Written evidence submitted by Papworth Trust [FSS 015]

 

Background

 

  1. Papworth Trust is a disability charity and registered provider of social housing, whose aim is for disabled people to have equality, choice and independence. Papworth Trust provides a range of services including housing, work, care and leisure opportunities.

 

  1. The Trust manages 670 units of accommodation across the East of England (Bedfordshire, Cambridgeshire, Essex, Hertfordshire, Norfolk and Suffolk). Almost three-quarters of our housing stock is comprised of supported housing. The majority of the Trust’s properties are wheelchair accessible or adapted to meet the needs of disabled people in some way and the support we provide varies from 24-hour intensive support to grounds and maintenance provision. While the Trust is relatively small as a registered provider, it offers an important specialist service in providing homes that support disabled people to live as independently as possible.

 

The current state of financial resilience of social housing providers:

Question 1: How would you assess the financial resilience of the social housing sector currently? Are increasing pressures and requirements putting financial viability at risk?

  1. From a small housing provider’s perspective, Papworth Trust is financially resilient due to a diverse portfolio and existing asset base. However, it would be fair to say that the outlook for the housing sector is looking bleak in the short to medium term. Over our own 3-year business plan period, the Trust’s housing service is planning to make a loss which is outside the norm and this has a knock-on impact on our ability to look at development. There are significant increasing pressures and requirements including vastly inflated costs in all quarters, lack of availability of contractors and staff, increased requirements for tenant engagement, all of which reduce margins significantly and impact on the sectors financial resilience.

Question 2: What pressure has high inflation, increased energy costs and any other additional costs placed on the finances of social housing providers?

  1. Papworth Trust is not unique in the financial position we find ourselves in, costs are outstripping income in the short to medium term. In part this is due to the issues listed such as high inflation, increased energy and other additional costs, but it also goes much further than this. Decarbonisation, damp and mould issues, fire safety, imminent building regulatory changes, changes in consumer standards, to a name a few, are all heaping more pressure on landlords. It coincides with rising interest rates making our loan repayments more expensive, yet social housing rents were kept below inflationary rates this year, with housing associations still reeling from the four years of mandatory 1% reductions (2015/16) which compounds the issue materially. Our costs have gone up but in real terms our income has fallen significantly.

 

  1. Cost increases of materials hampers our ability to carry out maintenance work in a timely manner, but the bigger problems lie in the supply of contractors available to carry out the work. The price of materials and delays in getting them, means there’s always catch up work to do. In addition, it’s important to note that smaller providers face tendering issues because contractors aren’t interested in small tenders any more.

 

Question 3: To what extent can social housing providers maintain output levels in housing development to provide a counter cyclical balance in otherwise tightening market conditions?

  1. From a small housing provider’s perspective, Papworth Trust believes the only real way of developing in this current environment is by selling off existing assets in order to create the cashflow, or borrowing which is not preferred. The alternative is not developing new properties.

 

Question 4: What impact have changes in the housing market in recent years had on the strength of housing associations’ balance sheets?

  1. Positively, housing associations have been able to borrow more funding in recent years, but this is counter balanced by the rising costs in housing development. It becomes a catch 22 situation because you are swapping cash for assets, so the impact on your balance sheets becomes negligible.

 

New challenges to the social housing sector:

Question 1: The Secretary of State has specified that more resources need to be directed towards maintaining and improving the existing stock. How feasible is this for social housing providers?

  1. Papworth Trust believes the ability of housing associations to maintain and improve existing stock against a backdrop of rising costs but falling income is extremely hard to balance. Rising costs due to inflation, interest rates, energy prices, materials etc all need to be viewed alongside the regulatory pressures from fire safety, damp and mould issues, decarbonisation, changes in consumer standards etc along with restrictions on rent increases and still working to clear backlogs of work from the pandemic. Whilst these issues are right, they heap huge financial and operating pressures upon housing associations, at a time when our real income is falling.

 

  1. Cost increases of materials hampers our ability to carry out maintenance work in a timely manner, but the bigger problems lie in the supply of contractors available to carry out the work. The price of materials and delays in getting them, means there’s always catch up work to do. In addition, it’s important to note that smaller providers face tendering issues because contractors aren’t interested in small tenders any more.

