Social housing getting more risky, says credit agency

Social housing is becoming a more risky investment, according to credit rating agency Standard & Poor’s.

Robert Robinson, a director at the agency’s international public finance ratings division, said: “Issues such as diversification, increasing development risk and the impact of possible housing benefit changes means the business risks in the sector are increasing.”

The agency’s report on the sector, to be published next month, will highlight some of the new risks it faces.

They include:

• the fact that most development is done by a small number of associations
• plans to pay housing benefit directly to tenants rather than landlords, which may increase arrears and decrease the rental income on which loan repayments depend
• business trends including diversification into more risky, profit-making areas such as student housing and homes for market sale
• the involvement of the private sector in funding development schemes.

However, Robinson said the sector had taken advantage of low interest rates and that surpluses were generally good.

He added that pensions had not yet become a major financial concern for rated associations.

Robinson said: “A few have changed pension schemes and closed their schemes to new members but they do not tend to be exposed individually to high pension liabilities.

“As a business, there are not such high numbers of staff relative to levels of debt as there are in, say, universities, where there may be more concern about pensions.”

He said the agency was continuing to monitor off-balance-sheet transactions – projects associations are involved in that do not appear on their balance sheet and are therefore not as visible as others.

“There is some concern about off-balance-sheet activities, where legally the housing association is not in line for any of the obligations if the venture goes wrong but where you could argue that morally they could be obliged to support it.

“The level of diversification is regulated and only a certain percentage of the business can be involved in it.”

Associations had generally survived the transition to rent restructuring well, he said: “They have had a favourable interest rate environment and some have been good at squeezing out efficiency savings.”

The news that Standard & Poor’s shares the sector’s concerns about paying housing benefit directly to tenants was welcomed.

David Montague, finance director of

London & Quadrant Group, said: “That’s the good thing about having Standard & Poor’s in the sector: its reports are a useful independent reflection of the financial health of the sector.”