2015 SECTOR GLOBAL ACCOUNTS

Transcription

1 G L O B A L A C C O U N T S F O R N O R T H E R N I R E L A N D H O U S I N G A S S O C I A T I O N S 2015 SECTOR GLOBAL ACCOUNTS

2 2 Global Accounts Contents Introduction Introduction 03 Sector Overview 04 Key Messages 06 Operating and Financial Review 08 Consolidated Accounts 2014/15 12 Trends Over The Last Four Years 16 Where Next? 2020 Outlook 18 The primary aim of this report on the 2015 Global Accounts is to provide a financial overview of the housing association sector in Northern Ireland. For the last four years PwC has produced the sector s global accounts for NIFHA and presented key headlines. Feedback from the sector, lenders and the regulator has confirmed the value of having this consolidated financial overview. However, until now, the detail behind the headlines has not been widely available. Housing associations in Northern Ireland are well-governed and financially viable social businesses, making a significant contribution to the local economy and reinvesting their surpluses for public benefit. This story needs to be better understood and NIFHA believes that the global accounts are an important source of information about the sector. While individual housing association accounts are already publicly available, this consolidated review and report offers an insight into the sector as a whole. It provides analysis of key financial information, but in the context of its significance and impact for the housing association sector. The 2015 Global Accounts are based on the audited accounts of the 23 registered housing associations in Northern Ireland, with some additional information provided by housing associations and NIFHA. PwC consolidate the accounts and supplementary data to produce an overview of the financial position of the sector as of 31 March The sector s performance in several key areas is benchmarked with England, Scotland and Wales. This report provides background on the sector and key messages from the 2015 Global Accounts before moving to the Operating and Financial Review and Consolidated Accounts. It concludes with an assessment of trends over the last five years and a look to the future with potential influences on housing associations financial position. Housing associations in Northern Ireland have not been subject to the policy and funding changes that have fundamentally altered the operating landscape for associations in England. Right to Buy has applied to housing associations here for a number of years and while the same arguments against it prevail, the sector here has factored it into the business model. The 1% annual rent reduction over four years that will severely restrict the financial and operational capacity of many associations in England will not automatically apply to the devolved administrations. And the position on capital funding for new social and affordable housing remains relatively secure at around 50% grant. Of course the sector in Northern Ireland faces its own challenges; shortage of developable land, limited opportunities for crosssubsidy, a segregated housing market, more bureaucratic processes and the ongoing possibility that reforms and policy changes, some unfavourable, will be implemented. It could also be argued that the funding and policy environment is not as advantageous as Scotland and Wales. However, the strategic context has been reasonably stable with strong government support for housing associations as key delivery partners and continued investment by established lenders. Against this backdrop housing associations in Northern Ireland have continued to grow and invest, benefitting existing and new tenants and communities.

3 4 Global Accounts Sector Overview PROVIDING 46,074 HOMES GROWING AND DIVERSIFYING SUPPORTING THRIVING COMMUNITIES There are currently 23 registered housing associations in Northern Ireland. The majority provide traditional social rented housing, with no stock transfer associations. HOUSING ASSOCIATION STOCK AS OF 31 DECEMBER 2014 STOCK 14/15 13/14 12/13 General Needs 24,491 23,466 21,939 Sheltered 8,753 8,723 8,708 Nearly all affordable housing is currently delivered by one association, Co-Ownership, through do-it-yourself shared ownership through the open market. Some other associations are diversifying into the affordable market, including building for shared ownership. The sector provides over 46,000 homes through social rent and shared ownership. Recent years have seen the number of housing associations decrease as the overall size of the sector grows. There have been several mergers, including the creation of new associations - in 2015 with the merger of Ulidia with OakleeTrinity to form Choice and the merger of Flax and Filor to establish NB Housing in Other associations have become part of a group structure led by a larger association, such as Newington s partnership with Apex and Hearth s with Clanmil. There is scope for further consolidation of the sector. While there was previously external pressure to merge, any new partnerships are likely to be driven by the sector s recognition of the need to be as efficient as possible while creating capacity to deliver ever more ambitious agendas. Although the sector is primarily comprised of traditional housing associations, it is also diverse. The largest housing association has around 10,000 homes, while the smallest has fewer than 50. Seven associations have more than 1,000 social homes. A number of associations work across Northern Ireland and tend to place a higher emphasis on the development of new social homes. Others remain largely community based and their focus is on providing high quality services, support and homes within that geographical area. A significant proportion of the sector