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25 March 2015

Welsh housing accounts demonstrate the strength of sector's business acumen

The Welsh housing sector remains a strong, safe and innovative sector to invest in according to latest figures.

The Global Accounts - the collective name for the audited financial statements of the sector for the year ended 31 March 2014 - show a continued trend of resilience from the sector, which confirms its capability to help deal with the housing supply shortage across Wales.

The accounts also evidence how the sector’s investments are improving existing homes for tenants, enhancing the lives of people and communities, mitigating the impact of poverty and welfare reform, creating employment and ultimately stimulating the Welsh economy.

Group Chief Executive of Community Housing Cymru (CHC), Stuart Ropke, said: “The Global Accounts show how the sector has progressed to become a collection of highly capitalised businesses that are adopting a more commercial attitude in order to accomplish their social objectives.

“Our sector’s operating environment is shifting – our members are adapting to deal with issues as a result of welfare reform, cuts in public expenditure and long-term demographic changes, and are sustaining a pivotal role in providing new housing capital subsidy to deal with the housing supply shortage in Wales.”

Minister with responsibility for housing, Lesley Griffiths, said: “These financial statements show that the Welsh housing sector continues to be resilient in the face of the challenging economic circumstances in recent years. This is extremely encouraging and is a marker of the strength of the sector.

“The Welsh Government works closely with the sector to ensure that people across Wales have access to safe, secure housing. The role of housing associations extends well beyond just being landlords – they help create sustainable communities, employment and skills opportunities, and boost the Welsh economy.”

CHC members have continued to make the largest contribution to additional affordable housing in Wales, delivering 74 per cent of all additional affordable housing provision during 2013/14, with a quarter of homes delivered without social housing grant. This shows the positive progress made towards the Welsh Government’s affordable housing target of 10,000 homes during this term of Government.

The sector is constantly innovating and accessing non-traditional finance routes, accessing capital markets and sourcing bond finance. The Housing Finance Grant, which saw collaboration between 19 members, Welsh Government and the Welsh Local Government Association (WLGA), will assist the building of over 1,000 new affordable homes across Wales. Welsh Government has provided £4m annual revenue funding over a 30 year period to support this initiative. It’s subsequently been announced that there is to be a £250m extension of the Housing Finance Grant scheme, which further demonstrates its success.

Mr Ropke added: “During 2013/14, CHC members directly spent £1bn in the economy with 80 per cent of this retained in Wales. The indirect supplier effect alongside this means the total impact equated to almost £2bn.

“The sector is a major employer and has continued to provide employment prospects with a continued increase in the number of direct full time equivalent jobs, approaching 10,000 compared to 3,300 in 2008. For every one direct job, a further 1.5 are indirectly supported in Wales.”

CHC members also spent more than £235m in the year on building properties, funded by over £100m of Social Housing Grant and a £135m increase in borrowing. The average effective interest rate for borrowing in the sector continues to remain relatively low at 4.5%, which demonstrates the sector’s continuing ability to attract low cost funding.

Even in the current uncertain economic climate, financial turnover has continued to increase to £784m, a rise of £48m (6.6%) on 2013. Operating costs increased by 9.1% during the year to just over £634m, reflecting the continuing planned investment in homes and services. As a result of this, the sector saw a 3% reduction in operating surplus from 2013.

Mr Ropke added: “Management costs to the sector have increased in 2014, having remained relatively stable from 2010 to 2013. However, this is likely as a result of members investing more resources into income collection and welfare benefit advice to tenants to ensure that rent arrears remain under control in the face of welfare reform. This investment has proved effective as rent arrears have so far remained largely unchanged at just over 4%.”

The statements highlight the continued investment for the upkeep of properties, in accordance with the Welsh Housing Quality Standard (WHQS), with £67m being invested in replacing windows, doors, heating systems, kitchens and bathrooms in their properties. This expenditure has been favourable for tenants, associations and the Welsh economy in terms of the fiscal activity it has generated.

The sector’s net operating surplus for the year was £74m. While the operating surplus has generally increased during the past five years, the percentage of the turnover which is represented by the operating surplus has remained largely static at 20%, showing that additional income to the sector continues to be reinvested in more homes and services.

The total capital and reserves of member associations has risen by 6.8%, meaning that reserves of £807m are now held within the sector. The necessity for the sector to continue to create surpluses year-on-year is ever more acute in these times of unprecedented housing supply pressures. Accounting surpluses are not held as cash, but enable further borrowing to underpin greater investment in homes. Whilst the net surplus of £74m was a reduction from 2013, it clearly illustrates the ambition and capability of associations to deliver planned growth.

The statements illustrate a resilient and growing sector which continues to be attractive to lenders and financial institutions due to the strong regulation in place and the largely predictable future income streams they generate.

Mr Ropke concluded: “In the past year, our members have already shown that they have been able to anticipate changes, especially in relation to welfare reform, and have performed proactively to minimise risks of any negative effects on operations. Our members will continue to put in place all the necessary controls to manage and minimise any associated future threats because they are innovative, forward-thinking organisations with the ability to adapt to changes in their operating environment.”

You can download the publication here.