Desktop version

Home arrow Management

CHARITABLE STATUS

Housing associations are registered as charitable organizations under the UK Charities Act of 2006, being set up to provide public benefit by relieving poverty, developing communities, and supporting people who are in need by reason of their age, ill health, financial hardship, or other disadvantage. Most of them make substantial surpluses, which they retain and use for their charitable purposes. As charities, they are exempt from paying UK corporation tax. Housing associations often also engage in noncharitable activities such as market renting or building houses for sale by setting up noncharitable subsidiaries, which then will gift any profits made to the parent charity, which then exempts the subsidiary from having to pay corporation tax. Public donations do not comprise a significant part of the sector's cash flow.

Sector Risks

The housing association sector is regulated by the Homes and Communities Agency (HCA). The HCA has extensive powers to intervene if it believes an association is being poorly governed or its viability is threatened. Most associations are highly leveraged, and the presence of an efficient regulatory activity is viewed by the financial sector as extremely important in supporting its lending. To date, the regulatory system has been unbelievably successful – while a number of associations have gotten into difficulties over the past 25 years, in no case has a financial institution made lending losses, and there has been only one case of serious default. The regulator adopts a co-regulatory approach, which "gives providers full responsibility for managing their own businesses, including their own risks. The role of the regulator is to seek assurance on how those risks are being managed."[1]

The regulator's view of the financial risks facing the sector is that:

The model of social housing that has existed for approximately 25 years is changing. Boards of providers more than ever need to be aware of the risks and choices they face in order to meet their objectives. They also need to understand the interaction between the various risks and their overall "portfolio" impact. An approach to risk that considers issues in isolation is unlikely to be effective in the current operating environment… The risks can be summarized as:

• Asset-related risks, including risks associated with:

• Development

• Diversification into other activities

• Exposure to the housing market

• Maintaining existing stock

• Liability-related risks, including risks associated with:

• Existing debt (gearing, loan covenant, and repricing issues)

• Mark-to-market exposure

• IFRS

• New forms of debt

• Income-related risks, including risks associated with:

• Affordable rent

• Welfare reform

• Supporting people

• Cost-related risks, including risks associated with:

• Pension issues

• Differential inflation rates

The relative importance of each of these risks and their interaction with each other will depend on the precise business models and stock holding patterns of individual providers.

  • [1] For more detail, see homesandcommunities.co.uk/sites/default/files/our-work/ sector-risk-profile-120611.pdf.
 
< Prev   CONTENTS   Next >

Related topics