continues to provide specialist housing, such as sheltered and supported housing, hostels and care homes. This is an increasingly difficult aspect of the housing association remit, with reducing funding, rising costs and a high level of risk around occupancy and rental income. However, it remains an important aspect of the housing association role. Delivering new social and affordable housing is a key priority for housing associations. The sector delivered more than 10,000 new social and affordable homes over the four year Programme for Government ( ), exceeding the targets set by the Northern Ireland Executive. Private finance secured by associations is now forming a significant proportion of the funding for new development, with government providing around 50% capital grant and associations matching that investment. The four largest housing developing associations each aim to provide between 300 and 500 new homes annually (measured by starts). Supported* Shared Ownership TOTAL *Some shared accomodation has been repurposed and re-designed, especially within the supported sector which is why stock appears to have declined. Affordable housing is now mainly supported through interest-free loan funding from government, through Financial Transactions Capital (FTC). This is an example of the sector s willingness and ability to adapt to new forms of financing and broaden its partnership with government. Co-ownership facilitates an average of 1,000 new shared ownership homes annually. Some housing associations are diversifying into community development and regeneration, although this is presently still delivered through associations rather than subsidiary companies. This might take the form of building community centres, offering training and employment opportunities and providing community services such as telecare and telehealth or community transport. 5,157 7,673 46,074 5,217 6,804 44,210 5,206 6,095 41,948 Many associations see this as a core part of their social purpose rather than an added value service. This desire and, perhaps more crucially, the ability to provide a holistic service to tenants and the wider community is one of the housing association sector s unique attributes. Changes in the regulatory approach and a greater policy emphasis on community investment has enabled associations in Northern Ireland to do much more now to deliver these additional services. The sector is becoming more commercial, perhaps inevitably given reducing government funding but also driven by a renewed spirit of enterprise. However the social values that govern housing associations remain very much at the heart of the Northern Ireland sector.

4 6 Global Accounts Key Messages 46,074 homes owned and managed 3.4bn total assets The overarching message of the 2015 Global Accounts is that the Northern Ireland housing association sector is in sound financial health. +9% 2,954 And with effective financial governance and management. A strong narrative emerges through the positive growth demonstrated in the global accounts of an efficient sector, borrowing more to deliver more, reinvesting its surpluses in new activities and supporting the local economy. Housing associations boost the local economy in a number of ways. Direct employment is perhaps the most obvious with nearly 3,000 people working in the sector. Significant spend on development and maintenance also has a huge impact on the local economy, particularly in supporting the construction industry and wider supply chain. Housing associations are increasingly providing training, apprenticeships and employment opportunities through their procurement processes and social enterprise activity. As social businesses housing associations are not for profit organisations, but a better way to think of them may be as generating profit for purpose. Instead of shareholders benefiting, the surplus achieved by housing associations will be reinvested back into the business. It can then be utilised in a number of ways; to invest in maintenance and improving tenants homes, to borrow more private finance and service the interest costs, to use that private finance to build more homes and to offer a broader range of facilities, services and support for tenants and communities. The positive financial position and relatively low risk profile of the Northern Ireland sector is helping to maintain good levels of private finance and rates of borrowing for housing associations. Bank lending continues to be an important source of private finance and, although several associations have availed of bond finance in the past, the main lenders to the sector are Danske Bank, Barclays, Ulster Bank and First Trust. The capital markets have generally been accessed through The Housing Finance Corporation (THFC) with investment of around 120m in Northern Ireland housing associations through bond finance. THFC has also facilitated European Investment Bank funding of 45m. The merger activity in the sector creating larger associations with enhanced borrowing capacity may see a shift towards the capital markets, institutional and European investment in the coming months. That additional finance will be invested, for the most part, in delivering new homes. Housing associations match government investment pound for pound, making this an extremely successful public-private partnership. Housing association growth has been mainly organic, through the development of new homes by associations rather than the transfer of stock from other social landlords (i.e. the Northern Ireland Housing Executive). The scale of that growth, 4.2%, is a direct indicator of the scale of development activity in the sector. Housing associations remain committed to developing new social and affordable homes. At least 