Brexit week, day four: New opportunities

brexit

What should housing associations be considering following the Brexit vote? Jenny Brown, head of housing, Grant Thornton, considers the options:

Following the decision made by the UK to leave the EU, we can already see ripples being created within the social housing sector. Questions have been raised around funding and there are increased concerns about meeting the building targets set by the sector. But housing associations (HAs) also need to look at the opportunity the result could afford them and ensure they are taking appropriate action now to reduce the potential impact of any risks.

While the level of impact will vary according to region and individual business models, one of the main questions the result has raised, that will be a concern for the vast majority of the sector, is around the continuation of funding. With more and more associations looking to alternative sources of funding such as bonds, the negative impact on credit ratings will have an effect on the price and availability of funding. Equally, whilst the €1bn secured from the EIB prior to the vote is not at risk following the leave result, the question around future funding of this nature remains.

The NHF stated last week that it is “unclear” if further funding will now be available and that “negotiating a new relationship post-withdrawal of a member state is unchartered territory for the EIB.” The key for associations when considering new funding opportunities is to be as clear as possible about their plans and governance, so that funders are able to assess the business model in its own right.

The result also raises uncertainty around the existing skills shortage in the construction sector. As the UK’s housing supply continues to be outstripped by demand, the social housing sector has pledged to greatly increase the number of new homes being built in the next few years. EU nationals make a significant contribution to the construction of new homes.

David Thomas, chief executive of Barratt Developments the UK’s largest homebuilder, recently estimated that 30-40% of Barratt’s workforce in the capital hails from mainland Europe. If developers and construction companies are unable to source the required level of labour from European markets we could see an increase in construction costs.

This, combined with the potential increase in cost of importing materials from the EU due to the weakened sterling, could have a direct impact on the sector’s ability to meet its building aims. With the housing sector as a whole also committed to building one million new homes by 2020, this is a chance for increased collaboration between the public and private sector to try and counteract these pressures and ensure their aims are met.

Such matters will also have an effect on house prices and we could see an increase in sale values as a result of further scarcity. However, in London particularly, a reduction in overseas investment in UK property could have the opposite effect by reducing demand for high value property.

Although we can see the result is already raising questions, it could also provide HAs with opportunities. Once the exit procedure is officially triggered, the EU regulation that impacts the sector will need to be reviewed, including the current public procurement procedures. This could provide an opportunity for associations and professionals in the sector to work with the government to review these regulations, and provide their insight to help shape the future outlook of social housing.

Bearing all of this in mind, right now HAs should be concentrating on assessing governance, testing their agility through scenario planning and finessing their forecasting and risk management procedures. This will ensure that they are best placed to be able to respond quickly and appropriately as more certainty develops within the sector and wider market.

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