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Coronavirus sparks cash-saving drive as associations prepare for income drop
Housing associations across the country are cancelling discretionary spending and reconsidering development pipelines in a bid to save cash in order to protect themselves against loss of income brought about by the coronavirus pandemic.
Several housing associations have outlined their cash conservation plans to Inside Housing, including mothballing new developments and limiting recruitment.
The move comes as associations ready themselves for a major increase in rent arrears, and a temporary freeze of the housing market.
In a note by Moody’s, the credit ratings agency forecasted lower market sales receipts and growth in unsold homes for associations in 2021, leading to a reduction in association surpluses.
It also predicted a major drop in rental income due to an increase in unemployment. Some associations have forecasted a 50% drop in rental income over the next six months.
Sovereign confirmed that it is are preserving funds by “limiting expenditure until such time as the wider picture becomes clearer”.
Tracey Barnes, chief financial officer at Sovereign, said that the 58,000-home association is expanding frontline teams during the outbreak but that these steps are being offset by actions in other areas of the business including reducing discretionary spend and non-essential maintenance, limiting recruitment and looking carefully at new development opportunities.
Ed Lunt, finance director at Sanctuary Group, said it had reduced spend in development and planned investment, and was planning prudently to ensure its ongoing stability and the long-term sustainability of its operations.
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Others including L&Q, Wrekin, Great Places and PA Housing, which own and maintain roughly 146,000 homes combined, issued stock market notes outlining cash-saving plans.
PA Housing said public health concerns meant it had “mothballed” new development schemes on site and had separately increased cash reserves as a contingency, while Wrekin and L&Q said they had stopped all discretionary spend and delayed capital expenditure plans.
Longhurst Group, which delivered 580 homes last year, said the changing housing market conditions meant it would review its uncommitted development programme and re-evaluate its pipeline schemes.
The association had not yet furloughed any of its staff but said that decision was under review.
Mark Spridgeon, director of finance at Radian, said that while it considered if furloughing could provide any benefits, it would focus on creating paid redeployment opportunities for its staff to maintain its workforce.
Other associations have been looking at how to raise increased finance in the short term.
Sovereign said it had a significant level of undrawn committed facilities that it could draw down and it was also exploring other finance options including the Bank of England Covid Corporate Financing Facility.
A2Dominion said it had £450m of undrawn committed loan facilities it could draw at short notice if required.
The move by associations mirrors the steps being taken by the private house builders, with several builders confirming last week that they would halt land purchases and cancel dividend payments to survive the economic downturn brought about by coronavirus.
Several associations announced last week that they were shutting down their construction sites to prevent further spread of COVID-19 despite government guidance saying they can remain open.
A spokesperson for Longhurst Group said: “The start of a capital major works programme, due to commence at the beginning of the new financial year, has been cancelled following government guidance on social distancing.”
Update at 10:28 08/04/20 story edited to clarify that PA Housing stopped new construction in the interest of public health and keeping staff, contractors and residents safe - not to save cash.
