ASSOCIATION A: LONDON & QUADRANT
Quadrant Housing Association was set up in 1963 by a group of young professionals who found out about the plight of the homeless in London, bought a house, and converted it into three flats. Initially the association operated from a church crypt, but by 1972 it had its own office and a portfolio of 1,300 homes. In 1973 it merged with the London Housing Trust, which had been set up in 1967, and by 1979 London & Quadrant (L&Q) had 6,000 homes. Quadrant Housing Finance was set up as a subsidiary of L&Q in 1997 to raise funds in the capital markets, and the expansion continued. L&Q now owns and manages about 70,000 homes in London and the South East and employs 1,200 staff.
Our mission is: Creating places where people want to live.
For us that means two things:
1. Maximising resident satisfaction with our homes, services, and neighbourhoods.
2. Responsible growth through new, sustainable investment models and new housing options that increase choice and mobility.
Both of these are vital to our continued success as the leading provider of affordable homes and services in London and the South East.
The Board considers the following risks the most likely to affect future performance and our ability to achieve our five-year plan:
• Welfare reform: L&Q has allocated time and resources to understand the longer-term risk of welfare reform. We are working with local authorities to identify residents who will be affected and contacting them to ensure they are aware and prepared. Our focus has now turned to managing the transition. This includes targeting higher risk accounts, the recruitment of additional staff to deal with increased debt, and the creation of a financial inclusion team to support residents.
• Land cost inflation: We have embarked on a progressive development strategy to give us the flexibility to adapt in a fluid marketplace. Returns from private sale and rent portfolios reduce the impact of increased land costs on our affordable housing pipeline. L&Q has adopted a shared risk approach, where appropriate, through joint ventures to counter the impact of land cost inflation.
• Sales/mortgage availability: We adopt a bespoke marketing and sales strategy for each new development and undertake scenario modelling based on revenue and cost fluctuation. We work with mortgage lenders to ensure potential customers have access to advice on how much they can borrow and the range of products available. We also undertake market research to ensure the products offered meet market requirements.
• Withdrawal of capital grant funding beyond 2015: We have developed a sustainable cross-subsidy model for new homes, supported by our annual surplus. Our development strategy assumes no additional capital grant.
• Health and safety: A dedicated health and safety team supports all of L&Q activities. . . . The Group Board receives an annual report on progress against our health and safety strategy.
• Business continuity: We have effective IT and logistical back-up arrangements in place to ensure business continuity following a major event such as a fire. In particular L&Q has a disaster recovery data centre. This provides real time data replication along with capabilities for hosting our telephony and email in the event of a major incident.
• Protection of charitable assets: Our financial strategy includes sensitivity analysis and performance indicators. These demonstrate that non- charitable activities do not place our charitable assets at risk. All non- charitable projects require Board approval and include exit plans. L&Q will respond to regulatory thinking and requirements as they develop.
• Rent control: L&Q is working with Shelter on its Stable Rental Contract. This involves market rent increases pegged at a percentage over CPI or RPI (Retail Price Index) combined with longer-term (probably five year) tenancies. In the worst scenario, current exposure to market rent is limited as a proportion of total housing stock. A greater risk relates to further rent control for existing social rented homes. Any adverse change would be met with a reduction in our development appetite.
• Property prices: Savills predicts zero percentage growth in London during 2013 but over 25 percent growth over the next four years. L&Q's financial strategy tests a worst case scenario twice yearly and concludes that a 25 percent reduction in house prices will not have a material effect on our covenants. Whilst property prices have fallen by more than 25 percent once over the last 30 years, and taken nearly a decade to recover, L&Q is a longterm property investor and able to withstand such events. We are able to delay construction and move completed homes into alternative tenures rather than sell at a loss. Finally we may also see a fall in land prices as an opportunity to invest for the future.
• Impact of austerity / welfare reform on resident satisfaction: Welfare reform combined with continued austerity measures could have an adverse impact on the outlook of residents and their general satisfaction. Resident satisfaction is a top priority for L&Q. We have put in place a service improvement plan that will deliver sustainable improvements through investment in our social mission, our culture, systems and process change.
The summarized financial statements of London & Quadrant for the previous five years are presented in Exhibit 8.3.
Choices Made in 2012/2013
To help relieve London's housing shortage, the size of the L&Q development program has been increased in the past year from £1.25 billion to £2 billion, and there are now 12,000 homes in the program, of which £250 million is for 1,000 homes for rent at market rates. This represents a quickly accelerating growth rate – in 2012/2013 L&Q completed 1,444 new homes, 952 of which were for social rent, 25 were for affordable rent, 222 were low-cost home ownership homes, 201 were for market sale, 10 were for private rent, and 34 were for intermediate rent. L&Q's in-house contractor, Quadrant Construction Services, handled over 231 of these homes, with a further 465 in progress at year-end.
In 2011 L&Q committed £100 million to the newly launched L&Q Foundation to tackle the disadvantaged by supporting projects that help people access training and employment, give opportunities to young people, provide guidance and support with managing finances, and build stronger communities.
In 2012/2013, over 4,000 people benefited from activities supported by the Foundation; £10 million was spent as follows:
• £5.6 million on community activities
• £1.9 million on giving residents financial advice and supporting Citizens Advice Bureau and Credit Unions
• £1.4 million on schemes to increase resident employability
• £1.1 million on youth schemes
-  The quotes are from the L&Q 2013 financial statements; see lqgroup.org .uk/_assets/files/LQ0363_Financial-Statements-2013_LR.pdf. For more information about L&Q see lqgroup.org.uk.