1,500 new starts are required each year to meet social housing need, as determined by the Housing Executive. Added to those numbers is a growing commitment from private finance increase +4.2% increase in homes people employed 8% operating surplus developing associations to broaden the tenure and income mix of new schemes, add retail and commercial space and create open and inclusive communities. All of these objectives will require the additional finance provided through positive surplus. The housing association sector has proved resilient in, what is at times, a difficult operating environment. The global accounts indicate that costs have not reduced significantly over the past year, yet turnover and surpluses have increased. This points to a more efficient sector. Economies of scale through mergers and group structures may account for some of this operating efficiency through the capacity to get better value through procurement and consolidate back office services. 5.5% turnover increase 60m investment in local economy 214m turnover Other areas where associations may be driving efficiencies are: maximising their income through better management of rent arrears and voids, a more commercial approach to managing costs, more effective systems and processes and better partnership working. While housing associations cannot be complacent, the 2015 Global Accounts evidence a sector that is operating efficiently and ensuring that it has sufficient income to meet broadening business objectives. In doing so it is investing in homes, tenants, communities and the local economy.

5 8 Global Accounts Operating & Financial Review HOUSING ASSOCIATION INCOME & EXPENDITURE 250, ,000 This report contains analysis based upon the statutory financial statements of the 23 Northern Ireland housing associations. 150, ,000 50,000 The sector owns and manages 46,074 homes. This is an increase of 4.2% from the previous year. The sector directly employs 2,954 FTE staff and it is estimated that for each person employed, up to 1.5 FTE jobs are supported in the NI economy (based upon an equivalent analysis for the Welsh HA sector). The Lyons Housing Review brings home the reality of the UK s housing challenge and Northern Ireland is no different if its contribution to the target of 200,000 completions a year by 2020 is to be achieved. The Review outlines a series of recommendations, recognising the range of issues that need to be tackled to meet house building targets, including bringing forward enough land for new homes, addressing capacity and skills shortage in the construction industry and funding infrastructure necessary to support housing developments. Housing associations in Northern Ireland play a key role in meeting this challenge. 56m operating surplus Income and Expenditure Turnover has increased during 2014/15 to just over 214m, an increase of 5.5% on the previous year. The increase reflects rent increases and additional units coming into management. Operating costs increased by 4.5% to 157m, reflecting the continued investment in homes and services to ensure the sector is prepared for the future. As a result, the sector delivered an operating surplus of just over 56m, up 8.0% on the previous year. This increase demonstrates the efficiency of delivery, improving year on year, and the ability of associations to exploit critical mass in a number of areas. It is noted that staff numbers have remained steady during the year with the closing staff FTE marginally reduced compared to the previous year, despite the increase in units under management of 1,864. As development in housing continues, the sector has drawn down more private finance, with the net interest payable increasing by 8.9% to just over 30m. The graph (on opposite page) shows the trend over the last four years for income and expenditure and the resultant surplus over the period. The sector has grown consistently throughout the period with turnover increasing by 23.8% over the four financial years with a corresponding increase in operating surplus of 35.8% representing increased economies of scale and operating efficiency. This has created headroom for interest costs to increase 42.3% without impacting upon overall surplus levels Turnover Op Costs Op Surplus Int Payable Surplus (before transfers) Balance Sheet and Sector Growth The total capital and reserves of the Northern Ireland housing associations have risen by 7.2%. Reserves of 383m are now held within the sector. It should not be forgotten that reserves do not equal cash available but the value of the assets held within the sector net of any borrowing to finance them, namely the houses in which tenants live. The generation of positive cash flow is important for the sector as it is for any business and housing associations will ultimately fail if they cannot generate sufficient income to cover costs. Since the sector borrows significant sums to assist in financing new homes, the repayment of these loans is a key cost for the sector. While the balance sheet of the sector is strong, Northern Ireland housing associations must continue to contribute to longer term strategic thinking about how to create a more consistent, sustainable and adequate level of new housing provision. Housing Association Grant remains a crucial part of the funding equation for social housing but it is unlikely to grow significantly any time soon and the sector needs to concentrate on ideas to leverage this funding to best advantage. The sector will need to draw in new sources of funding, a process which is already starting, ut also look to even greater efficiency and better use of assets. The boundaries between Housing Executive rent, housing association rent and market rent have already blurred, with all three