Wednesday, December 24, 2008

Roof on the financial health of on housing associations

It seems only yesterday there was all the Housing Corporation talk of housing associations "sweating their assets". Now the Tenant Services Authority has a watch list of half dozen or so housing associations in worryingly poor financial health.

The latest issue of the re-vamped Roof magazine brings more festive cheer (not). In its article on housing associations “On the edge” it sets out how 24 of the largest associations fared in 2007/8: 13 of them had interest payable greater than their operating surplus.

In the financial year 2008/9, things will be even harder. If associations breach loan covenants, lenders will play hard ball in negotiating new terms that reflect the new post-crunch world.

Merry Christmas.

Saturday, December 13, 2008

How to survive the credit crunch

While the newspapers are full of advice on cutting household bills and more generally responding to the recession. There have been fewer handy hints for managers delivering public services. However, Public Finance recently carried a useful article by Roger Latham on How to survive the credit crunch. Here are some extracts:

1) prepare for the long haul.

2) watch out for the secondary effects … Existing contractual arrangements around the Private Finance Initiative are already showing signs of pressure. In the long term, the implications on the pension fund will show up in increased employer contributions. Will these still stand, or would there be further changes?

3) efficiency is more than a priority, it’s a necessity.

4) look out for displacement of policy objectives. Existing policy priorities at central and local level are going to change and with them the existing funding arrangements…

5) place shaping on hold? Some of the proposals currently being considered by planners and proposed by developers are going to come to a grinding halt. The value of assets and the cost of borrowing might suspend some long treasured plans. The community facilities promised through Section 106 agreements and the like might not come to fruition…

6) a collapsing capital programme? Valuable parts of your capital programme might be underpinned by capital receipts based on assumptions of land and property values that are now unachievable…

7) check the pattern and flexibility of service demand … You need to think now where your budget flexibility lies.

8) tax base losses.

9) propping up the local economy … Establish immediately what you will and won’t do in discussion with the business community to avoid raising unrealistic expectations.

10) don’t forget the people. The morale of your organisation might take a real hammering…

While some of these are issues specific to local government, other parts of the public and third sectors will often have similar issues – or be affected by how local government responds to the credit crunch and recession.

It’s definitely a good time for revisiting risk registers.

Friday, December 12, 2008

House prices bears, bulls and the National Housing Federation

A good place to read about the property crash is the website An addition to that site is the inclusion of house price predictions. They vary from housing market bears suggesting falls of 50% from the market peak to bulls like the National Housing Federation who predict a 25% rise over the next five years.

I must say that I lean towards the bears. Capital Economics – who now forecast a fall of up to 35% over the next three years – had long warned that a house price crash was on the way. (Their voices should not have been so lonely. Ultimately house prices and incomes had to be brought back into line. Buy-to-let investors and permissive lending could only stretch the elastic so long.)

It is good to see that the NHF have moderated their predictions – last year the NHF was suggesting that house prices would continue to spiral with a 40% rise from 2007 to 2012. While the NHF was right to draw attention to the need for new homes and the problem of affordability, I still feel a bit uncomfortable. I have seen the suggestion on the blogosphere that the NHF was inadvertently helping to ramp up house prices.

It is worth noting some of the NHF’s members are painfully learning the reality of a market correction hitting property sales and land values.

Friday, December 05, 2008

Change and strategy – the perils of success

For some thought provoking blog posts on strategy and change I would recommend the Random Rantings of Freek Vermeulen of the London Business School. This week he flags up some research coming out of the States that indicates that Chief Executives from high-performing firms were significantly more likely to interpret changes in their business environment as a threat than the their peers at poor-performers, who tend to interpret change as a positive thing.

Vermeulen suggests that this may be the cause of the “success trap” about which he writes:

ample research and statistics show, for a variety of industries, that especially very successful firms have trouble staying successful, and adapt to fundamental changes in their business environments (such as new competitors, different customer demand, radical new technologies or business models, etc.). Over the years, they focused on the thing that made them successful (a particular product, service, production method, etc.) and as a result became even better at it.

The times are certainly a-changing. We live in manic macro-economic environment. For the public and thirds sectors a bracing funding regime looks set to be even tighter. On top of that there is major institutional change in many areas such as the end of the LSC in further education and the de-merger of the Housing Corporation in social housing. It all makes an interesting laboratory for success, change and strategy.