Written evidence submitted by Your Housing Group Limited [FSS 037]

Your Housing Group is a registered provider of social housing with a large and diverse portfolio of over 29,000 homes across the North West, Yorkshire and the Midlands. These range from general properties for social and affordable rent, through to retirement living developments and innovative private rental offers. Widely regarded for its expertise in regeneration, Your Housing Group prides itself on providing homes which help people to live independently and on enabling people to get on and off the property ladder at different stages of their lives. With a pioneering, creative workforce, we are working efficiently and effectively to build as many quality homes as possible to play our part in solving the national housing crisis.

Responses                           

The current state of financial resilience of social housing providers:                           

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

Financial pressures being experienced by the whole housing sector. Fall in average margins from c30% to c20%. Experiencing additional costs around fire safety and other new building legislation (for example CO2 alarms) - all additional costs without any government support. Costs have increased due to inflation and shortages in the labour market (Repairs and Development). Additional financial pressure around the sector filling the gaps in Social/Public cuts (Health & Police). Our primary source of income is rental income. The rent cap of 7% also contributes to our financial pressures, as this is not in-line with costs inflation c10%.

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

High inflation has had a significant impact on the cost to deliver our services, especially in the Repairs and Investment in our homes area. Also had an impact on our new build programme. The increase in energy costs in Summer FY23 has had a detrimental impact on our customers. Following a group procurement exercise, utility costs increased by c300%. The majority of these costs are passed on to our customers via a Service Charge. Whilst recognising the financial pressures that our customers are already experiencing, we had no other choice other than to pass these additional costs on. The Government Energy Bill Relief Scheme did assist with some of the pressure for customers, but the uncertainty around the length of this scheme, together with the uncertainty of the amount of subsidy, was not helpful in planning. The rent cap 7% also limited our primary source of income. Inflation on costs was substantially higher than the 7% cap.

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?             

Very limited as there are competing demands for new homes as well as bringing existing stock up to the correct standard for fire, Health & Safety and decarbonisation. We need to prioritise works to existing stock to meet regulatory requirements and ensure that we have homes at a decent standard for existing customers.

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

The housing market has not had a significant impact on the Balance Sheet. Assets on our Balance Sheet are valued at EUV-SH, which the rent level does impact. Therefore, the rent cap has had a negative impact on the BS, with the knock-on effect to our available security and ability to borrow new funding to invest in new build properties.

5. Does the cross-subsidy model, by which market housing helps pay for social and affordable housing, have any continuing viability?             
Yes - we build mixed tenure sites (Shared-ownership / Affordable Rent). We also have a Private Rented portfolio that we use as cross subsidy and is less risky than an outright sale programme.

6. To what extent have private equity investors, and in particular international investors, been entering the sector? What challenges does this present?             

The challenge is around potential competing priorities. Private equity investors are focused on a financial return, whereas housing associations are seeking to maximise their reinvestment in stock. However equity investors can't be ignored as there are more financial pressures, rent caps and insufficient grants and the need for housing associations to build more new affordable housing.

New challenges to the social housing sector:                           

7. 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?

Agreed - More resources are required. The sector is spending significant amounts on fire safety and remediation works, building safety, together with additional costs around the decarbonisation requirements. These additional costs are being met from the sector's own resources, with little Government financial support. Looking to the future, without greater government assistance, in particular the need to meet carbon net zero in housing association stock, which is primarily older, will put additional financial pressure on housing association resources.

8. 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? 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?             

Financial pressures are making this decision harder. Currently Homes England Strategic Partner delivering revised programme. Future Business Plan has a much smaller programme of delivery. Future schemes are all assumed to be mixed tenure, with Shared-ownership assumption required in order to financially stack up.

9. What issues does the requirement on Housing Associations to carrying out building safety present?             

Increased financial pressures on the business plan, not just in terms of remedial works, the need to carry out surveys with a saturated supply chain drives up prices, resource required for building safety cases, fire door surveys etc. This has resulted in more resources being directed to building safety, which is the right thing to do, but does limit resources available for any new build.