providing homes for people in housing need and supported by housing benefit. There is a need for a better supply of homes, better quality of homes and reasonable security across the housing sector. The sector must take on the risks and opportunities created by this demand which may result in a change from their current form and role. Housing associations are social businesses with a social mission. However, the global accounts show that diversification is necessary and the need to have sufficient financial capacity is critical to providing significant volumes of new housing while maintaining a primary focus on those unable to afford full market rent. This means that new financial capacity cannot be created by making rents unaffordable for key target tenants in Northern Ireland. However, surplus is a pre-requisite to growth and the sector will need to embrace change, collaboration and diversification without losing its social foundations. The Lyons Housing Commission, The Lyons Housing Review: Mobilising across the nation to build the homes our children need (2014).

6 10 Global Accounts AVERAGE WEEKLY RENT ( ) England Average Rents The average rents in Northern Ireland are below England and Wales but higher than Scotland and reflect the need to generate surplus to fund required debt levels for new development. The average rent is similar to North East of England and Yorkshire at per week. The average rent is set out above. Housing associations in Northern Ireland are able to determine their own rent levels and annual rent increases in line with their rent policy. There is no overarching government policy on social housing rents at present, although there are plans to introduce a new approach as part of the Social Housing Reform Programme, led by the Department for Social Development. However, as this analysis shows, housing association rents are in line with comparable areas such as Wales and the North of England Scotland Wales Northern Ireland Weekly Rent London Fixed Assets SE England Consolidated fixed assets, net of depreciation and grant, have risen again this year to more than 958m, a change of 6.5% from the previous year. This is further evidence of the commitment to development and capital improvement of the sector s housing properties. The diagram below shows the combination of grants, private finance and internally generated funds, which has facilitated this investment (cumulative position). 72% HAG 20% Borrowing 8% Other (grants and HA reserves) NE England Sources of Housing Finance Yorkshire Cumulatively HAG still represents 72% of funding across the 46,074 units of housing association stock, as a consequence of the historic circumstances of new housing being largely funded in the past by capital grant. However, the funding balance between HAG and private finance is changing. Borrowing has become an increasingly important source of finance, while grant is reducing marginally year on year and internally generated funds have diminished significantly in the last number of years. Grant represented around 50% of the financing of capital additions in 2014/15. With the investment in homes in 2014/15, the trend towards increased gearing levels in the sector to 25.1% from 23.1% in 2014 (calculated as net borrowing plus pension liability/total capital and reserves plus HAG). Short term debt has fallen by 10.5m but long term debt has risen by nearly 60m. It is likely this reflects drawdown of funds on new long term facilities agreed during the year, as cash balances have also increased, and for which capital development has not been on the expected timeline. Rent Arrears Debtors in total increased by 14.5% to over 86m and as a percentage of turnover, debtors excluding HAG receivable has increased from 11.3% to 15%. The bad debt written off or provided for in 2014/15 amounted to 1.1m which is around 3% of debt at the year end. This is below Great Britain levels although their figures are impacted by the introduction of Welfare Reform legislation, which has not been introduced in a comparable way in Northern Ireland. The sector in Northern Ireland will need to learn the lessons from associations in Great Britain to maintain cash flow and minimize bad debt in the event of further welfare reforms being introduced by the Northern Ireland Executive and Assembly. It was also noted that voids stood at 1,221 for 31 March 2015 of which 535 were lettable voids and 686 were unlettable voids. Reserves AVERAGE RENT FIXED ASSETS OF 958m The sector continues to increase its capital and reserves that contribute to a sector-wide strong balance sheet. The consolidated balance sheet shows capital reserves of 383m, an increase of 9m from the previous year. The sector needs to continue to increase the reserves to ensure it can repay the existing loans and support new borrowings. The current balance sheet strength, along with largely predictable revenue streams, continual surpluses and regulation by the Department for Social Development should reinforce external funders confidence in continuing to support the sector. The sector needs to examine its long term business plans to identify and address early any changes that could impact negatively on associations business models. As noted in the previous diagram, just 20% of property assets of 3,436m are supported through loans. This would suggest that there is potential for even further sweating of assets, enabling additional private finance to be sourced to support development of greater numbers of affordable homes. However, it is noted that this 20% loan finance is not spread equally across all associations. A challenge for the sector is how to maximise its borrowing capacity perhaps through opportunities for innovative funding or collaborative arrangements.

