COMMERCIALISATIONINHOUSING
WELCOME
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Opening remarks from the Chair
Stuart MacdonaldEditor, Inside Housing
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Matthew BailesDirector of RegulationHomes and Communities Agency
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Financial strength of the Sector
A changing market – future risks
What is the regulator’s interest?
What do we want to see?
Perspective of the social housing regulator
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Year£ billions 2009 2010 2011 2012Income and Expenditure AccountIncome 11.6 12.3 12.6 13.8 Costs (9.9) (10.1) (9.9) (10.5)Operating Surplus 1.6 2.2 2.7 3.2
Profit on sale of Fixed Assets 0.3 0.3 0.3 0.5 Other Items 0.3 0.1 0.2 0.4 Interest Payable (2.1) (2.0) (2.1) (2.4)Surplus for Year 0.2 0.6 1.1 1.8
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YearBalance Sheet 2009 2010 2011 2012Housing Properties at Cost or Valuation 94.6 100.9 109.4 118.6 Grant (37.4) (40.4) (43.2) (43.8)Depreciation (2.4) (2.9) (3.5) (6.8)Net Book Value of Properties 54.8 57.5 62.7 68.0
Other Fixed Assets 2.6 2.9 2.7 3.2 Net Current Assets 2.5 1.4 2.2 2.1
Total Assets Less Current Liabilities 59.9 61.8 67.6 73.2
Long Term Loans 39.5 42.2 44.4 47.9 Other Creditors and Provisions 4.3 4.1 4.9 4.7 Reserves 16.1 15.5 18.4 20.7 Financing and Reserves 59.9 61.8 67.6 73.2
Balance Sheet
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Second sector risk profile published September 2013 Welfare reform
Diversification within the sector– of activities
– of business structures
– for profit entrants
– commercialisation of traditional sector
Rents post 2015 Sales and development risks
Sector risks
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We are the social housing regulator
It is not our job to tell independent providers what to do, or what not to do
It is our job to protect tenants and taxpayers, and help support the supply of social housing.
We will do this by protecting the social housing assets
Therefore our interest lies in the relationship between social housing and non-social housing activity.
Diverse activities – the regulator’s interest
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Compliance with our economic standards Limited recourse to social housing assets. This might,
for example, mean holding the assets off-balance sheet, and securing debt on assets held for commercial activities not social homes.
Board level grip on opportunities and risks, with sensitivity analysis
Appropriate pricing of risk Structure in line with charitable vires, with commercial
activity to x-subsidise charitable objects, not the other way round
What do we want to see?
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Strong response to discussion document Sector and its lenders get the problem…. ...but providers in particular concerned about ring-fencing Our response?
– No change in determination to protect assets
– Always our view that risk is inevitable if new homes are to be built. Issue is the potential level of recourse to the assets
– Need for providers to understand level of recourse.
– Stress-testing of businesses to ensure they can withstand the most serious challenges
Conversation continues over the Autumn
Future development of the regulatory framework
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Afzal IsmailExecutive Director Service Matters (Orbit Group)
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Organised by: Sponsored by:Julian BeaneyBusiness Services Director
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Victoria JardinePartnerAnthony Collins Solicitors
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RPs: between a rock and a hard place
• Regulatory success: social housing assets are protected
• Commercial success: make lots of money
• “Safe” middle ground: identify and manage risks of commercial activities to achieve an appropriate return whilst ensuring social housing assets are not put at risk
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Regulatory / charity law position on diversification
• “Primary purpose”
• Investment
• Trading (for profit):• Low / no risk• Tax implications (for a charity)
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Managing risk
• Deliver outside the RP?• Funding/ers• Procurement• Governance• Intra-group support
• Deliver outside the Group?• Joint venturing / cost sharing• On/off balance sheet• New sources of external funding
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Back to basics: strategic questions
• What is your motivation?
• What is your market?
• What are the resourcing requirements?
• What are your challenges?
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Plan for success as well as failure
• How do you measure it?
• What are the key indicators?
• What are the risks of failure and success?
• What do you do when you get there?
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Getting off to the right start
• Executive team “ownership”• Board engaged, informed and supportive• Appropriate(ly robust) external advice• Corporate structure aligned• key resources designated• Implementation plan in place• Contingency planning done• Rigorous and risk-focussed ongoing monitoring• Exit strategy agreed
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QUESTIONS &ANSWERS
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Closing remarks from the Chair
Stuart Macdonald Editor, Inside Housing
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THANKYOU
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the webinar is now closed
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