 

Question 2: How do social housing providers choose whether to undertake new development or to focus on maintenance and upkeep of existing stock? Is it currently possible to achieve both objectives?

    1. Where social housing providers are undertaking new developments, what consideration has been given to the types of homes they are building? For example, houses versus flats?

 

  1. Whilst this question is aimed at larger housing associations that can redevelop and contribute to housing stock, Papworth Trust has recently undertaken it’s first redevelopment project for some time at Knutsford Road in Bassingbourn. The building began as a 6-bed care home with 4 ground floor flats and over a 9-month period was transformed into 10 accessible flats. This recent development focussed on redeveloping existing stock, which we feel is typical of the wider sector.

 

  1. The type of housing stock we would develop is based on demand, with our focus being on accessible housing. There is often a need to bring as many houses/flats into one area in order to maximise profits, but as a specialist not-for-profit housing provider, we always have to balance what brings us the best return whilst maintaining accessibility.

 

Question 6: Traditionally, struggling Housing Associations have merged with stronger, sometimes complementary, Housing Associations. Will this continue to be possible?

To what extent can mergers result in the creation of an umbrella group too large to discharge its duties and responsibilities to its tenants?

  1. Papworth Trust continues to operate as a smaller, specialist housing association and see the added benefits this brings. It allows us to focus on ensuring our stock remains supportive and accessible; being for profit and focussed on what makes the biggest returns would definitely bring a different feel and outlook. We feel the sector will see a decline in mergers as housing associations become pickier and start scrutinising existing stock more rigorously. It’s also important to note that tenant satisfaction of larger housing associations tends to be lower.

 

Question 8: The Affordable Homes Programme includes a high proportion of shared ownership properties. To what extent is this form of tenure desirable for potential purchasers and for social housing providers?

  1. Papworth Trust has found that shared ownership is not particularly desirable for us or our tenants. Its worth noting that disabled people can find it harder to build up equity in their property, whilst still paying rent to us. We have also found they’ve struggled to keep up with the repairs and maintenance of their property, and on occasions this has meant us stepping in to support them. 

 

What are the policy and regulatory challenges to the Department and the Regulator?

Question 1: Is the current range of grant funding available appropriate to address the issues and challenges that the social housing sector faces?

  1. Taking decarbonisation as an example, Papworth Trust feels the funding streams available are too often set up with larger organisations in mind. We urge the Government to think about how it can support smaller organisations to start their net zero journey – one that is realistic in terms of cost, resource and time in the current climate we find ourselves operating within. We need a longer-term funding vision that stretches beyond 2030.

 

  1. Whilst any Government funding towards so support housing associations on their net zero journey is welcome, the modelling required to access Wave 2.1 is out of reach for many smaller providers. To put this into context, Papworth Trust has been quoted over £6,000 to survey just 22 properties. PAS2035, an approach to the installation of energy efficiency measures, is required which we feel is adding an unnecessary complexity to the situation which in turn increases costs because not many people in the country are trained to this specification. They are in demand, are in short supply and are therefore able to charge accordingly. Whilst organisations are able to train their own teams to meet the PAS2035 standard, time and resource prevent smaller housing associations from doing so.

 

  1. Under Wave 2.1 the minimum an organisation can bid for is 100 properties. If you are under this number you need to seek a partnership with others. This type of consortium has some benefits in terms of learning from others. However, this restricts smaller housing associations from going alone. Tackling such a high number of properties at once requires high cost and resource, which smaller housing associations cannot afford in this current climate.

 

  1. Under Wave 2.1 the maximum funding an organisation can apply for is 50%, with the remaining 50% funded by the organisation itself. In reality, the effort involved to get the monies and the current pricing in the market means that an organisation has to contribute more than 50%.

 

  1. The Government funded 50% includes costs such as VAT and ancillary costs, this means there is little left for energy efficiency measures. The ancillary costs you can add (e.g. redecoration, extra staffing, new flooring) has to be less than 15% but is counted as part of the overall 50% funding.

 

  1. Interestingly it does not cover the cost of decanting tenants whilst the works are carried out, which for a large proportion of our disabled tenants will be required. Papworth Trust feels that whatever you add to your bid simply means you’ve got to add more yourself. We do not believe the funding rounds reflect the current values of work that are being exhibited across the country at this current time.

 

May 2023