7 12 Global Accounts CONSOLIDATED BALANCE SHEET 2015 K 2014 K VARIANCE K TANGIBLE FIXED ASSETS NBV OF HOUSING PROPERTIES 3,436,041 3,275, ,055 LESS HOUSING ASSOCIATION GRANT (2,476,288) (2,383,646) (92,642) LESS OTHER CAPITAL GRANT (904) (791) (113) 958, ,549 67,300 INVESTMENTS 2,062 1, OTHER TANGIBLE FIXED ASSETS 35,015 34,949 (66) TOTAL FIXED ASSETS 995, ,900 68,026 CURRENT ASSETS STOCK DEBTORS 86,483 75,462 11,021 SHORT TERM INVESTMENTS 68,098 51,449 16,650 CASH 92,759 78,314 14, , ,623 42,466 SHORT TERM LOANS (22,129) (25,810) 3,681 BANK OVERDRAFT - (6,738) 6,738 OTHER CURRENT LIABILITIES (130,903) (82,992) (47,911) CREDITORS: Amounts falling due after more than one year (153,032) (115,540) (37,492) NET CURRENT ASSETS 95,057 90,083 4,974 TOTAL ASSETS LESS CURRENT LIABILITIES 1,090,983 1,017,983 73,000 LONG TERM LOANS 669, ,140 59,903 OTHER LONG TERM LIABILITIES 11,223 14,758 (3,535) PENSION LIABILITY 27,949 19,965 7,984 CREDITORS: Amounts falling due after more than one year 708, ,863 64,352 CAPITAL AND RESERVES CAPITAL RESERVE DESIGNATED RESERVE 148, ,689 (2,698) REVALUATION RESERVE REVENUE RESERVE 233, ,421 11, , ,120 8,648 TOTAL FINANCING AND RESERVES 1,090,983 1,017,983 73,000 Consolidated Accounts 2014/15 Consolidated income and expenditure account Turnover The sector s turnover continues to increase year on year with a 5.5% rise from The increase reflects both additional units under management and annual rent increases. This is comparable with the rest of Great Britain which increased by 5.1% although it differed across England, Scotland and Wales respectively. It is noteworthy that diversification of income is a more significant factor in Great Britain where associations generate income from other activities outside social housing rents of some 20%. This is made up of development related services including a significant number of homes for market sale and rent as well as first tranche shared ownership, regeneration activity, property management companies, leisure management and specialist care provision. Operating Surplus The overall operating surplus for the sector has increased by 8.0% to just over 56m. Operating margins were 26.3% which is comparable with England and significantly ahead of Scotland and Wales. This ratio is consistent with traditional housing associations and ahead of large scale voluntary stock transfer organisations (LSVTs) in Great Britain. The operating margin has remained steady within the Northern Ireland housing association sector over the last three years in spite of increased depreciation charges reflecting continued expenditure on replacing housing components. At net margin level, the 10.0% achieved has decreased slightly from the previous year but remains consistent with Great Britain. The diagram opposite analyses how resources have been expended year on year. OPERATING SURPLUS: RESOURCE EXPENDITURE Other Costs 41% Other Costs 42% 2015 Interest Payable 16% 2014 Interest Payable 17% Wages & Salaries 34% Depreciation 9% Wages & Salaries 34% Depreciation 7%

8 14 Global Accounts Salaries and Wages While salaries and wages have remained steady as a proportion of total resources expended, they now represent over 60m for Average salary (total remuneration including employers NIC and pension contributions) was 21,233, a rise of 1,313 in the year. While some associations noted pay awards to staff, the most significant factor was the 16.4% increase in pension costs during the year. Indeed pension costs as a percentage of the total remuneration package has risen to almost 10% from 7% five years ago. Given reported pension deficits in the sector of just under 28m, which is understated due to some associations participation in multi-employer schemes where the assets and liabilities cannot be split by employer, the impact of pension provision is only going to