Brexit deal or no deal: What's the impact and how are HAs preparing?

“Even with Black Wednesday in 1992, the sector was able to weather that storm. Housing associations will be able to hunker down and see how things develop without much damage, as the majority of their income is from rents.”

 

Piers Williamson, chief executive of The Housing Finance Corporation, agrees. “The sector is very liquid, so housing associations are well positioned to ride out the short-term.”

 

However doubts over long-term access to finance remain, if a Brexit deal fails. Housing associations have benefitted hugely from the European Investment Bank (EIB), which has pumped more than £4bn into the sector and urban renewal schemes in the last decade.

The bank last year moved to reassure borrowers in line for £1bn of loans that the money would arrive.

 

Under Mrs May’s Brexit deal, the UK government is aiming to “explore options” to continue its relationship with the EIB. But with ‘no deal’ this relationship would be more uncertain and it is not apparent what would plug that finance gap.

 

“The government has pledged the British Business Bank will step in, but its operations will need to be scaled up considerably to match existing EIB funding in sectors across the economy, not just social housing,” says economist Rebecca Larkin, of the Construction Products Association.

The Bank of England last week warned that house prices could fall by 30% in a ’no deal’ scenario.

 

While some housing associations will not be directly affected, a growing number have exposure through open market sales, shared ownership and section 106 schemes.

 

Indeed in the last financial year, nearly half of affordable homes were built through section 106.

 

As property agent Savills highlighted in a report last week: “The sector has never been more exposed to a cyclical housing market slowdown”.

 

As a result, Savills urged housing associations to reduce their reliance on section 106 and buy more land themselves.

 

But when it comes to construction this is where the real problems could lie. With the industry heavily reliant on EU labour - particularly in London where around 30% of site workers are from other European countries - no deal could be disastrous.

 

Concerns, in particular, are spreading around the availability of bricklayers, plasterers and carpenters.

 

And the government’s current stance on EU labour is raising concerns. As Mr Perry says: "The government’s plans for future EU immigration is based on high skilled, high salary jobs, which often don’t exist in those sectors that affect housing.”

 

Confusion is also reigning over the government’s approach over what a ’no deal’ would mean for free movement of labour. Last month Home Secretary Sajid Javid appeared to contradict an official in his own department by saying free movement would continue under no-deal as a “sensible transition period” would be agreed.

 

"The government’s plans for future EU immigration is based on high skilled, high salary jobs, which often don’t exist in those sectors that affect housing," John Perry, CIH

 

 

And in an interview with Social Housing last week, housing minister Kit Malthouse said: “We’re very keen to promote the idea that there should be a skills and needs based immigration system... and if there is a need for bricklayers and plumbers, and we have got capacity issues already in the market, then you would hope that would be reflected in immigration policy.”

 

Homes England however has acknowledged the issue and is preparing contingency plans. “We are looking at issues around supply and industry concerns about labour and materials and creating the right contingency where appropriate for these,” a spokesperson says.

 

So how are housing associations readying the decks in case of a no-deal? Clarion Housing Group told Social Housing it has carried out “comprehensive and severe stress testing” based on all Brexit scenarios and done “thorough analysis of the associated remedial actions”.

 

Among the risks, Clarion has identified “imported cost inflation” if sterling drops in value, shortage of construction labour, and potential issues around “sourcing of mechanical and electrical components for maintenance”.

 

Gareth Francis, Clarion’s treasury and corporate finance director, says despite this the group’s “strong financial position means that we are well placed to manage under any Brexit scenario”.

 

But he adds: “Nevertheless, we would like clarity as soon as possible.”

 

Paul Gray, chief financial officer of 18,500-home BPHA, is also satisfied the group is prepared. “We have used the Band of England measures as part of our stress testing for many years, which includes consideration of a significant fall in property prices, and are therefore confident in our ability to withstand Brexit related stresses,” he says.

 

In terms of back-up arrangements, Mr Gray adds: “One of our key contingency plans is to have significant undrawn funding facilities in place massively reducing refinancing risk and ensuring that all commitments are already covered by committed funding.

 

“We also consider carefully counter-party credit ratings and concentration risk re individual counter-parties.”

 

Ultimately whatever happens with Brexit, the sector will at least be hoping a transition period, as recommended by the Bank of England, softens the landing.

 

But while the sector may not be affected as others in the short to medium term, it is in the long-term implications that still play on minds.

 

As Mr Perry concludes: “The difficulty is knowing whether a no-deal Brexit would be a short sharp bump, or a bump with a return to a position that is lower than now.”