Short-term, bad. Medium-term, might be bad. Long-term, unknown.
Funders are keen to keep calm and carry on building
That summed up one economist’s outlook at one of Europe’s biggest housing conferences, Housing 2016, held in Manchester this week.
Yet for a number of industry leaders and lenders at the Chartered Institute of Housing conference and exhibition, their message was even more succinct: keep calm and carry on building. As constitutional and economic crises fester, concern grows that investment and development will stall. Funders are keen that the shock doesn’t turn into a panic.
For one, they argue that the need for affordable housing and the appetite to fund it won’t change.
Tenants are not going to go away, the houses are not going to go away
Mark Davie, M&G Investments
Second, they don’t want to see housing associations hoarding cash. Saving for a rainy day is all very well – but not when there’s a hole in the roof and a storm raging outside.
Third, the spectre of the 2015 assault on housing associations still haunts the sector; falling short at the government’s hour of need is asking for trouble further down the line.
Ironically, with housebuilders’ obsession with share price and councils’ relative immaturity in the construction market, whoever leads the next government may find themselves relying on associations to pick up the pieces of its shattered delivery targets. So uncertainty might open up opportunity. In the very short-term, it could mean access to finance or hedging at very attractive rates – albeit for a limited time only.
Mark Davie, head of social housing at M&G Investments, which has over £5bn invested in social housing, told an audience on Tuesday that while “we have been on a rollercoaster” since Friday, gilt yields have fallen to historic lows.
The good news is housing rates have never been cheaper
“That’s good news for you if you want to borrow – rates have never been cheaper,” he said, making the point that “tenants are not going to go away, the houses are not going to go away”.
He added: “We may see some more shenanigans around value for money, rent cuts possibly – though I hope not – but the fundamentals of what the sector wants and what we want is not going to change.”
Meanwhile, the banks – which provide the vast majority of the sector’s £59bn drawn debt and since 2008 have switched their focus to shorter-term funding – have also been out in force at what is not traditionally a finance conference. They are keen to send the message that it’s business as usual.
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There will be questions, though, around cost of capital and what it could mean for borrowing costs, as well as questions for European-based banks that might not have UK infrastructure in place. The European Investment Bank is continuing with business as usual, but it is unclear how its EU member shareholders, which still include the UK, will respond to future investment here.
And there have been some immediate risks identified; credit rating agencies changing their stance on the UK, which has a knock-on for associations; exposure to the sales market; immediate concerns over financial instruments that leave associations “out of the money” as rates nosedive.
Housing market stays strong and focused
Fiona MacGregor, director of regulation at the Homes and Communities Agency, has been keen to reassure stakeholders, saying they have had “extraordinary assurance that people are on top of their own requirements”.
What’s key in all of this is that it remains the case that no funder has ever incurred a loss through default in this sector to date, and every stakeholder wants to keep that record intact.