increase costs for the sector going forward. Interest Rates The overall interest payable by the sector was 30.2m, an increase of 8.9% in comparison to last year. This equates to an effective interest rate of 4.4% which compares to 4.5% in Great Britain. There has been a range of new borrowing in year and it is unclear how this will impact the sector interest rates going forward. Indeed the impact of loan conditions may favour higher interest rates to avoid restrictive covenants which reduce future borrowing capacity to develop more homes. CONSOLIDATED BALANCE SHEET 2015 K 2014 K VARIANCE K TURNOVER 214, ,078 11,107 OPERATING COSTS (157,081) (150,313) (6,768) COST OF SALES (776) (626) (150) OPERATING SURPLUS/(DEFICIT) 56,328 52,139 4,189 SURPLUS/(LOSS) ON SALE OF FIXED ASSETS (548) (321) (227) INTEREST RECEIVABLE 980 1,091 (111) INTEREST PAYABLE (30,189) (27,716) (2,473) OTHER ITEMS (5,094) 1,940 (7,034) SURPLUS/(DEFICIT) ON ORDINARY ACTIVITIES BEFORE TAXATION 21,477 27,133 (5,656) TRANSFERRED (TO)/FROM DESIGNATED/RESTRICTED RESERVES (2,154) 1,876 (4,030) SURPLUS/(DEFICIT) FOR THE PERIOD 19,323 29,009 (9,686) 2,954 people employed 16.4% increase in pension costs 214m TURNOVER 5.5% INCREASE OVER 680m CUMULATIVE PRIVATE FINANCE BORROWED

9 16 Global Accounts Trends PERFORMANCE TURNOVER PER EMPLOYEE ( 000S) The sector s growth is positive, with the position from 2012 to 2015 indicating generally steady increases in turnover and surplus. Operating costs have also increased during this period by around 5% per annum. The growth in assets over the four years is relatively stable, indicating a sustainable approach to development. While surpluses have increased, capital and reserves is lower than 2012 suggesting that associations are reinvesting their surplus in development and planned maintenance/ equipment replacement. GROWTH The significant peak in operating surplus in 2013 is aligned to the growth in total debt, with new private finance perhaps not being spent in year. Performance has remained consistent from 2012 to 2015, suggesting that the sector is operating efficiently but perhaps has additional untapped capacity OPERATING MARGIN 24.0% 26.3% 25.9% 26.3% TURNOVER/TOTAL PROPERTY ASSETS (NBV) 6.1% 6.1% 6.4% 6.3% EFFECTIVE INTEREST RATE 4.4% 4.0% 4.3% 4.4% OPERATING SURPLUS/ TOTAL ASSETS LESS CURRENT LIABILITIES 5.1% 5.1% 5.1% 5.2% WORKING CAPITAL CURRENT ASSETS/CURRENT LIABILITIES AVERAGE REMUNERATION ( 000S) BORROWING CAPACITY* GEARING NET BORROWING PLUS PENSION/ TOTAL CAPITAL & RESERVES PLUS HAG % 23.1% 25.1% TURNOVER PER UNIT - 4,411 4,593 4,649 AVERAGE RENT TOTAL DEBT/SURPLUS FOR YEAR * - INDICATES INFORMATION NOT COLLECTED FOR THAT YEAR GROWTH IN TURNOVER 2.3% 7.0% 9.7% 5.5% GROWTH IN OPERATING COSTS 1.5% 4.0% 10.4% 4.5% GROWTH IN OPERATING SURPLUS 4.5% 17.4% 7.9% 8.1% GROWTH IN INTEREST PAID 23.1% 14.9% 14.1% 8.9% GROWTH IN TOTAL ASSETS 7.2% 7.0% 8.2% 7.2% GROWTH IN TOTAL DEBT 11.5% 25.2% 6.5% 9.0% GROWTH IN CAPITAL AND RESERVES (5.5)% 1.5% 11.2% 2.3% 7.2% total asset growth 2.5% decrease in total debt

10 18 Global Accounts Where next? 2020 Outlook GROWTH EFFICIENCY DIVERSIFICATION The Northern Ireland housing association sector has continued to demonstrate growth, efficiency and diversification despite an austere economic backdrop and political uncertainty. The key over the next year is to find the right balance between achieving efficiencies without losing sight of the bigger picture. The financial results of the sector the global accounts show strength and capability and a desire to address the need for social and affordable housing across Northern Ireland, whilst improving existing homes for tenants and enhancing the lives of individuals, families and communities. However, this sound performance also raises challenging questions for the sector. Is it doing enough with the resources at