The financial position of many providers has deteriorated, and this has been reflected in lower credit ratings. With the median housing association now graded A-, there is a concern that increasing debt and reduced interest cover will result in a further downgrade into the BBB range. In this context, associations have a number of strategic options:

• Accepting that the viability to build will require the organisation’s credit rating to fall into the BBB band, and engaging with institutions who are prepared to invest in BBB-rated entities

• Deciding that it is not necessary for the organisation to own all of the homes that it manages and using equity investment to increase the rate of development

• Taking a more proactive approach to asset management, with a larger programme of stock disposals, both to raise funds to support the development of new homes to a high standard of energy efficiency, as well as reducing running costs for tenants and maintenance expenditure for the landlord.

These options come with risks that will need to be managed. While there will still be demand from investors for housing association debt at BBB, this will increase the cost of capital. Relationships with existing investors facing higher capital requirements may also be strained.

Not owning the assets could reduce the connection between an association and the communities in which it operates, while there is also a risk that the investor will transfer management of the portfolio to another provider, or take it in house, at the end of the initial contract. This may be mitigated through the use of a partnership model in which the assets are jointly owned by the RP and the investor. THFC is interested in exploring such partnerships to support the development of more affordable homes.

The sale of existing homes outside the sector could adversely affect the reputation of the organisation with key stakeholders, including local authorities and the regulator. To avoid this, associations could pursue a programme of ethical disposals, in which homes are only sold to first-time buyers, who can use “sweat equity” to improve the standard of their property more cheaply than a social landlord.

Whichever combination of these options is chosen, associations need an ongoing programme of efficiency improvements to maximise their financial capacity, while encouraging innovation to improve service quality and get closer to their customers.

The conference highlighted both the extent of unmet housing need and the need for new strategies and funding models to provide the capacity to meet that need. In response to this, THFC is focused on forming new partnerships between investors and housing providers, while unlocking new forms of private capital and creating new financial solutions. Meanwhile, our intelligence and advisory business HRS is helping associations to understand their capacity and to choose the right strategic options to maximise their delivery of new affordable homes. While there are many challenges, the time to work together to tackle the housing crisis is now.