The Cosmopolitan Problem

Posted By: Admin, 02 Apr, 2013 - 09:43 am


With the deal breaking down between Riverside and the troubled Cosmopolitan Housing, it does beg the question about how regulation works when a large association gets into difficulty. The issue at stake in this case was to do with obligations under student accommodation arrangements that Cosmopolitan built up over a number of years when the economic conditions were more favourable. However, last summer the 14,000-home landlord faced significant cash-flow problems, bringing it close to breaching lending agreements after difficulties around the financing of its student housing initiative came to light. Cosmopolitan has now merged with Sanctuary, the country’s largest housing association, to avert the crisis. It is impressive that Sanctuary only got involved in talks in January and the merger between the two associations has been brought to conclusion within a couple of months.

If these talks had not worked out what were the governance alternatives? Presumably the regulator could have stepped in and appoint a manager to run the association under its statutory powers – will that satisfy the funders and head leaseholders? Alternatively the association could be broken up into smaller parts, winding up the part of the business that is no longer sustainable or, of course, the association could go into voluntary insolvency. And what if another crisis were to arise with a significantly sized association? Will Sanctuary or another of the sector’s giants be able to step in?

Clearly, this is the biggest governance problem we have seen in the housing association sector since the potential issues with Genesis at the beginning of the financial crisis, when that association was over-extended on the extent of sales schemes it held. This comes at a time when Moody’s have downgraded the credit rating of the sector since it sees a weakening regulatory position.


Risks to the house-building programme…

A key governance challenge to housing associations is the potential challenge to their incomes streams as a result of welfare reform. Immediately we have the impact of the “bedroom tax” and the non-dependent deductions and later in the year the big issue of rents no longer being paid directly to landlords, at least initially for new customers. A number of governing bodies within the sector have decided to increase resources to aid collection of income and to also support tenants through these difficult times.

In addition a number have also significantly increased bad debt provision, some doubling their provisions in this respect. The G15 Group, that influential group of large associations, have issued a warning that welfare reform could reducing the build programme of the sector by 1,200 homes a year at a time when it is crucial to get Britain Building again. Building new homes is important to economic recovery. It’s estimated that for each new home, up to 2.4 direct jobs are created with a further 2.4 of indirect jobs in the supply chain. Arguably then if the G15 are correct in their estimates, some 6,000 or more jobs will not be created as a direct result of welfare reform.

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