its disposal? Is it doing the right thing with those resources? Can housing associations demonstrate value for money in what they are doing? Where is the housing association sector in Northern Ireland heading? These questions are particularly relevant in the current climate for housing associations across Great Britain, most notably in England. The commitment to the ethos and values of social and affordable housing and investing in communities was a common theme in the Directors Reports of all Financial Statements, across associations of many shapes and sizes, from all parts of Northern Ireland. At the same time, it is clear that routes towards this goal are different and diverse. What does this mean in practice? Housing associations should be clear and committed to both their objective and values, but must also evolve to meet the future challenges of addressing housing need in Northern Ireland. The need to innovate and deliver the requirements of the Northern Ireland Executive and Assembly is essential and a willingness to collaborate with the Department for Social Development is a pre-requisite to success. The importance of stakeholder engagement and demonstrating social value the ability to improve tenant and community relations as well as value for money must be a key element of the sector financial statements going forward. Credibility and success for the sector will come through sustained and enhanced delivery, leading the policy debate rather than reacting to it and continuing to meet legislative and regulatory requirements. The response of the sector to these issues needs to be reported transparently in the financial statements of the associations and summarised in the global accounts. Irrespective of the policy environment, the local economic reality for the public sector in Northern Ireland will mean that associations will have to set a new path in order to realise their commitment to social and affordable housing. The impact of Welfare Reform or any alternative policy introduced will undoubtedly impact on what were near certain revenues. Further, the uncertainty of whether similar changes to those of the Chancellor s July Budget, particularly with regard to rents, will increase volatility. The reclassification of the housing association sector in England and the potential implications for the devolved administrations is a notable risk. From an accounting perspective the new Housing SORP, reflecting FRS102, will introduce significant change to association financial statements and hence the global accounts. The transition choices and the consistency of approach across association accounts will impact next year s accounts and reduce comparability in the sector. It may be more difficult to assess the impact of any policy changes. Whatever the impact, leadership is vital in this time of change across all aspects of housing association activity. The key over the next year is to find the right balance between achieving efficiencies which will have a short and medium term impact, without losing sight of the bigger picture and longer term future of the housing association sector. The risk to avoid is the dangerous cycle of cost cutting without being able to demonstrate real savings, but reducing service quality, affecting customer satisfaction and employee morale and putting a strain on core operations. The sector s ability to address these major challenges might well define its future role and relevance, perhaps even more so than the number of homes it builds. The global accounts will reflect the outcome of their activities in 2016 and beyond.

11 NIFHA would like to thank colleagues in PwC, Martin Pitt and James Gray, for their work in preparing the 2015 Global Accounts. We appreciate the valuable contribution PwC is making to the sector in providing these accounts on a pro bono basis.