How would the sector cope with a ‘no deal’ Brexit?

The risk of market sale to the sector overall can be overstated. While 13,000 open market units are forecast in the next 18 months, this is concentrated in around 25 of the largest providers. Many have no exposure.

Jeanne Harrison, vice-president at credit agency Moody’s, says associations in London and the South East with “the highest exposure to market sales” would be “most at risk”.

“In a downturn, it’s very hard to get new money from banks, and so you would want to have a
decent amount of term on your [loans] now to be able to get through that instability.” - Peter Denton, finance director, Hyde

But what may be of wider concern is shared ownership. There are 30,000 such units planned over the next 18 months – almost double the 17,700 built in the previous period – across a much wider class of providers, both in size and geography.

Shared ownership may be vulnerable in a downturn. It is open to buyers with lower incomes who are more economically precarious.

The first solution is to switch housing planned for sale to social rented.

As Mr Montague says: “In the short term, housing associations will deal with a market slowdown by converting tenure and holding more stock on their balance sheets.”

But this approach costs money – there is less immediate profit from social rent, even if it pays out over the long term, and debts need to be serviced. Mr Montague adds: “This approach is not sustainable forever. As balance sheet capacity is spent, fresh commitments become more challenging. We are ambitious, but our balance sheet capacity is finite.”

Eyes then turn to the government to inject more cash. “If there was a housing crash, then we would need to have a conversation with government about using grant in a counter-cyclical way,” says Mr Hackett. “On rented homes, we would need around 50% of cost on new builds [in grant]. We would be saying at least 50%.”

“It goes without saying that in the worst-case scenario we will have to think about future commitments.” - David Montague, chief executive, L&Q

This would be higher if shared ownership was taken out of the picture as well, he said.

To an extent, this message appears to have landed. Speaking to Inside Housing at the HOMES 2018 conference last week, housing minister Kit Malthouse said: “I had a delegation from the G15 see me and they were sensitive about London in particular, and I said to them… that it would be foolish not to keep it under review.”

But this is not a firm commitment, and Mr Malthouse does not hold the purse strings. In a no-deal downturn, all departments would call on the Treasury for funds. As Ms Harrison says: “Government support for associations... could also decline if the public finances are stretched as the government attempts to mitigate the broader impact of a no-deal Brexit.”

Housing is the government’s stated “number one” domestic priority. But who would lead government in a no-deal scenario is another uncertainty.

Raising debt could also become difficult. “In a downturn, it’s very hard to get new money from banks, and so you would want to have a decent amount of term on your [loans] now to be able to get through that instability,” says Peter Denton, group finance director at Hyde.

Many housing associations have, as a result, been taking on additional liquidity. We may find out if this is enough in March.

“Government support for associations could also decline if the public finances are stretched as the government attempts to mitigate the broader impact of a no-deal Brexit.” - Jeanne Harrison, vice-president, Moody’s

In addition, building materials are imported to the tune of £10bn per year. A falling pound would make them more expensive. A no-deal Brexit may mean they sit in a lorry park. We have not been stockpiling.

Moreover perhaps, the labour market has been a headwind on building for many years. Figures from the Home Builders Federation show 19.7% of workers on building sites are from overseas across the country, rising to 56.3% in London. The sector simply could not cope with such a sudden loss of capacity – should a future immigration deal keep many prospective workers out.

While large developers exposed to the London market are most at risk, it is not to say others are entirely safe. Analysts point, for example, to the impact on housing associations focused on a single geographic area where a local economy might be vulnerable – as a result, for example, of a car factory closing down.

These are just some of the questions. There are many sector figures hopeful that we don’t have to find out the answers.