illiquidity

Government Support

Returns

England

Scotland

Wales

Northern Ireland

Housing Associations

178267

26

182

Property Income

Grants

Borrowings

Source of Income

Rental Income

Properties For Sale

Property Management Fees

Development Consultancy

Property Income

HCA (Homes and Communities Agency)SHG (Social Housing Grant)Available Fund

GLA (Greater London Authority)Responsibility?Aim?Grant Requirements?

Local Authorities

Grants

Banks

Government

Capital MarketsPension Funds

Borrowings

Contingency Planning

Investment in social housing

Benefit for long term investors• Cashflows• Yields

Benefit for Housing Association• large source of financing

Property Income• Rental Income• Service Charge Income• Properties For Sale• Property Management Fees• Lease Extensions• Development Consultancy

Revenue Grants• HCA • GLA• Local Authorities

Borrowings• Banks• Capital Markets

Source of Income

Rental Income• Leasehold Management –

service charge collection

• General Needs – charge rent

• Secured Homes Initiative – charge rent

• Retirement Housing

• General Needs Housing -

• Residential Care Homes

• Key worker accommodation

• Temporary Housing

• Shared Ownership

Social Housing Lettings1. General Needs

Housing2. Supported People

Contract Income

3. Key Worker Accommodation

4. Residential Care Homes

5. Temporary Housing 6. Shared Ownership

Social Housing LettingsResidential Care Homes

Providing accommodation and care to older people and people with learning difficulty

Temporary Housing

Short term accommodation for emergency homelessness

Shared Ownership

Where Association has sold part of the equity in the home to the occupier and charges rent on the remaining share retained by the association.

Great Source of IncomeGreat control over Arrears (Arrears get bank to pay it and they will add it to the mortgage)More power to Landlord (can evict under S21 1988 Act)

Non-Social Housing LettingsStudent Accommodation

Majority International students, great source of income, very willing to pay upfront for little discount e.g. 9 months upfront rent payment for 5% off rent.This gives landlords more security in terms of security and enables more accurate forecasts.

Nursing Homes

Homes registered under section 3 of the “Care Standards Act 2000” and provide accommodation and care to older people and people with learning difficulties. -Usually located close to hospitals-on contract with hospitals-reliable income-great impact if contract cancelled

Day Care Centres

Providing day services to older people and people with dementia-to maintain “social landlord status”-have access to government grants-low income source but a requirement to receive grants

Funding from own reserves•Shared OwnershipWhere part of the equity is sold on lease and resident pays rent on the rest of the property• Selling existing properties• Recycled Capital Grant Fund

Risk Analysis

Grants•Homes and Community Agency (HCA)Social Housing Grant (SHG) are received from Homes and Communities Agency (HCA) and it is used to reduce the original capital costs of housing properties. The amount of SHG receivable is calculated on a fixed basis depending on size, location, type of property and the amount received from HCA.

•Great London Authority (GLA)

Borrowings – VA Housing

•Credit facilities of £450m •£378m had been drawn down•Available credit facilities £72m (£2m unsecured & £2 Overdraft facilities) •Revaluation of certain loans arising from historic aquisitions

•Funding Sources

•Loans•Bonds

16%

84%

Funding Sources

Capital Market Bank

Building more Affordable Homes