David Montague's February 2012 round-up
Mar 08 2012
February saw more trouble in Europe, with Italy, Spain, Portugal and other eurozone nations having their credit ratings lowered by Moody's. At the same time Moody's placed France, Austria and Britain on "negative outlook", which implies there is a 30% chance of a downgrade in the next 18 months.
Negative outlook for the housing sector?
As a direct consequence of Britain’s ‘negative outlook’ all 14 housing associations which are rated by Moody’s, one of which is L&Q, were also downgraded from stable to negative. Moody’s justified this move by referring to the close linkage between risks the government is facing and social landlords which receive government funds.
What does this mean for the sector?
First, it is important to stress that the ratings of individual housing associations have not changed, but our fate is closely linked to that of the nation - if Britain loses its coveted ‘AAA’ status, housing association ratings will also be affected.
If this happens, it is possible that it will cost more for housing associations to borrow. But everything is relative. Investors need a safe place for their money, and you don’t get much safer than a housing association.
Over the last four years, since the collapse of the American banking system in 2008 and the global turmoil which followed, housing associations have proven to be resilient, creative and uniquely placed to respond to the housing crisis.
Take a look at the Tenant Services Authority’s global accounts which bring together the results of the sector into one statement. Since 2008:
- Our operating margins have increased, management costs have reduced and surpluses have grown.
- We have used our surpluses, combined with an increase in borrowing, to build more affordable homes, with our housing stock growing from 2.32 million in 2008 to 2.62 million in 2012.
- We have met the Decent Homes Standard in full, and without government assistance.
- Resident satisfaction has increased year on year, from 78% in 2008 to 83% in 2011. The UK Customer Satisfaction Index sets the bar for 'world class' satisfaction at 80%. There is always plenty that we can improve upon, but world class satisfaction is not a bad place to start!
What other sector can boast this track record during the most challenging economic climate in living memory, and where would you rather invest?
Profits and social purpose
February was also the month when A4E, a private "social purpose company with the sole aim to improve people’s lives", found itself in the headlines. Of particular interest to the media was A4E boss Emma Harrisons’ £8.6 million dividend payment and the money she received from the company as a result of leasing properties which she owned or controlled.
The question on my mind, and no doubt on the mind of others when reading these headlines was "could it happen here?". Does A4E, as a non government organisation undertaking work of a public nature, occupy the same space as housing associations? And what does this mean for the future of social enterprise?
There are a number of key differences between private "social purpose" companies and housing associations. The vast majority of housing associations, L&Q included, are bound by their charitable rules or their status as an Industrial and Provident Society not to distribute their profits to shareholders.
Contrasting this position with A4E, Emma Harrison owned around 85% of the company and so was legally entitled to take 85% of the profit. As the Chief Executive of L&Q, I don’t have any shares, I don’t get paid a dividend (and nor does anyone else), our assets are held ‘in trust’ and every penny of our surplus is committed to more and better homes, better services and better neighbourhoods.
One other key difference is that housing associations are regulated, and if we get viability or governance wrong we will face regulatory action, and this could include replacing the management team or sacking the board.
Whatever the outcome of the A4E episode we are unlikely to see a return to the glory days of government investment for some time, and this must mean that social enterprises such as housing associations are supported and encouraged to thrive. But we will only see this if we can maintain the trust and confidence of our stakeholders, and that requires openness, transparency and a set of values which we all take personal responsibility for upholding.
Also in February
- I had brunch with Boris Johnson to discuss how L&Q can work with a small number of large London based businesses to tackle homelessness in the capital.
- I met with the Chair and Chief Executive of the Northern Ireland Housing Executive who own and manage around 90,000 social rented homes in Northern Ireland. Many of the challenges and opportunities they face are the same as us, so there is a lot we can learn from each other.
- I attended a meeting between G15 colleagues and civil servants to help us understand the way that government investment decisions are made. If we can speak the same language as the Treasury, maybe we can have a better conversation!
- I attended a fascinating discussion on future housing policy for London with Hilary Benn, shadow secretary of state for communities and local government, Sir Robin Wales, Mayor of Newham, and Anne Power, economic guru at the London School of Economics. Sir Robin shared with us photographs of sheds and roofless, derelict houses where dozens of people were living in overcrowded and inhuman conditions and paying a market rent for the pleasure. Anne Power shared with us the experiences of nations who had depended too heavily on home ownership, including Ireland, Spain and Greece. And Hillary Benn spoke with great passion about the need to connect new housing development with real people – our children, our friends, our neighbours.
- I spoke at a seminar on governance. It might sound a bit dry, but we had a really good discussion on the demands which are being placed on the boards of housing associations at a time of massive change and increasing risk; how board members could stay in touch with a rapidly changing world without treading on the toes of their trusted officers, and how the private sector board model compares with the model which most housing associations use.
- And I attended a meeting between housing associations and civil servants to discuss the impact of welfare reform on our residents. While most housing associations support the need for radical simplification of the benefits system, they are concerned about unintended consequences. To minimise the impact for L&Q’s most vulnerable residents we will be recruiting more support workers to help people understand what change means to them and to maintain their tenancies. We are also undertaking a major investment to help residents who are facing fuel poverty. And we will be funding a number of projects with Citizens Advice Bureaux to give resident access to independent support.
- I attended our Essex Neighbourhood Committee to see how residents are using their budgets to invest in local community projects and holding us to account over our performance.
- I attended our Audit and Risk Committee to give my quarterly update on the major risks facing the sector and be held to account over L&Q's overall performance.
- I attended a meeting of our Governance and Remuneration Committee which ensures that we pay what it takes to retain the best people, and that our governance is strong enough to manage a constantly changing world.
- And I signed up to this year’s Crisis Square Mile Run on 14th June – a great team event for a great cause. Last year Waqar Ahmed, our Finance Director, beat me by three seconds. This year, it's personal.
See you in March.