Finance teams have a lot on their minds
A summary of the discussions at Campbell Tickell’s recent financial roundtables
FINANCE
Image: Istock
Sue Harvey
Partner, Campbell Tickell
Campbell Tickell has been hosting a series of online roundtables for chief financial officers and business planning leads since March 2020. Over three rounds, we have welcomed 60 colleagues, to 15 small discussion groups from organisations of all sizes working across the country, including arm’s-length management organisations (ALMOs) and care and support providers.
Our most recent discussions took place before the second national lockdown in England and the publication of the Social Housing White Paper. This saw colleagues standing back for a moment from the rush of submitting their Financial Forecast Return (FFR) to the Regulator of Social Housing (RSH) and pausing for thought before the next planning round begins towards the end of this calendar year.
Our discussions were wide-ranging, looking across short, medium, and long-term horizons and concentrating on the following five areas:
1. Impact of COVID-19
Budget 2021-22
Looking ahead, participants are weighing up the impact of the pandemic’s second wave, and in some instances, Brexit.
For most, the pure financial impact on the bottom line to date has been neutral or positive. Expenditure on travel, repairs and maintenance, and development has slowed by more than the impact on rental income. Moreover, the housing market remains buoyant.
However, care and support colleagues saw significant staff and PPE cost increases and loss of income, especially where lockdowns impacted on the ability to re-let voids.
Boards are therefore asking: how much of this can we extrapolate into planning for the coming year?
With a second lockdown in England underway – albeit with the furlough scheme extended – many organisations are balancing building caution and resilience, with pushing ahead with key projects that are essential for both future-proofing and delivering strategic ambitions.
“We are not being complacent. I think that what is coming over the hill with Brexit and the general state of the economy suggests that next year is looking much grimmer than this”
- Roundtable participant
Maintenance and repairs
Many participants have made good progress on catching up with repairs from Lockdown 1.0, with some reporting that the backlog is lower than anticipated. Potential reasons include tenants carrying out self-repairs (sometimes assisted by landlord “how-to” videos) and several small jobs bunching up and being reported as just one.
Most anticipate being able to keep more repair activities going through a second wave of the virus, with higher stocks of PPE and well-rehearsed social distancing protocols now in place. Residents’ reluctance to allow access has been a hindrance at times, however this tendency has been balanced by the fact that more residents are now working from home.
Rent, arrears and Universal Credit
Our participants’ experiences reflect the official statistics. The number of Universal Credit claimants has spiked, with tenancy support teams busy helping new claimants who had never needed benefits before.
Yet, major knock-on effects on arrears have not occurred. This could be because those previously working had some savings. Which in turn also suggests an important degree of uncertainty over future income collection performance, and the impact on bad debts.
Contributors had mostly anticipated the low September CPI and worked that into the rent assumptions underlying the projections submitted as the FFR. Many said that income concerns remain for the medium term.
2021-22 pay awards
With the publication of the September CPI figure of 0.5%, some executive teams have begun initial discussions about next year’s pay awards. Some are considering little or no rises for next year. Most have looked to one-off ‘thank-yous’ for the continued efforts of front-line staff such as payments, additional leave, vouchers and thank you packages.
Funding markets
All agreed that investors are offering a range of funding presently, at very competitive rates and that housing associations are benefiting from a significant safe-haven effect – this has been confirmed by recent announcements from the credit rating agencies. Additionally, participants felt the new Affordable Homes Guarantee Scheme was likely to offer attractive funding in the near future.
Contractor / supplier failure
While most respondents have not seen contractors fail, some had, with small local businesses going under. Many are actively seeking to assist their supply chains with prompt payment and other measures. Counterparty risk is judged to be increasing as the economic impact extends into 2021.
2. Fire safety remediation costs
There is considerable variation in the experience of this issue. For housing associations with a predominance of houses, rather than flats, there has been little or no impact. Others, however, are still discovering a range of quality issues at inner-city, high-rise developments built since 2010, with much uncertainty over the solutions and wide-ranging cost implications.
All those affected are prioritising health and safety, yet acknowledging that without specific funding, these costs will affect capacity to build new homes. Organisations are also grappling with the added complication of leaseholder recharges and are testing out different assumptions on recharge and collection rates.
Furthermore, discussions highlighted possible higher new build costs resulting from increased on-site oversight of quality and chains of assurance on fire safety. In addition, there is the potential to boost the use of modern methods of construction, where some aspects of quality can be checked at the factory.
3. Zero-carbon
Boards are already engaging in zero-carbon debates, yet firm financial plans are a long way off. Many are enhancing data on stock investment requirements to assist with future planning. Most participants are seeking to understand what can be done with current development pipelines, to avoid storing up expensive problems for the future. Others are trialing carbon-neutral new build or retrofitting, with mixed results, including high maintenance costs on ground-source heat pumps.
There is widespread acknowledgement that some stock will struggle to ever meet required standards. Some anticipate larger disposals programmes, while others with a stock transfer history, are concerned about whole-neighbourhood effects, where they have concentrations of such homes.
Overall, significant expenditure on reaching zero-carbon remains some way off, as organisations wait to see how technology develops and how government policy will encourage change.
4. New Affordable Housing Programme (AHP)
As with zero-carbon, in financial planning terms the new AHP is a waiting game for many. Active developers require more policy detail and the results of the consultation on the planning white paper that was published in August – particularly on the future of Section 106 and shared ownership.
Meanwhile, some participants are contributing to sector-wider efforts to model the range of possible impacts of the current planning proposals.
“The proposals in the planning white paper could have an even bigger impact on our business model than the details of the new shared ownership product, which itself is difficult”
- Roundtable participant
5. Recruitment amid job insecurity
Those recruiting to front-line roles have seen, unsurprisingly, a huge number of applicants, including many from the hospitality, retail, and airport sectors. A continuing trend is also the widening geographical reach, with both positive and negative consequences.
One participant from a relatively remote location mentioned having to quickly adjust the package of a valued employee, who was nearly poached by an organisation some distance away, the new role being enabled by working from home. While another organisation successfully filled a critical post by recruiting from far away, again by guaranteeing long-term working from home flexibility. Both positions were in IT teams.
Next steps?
Campbell Tickell is planning to host a fourth series of roundtables in January 2021. If you would be interested in participating, please email Anna Davies.
