Social housing: Horizon scanning to the rescue

Housing Associations are feeling the combined effects of recent funding cuts, welfare reforms and the issue of rent affordability. To improve their resilience in a shifting operating environment, many are exploring new ways to generate income or investing in more development activity.

Such activity can increase their commercial risk profile however, so what can they do to mitigate this? Dynamic risk-modelling techniques, such as horizon scanning, could help them to find a solution, whilst ensuring they are ready to take advantage of opportunities that might arise in the future.

Scenario-based planning is key

Implementing scenario-based plans is vital for all businesses during times of significant geo-political, economic or market change. In the social housing sector, failing to adjust to the new operating environment could cause Registered Providers to lose ground.

Prior to making any significant decisions or opting to invest in high-risk activities, Registered Providers should map out their strategic plan, taking care to consider its potential effects in the short, medium and long term.

Extreme changes can happen

Some businesses may be cautious about planning for what might seem like relatively extreme scenarios. However, as past experience shows, major changes can happen. For example, 30 years ago, when the Housing Act 1988 allowed registered providers to seek private sector funding for the first time, few would have foreseen where this might lead. Today, Registered Providers are reliant on private sector funding and it is not unusual for organisations to seek funding via the bond markets.

Taking a ‘future backwards’ approach

The key to horizon scanning is planning backwards: organisations should start from the furthest point away, considering what the future might look like in 20 years’ time. As the social housing sector is particularly volatile, there are likely to be a number of potential scenarios. This ‘future backwards’ method allows organisations to identify potential indicators and steps that need to be taken.

Raising finance

Reduced access to grant funding and tighter lending criteria has forced many Registered Providers to reconsider their finance options. For example, raising the funding needed to develop strategic plans by going to the bond market has been possible for those with the right scale and asset-backed structure. To take advantage of this, some smaller providers have chosen to merge with others to increase their scale.

In a shifting environment, horizon scanning techniques can be effective in helping Registered Providers to reduce their risk profile and increase their chances of success. Taking this approach will enable them to take the right decisions at the right time and ensure they are ready to take advantage of any opportunities that may arise.