10. Has the lifting of the cap on the Housing Revenue Account made a difference to supply or improved housing from Local Authorities?             

None that we have seen.

11. Have for-profit Housing Associations made the sector, as a whole, more financially robust?

Not sure. The for-profit providers have not had a huge impact on the sector to-date in the North West.

12. 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?             

In reality, it is only the larger HAs with a strong Balance Sheet that can come to the rescue of a struggling HA, and with the other challenges over asset repair and decarbonisation this is making it less sensible as an option. Larger merged groups can lose their specific local focus as well, although this can be mitigated by running the smaller HA as a subsidiary. The benefits of mergers have yet to be proven and experience shows that they often lead to a period of instability whilst the organisations are brought together.

13. Has the emergence of partnership working between councils and housing associations in local areas made the sector more resilient? What encouragement has the Department given to such partnerships? To what extent do local authorities and Housing Associations collaborate when considering development plans for housing locally?             

We do work in partnership with councils/LA and try to collaborate and have shared objectives in the delivery of affordable housing. But we sometimes experience that LAs are often slow due to a lack of resources.

14. 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?             

Shared Ownership works well for us. Majority of our new build schemes are mixed tenure, including shared-ownership. We continue to see high demand for the S/O product.

15. What contribution have council owned housing companies made to increasing social housing supply? Is the collapse of Brick by Brick – wholly owned by the London Borough of Croydon – a one off or the tip of the iceberg?             

It would seem that councils have struggled to do this in a sustainable way and often suffer from competition for funds within the council.

16. Will the introduction of the Infrastructure Levy and changes to section 106 significantly affect the capacity to develop affordable housing?             

The NHF has several concerns over the impact the proposed Infrastructure Levy will have on the delivery of affordable housing. The NHF has worked with Peers to table amendments to the legislation, including one to ensure local authorities set infrastructure levy rates at a level which would not result in a loss of affordable housing. YHG supports these amendments.

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

17. Is the current Departmental policy on social housing and affordable homes appropriately focused?             

Could do more to support affordable and particularly social rented housing. We currently have a housing crisis with a demand for more new homes. The Departmental policies could do more to address these issues.

18. Is Homes England being directed appropriately by the Department, and is it achieving its objectives?             

Yes and  are being helpful in using grant for fire works as a for instance.

19. Has any evaluation been undertaken of the impact of the additionality guidance on the supply of social housing?             

We are not aware of any.

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

No - additional Grant funding is required to address current and future demands, especially around existing stock - fire safety, building safety and decarbonisation upgrades. New Build is also under financial pressure, requiring increased grants. On top of additional funding, we also need greater flexibility in the use of grants i.e. good practice being able to use RCGF for fire safety works, but bad experience with the lack of flexibility in the application for and use of SHDF which led to missed targets.

21. On our inquiry into Exempt Accommodation we found that issues have arisen when providers are not registered with the Regulator. How does the Regulator of Social Housing engage with Housing Associations whose registration is voluntary?             

Not aware.

22. Does the Regulator of Social Housing have sufficient power to ensure that mergers result in a financially viable new organisation?             

It would not be appropriate for RSH to make decisions about the viability of mergers and then also go on to regulate the same organisation.

23. Does the Regulator of Social Housing have adequate powers to ensure: value for money; and low risk from new sources of finance such as private equity?             

Value for money yes and they have their standards to ensure compliance. Private equity risk harder to manage/regulate.

24. Does the Regulator of Social Housing have the resources and skills necessary to regulate the increasingly complex financial and corporate structures proliferating in the social housing sector?

We are aware that RSH has been recruiting heavily in recent months.

25. How appropriate is the existing regime in respect of regulating for-profit housing associations?

Not aware.

26. It is already accepted that the numbers of dwellings likely to be produced under the 2021 Affordable Homes Programme will be less than initially forecast. Will the financial challenges that the sector faces reduce these numbers even further?             

Yes - Financial Pressures in the Business Plan see a reduced Development Programme going forward. Cost to maintain and improve existing stock - is having a negative impact.

May 2023