Written evidence submitted by Sovereign Housing Association [FSS 048]
About Sovereign:
We are a leading housing association, striving to provide quality, affordable homes in happy, successful places. We have deep roots in the south of England, with over 61,000 homes across the south, south west and the Isle of Wight.
We’re driven by our social purpose, with customers at the heart of everything we do. We build homes and provide great services, but our work doesn’t stop at the front door – we invest for the long-term, creating great places to live, working with customers and partners to support them in realising their potential.
The current state of financial resilience of social housing providers:
The sector is undoubtably under pressure as the need for our work increases, costs rise, and incomes are squeezed. It would not be surprising if some associations are experiencing viability challenges. Larger associations such as Sovereign are generally more resilient, but we face an increasing challenge balancing the needs of our customers and those who desperately need our new homes against maintaining strong financial management.
While we support the outcome of the rent cap in protecting residents, it has squeezed providers as they face significantly increased costs across utilities, materials, labour and urgent spend on issues such as building safety.
As in the previous answer, inflation has placed pressure on providers. Rapidly rising build and maintenance costs are a critical concern when working to improve stock or develop new homes. Every day we see the pressure that our customers are facing, so we support measures to keep rents sustainable for them, but this places greater pressure on providers and our people.
Under the right conditions, associations are well placed to deliver the counter-cyclical housing that is urgently needed. Sovereign intends to increase its planned pipeline to 2,500 new homes per year from approximately 1,700 homes per year following its planned merger with Network Homes.
We are aware that our commitment to increase building of new homes diverges from the approach taken by many other associations that are scaling back their programmes in response to the economic environment. The capacity of the sector to provide the counter cyclical homes referenced is based on associations leveraging their long-term view and security of balance sheet to maintain investment when viability for the private for-sale sector is constrained, reducing land values and build costs.
The current economic situation is unusual as build costs have remained high and the relative resilience of the housing market means land values have not yet significantly reduced despite reductions in output.
This may change in the upcoming months, so this is the point at which investment from government could have a critical impact, alongside planning reforms.
Larger associations with stronger balance sheets are more resilient and can better leverage their balance sheet to build more of the new affordable homes that are urgently needed. This a key driver of our merger with Network Homes. A larger balance sheet means we can build more and help more people find a good, affordable, home.
The house price increases since 2020 have supported surpluses on new build market sale or shared ownership homes, but this has also increased the cost of homes that Sovereign retains for affordable or social rent.
Yes. This remains a model that, alongside government funding, can help to deliver more affordable housing as part of the mixed communities that have been proven to be more socially successful and sustainable. As alluded to in the previous answer, the challenge is developing and maintaining a good mix of affordable and market sale homes that meet our Homes and Place Standard in volatile market conditions, which would be more achievable with additional support from government.
New entrants have principally purchased shared ownership property portfolios, so this has not had a significant impact. The risk may come in the future as these new providers compete on land and new build s106, potentially pushing up the price that developers can achieve.
New challenges to the social housing sector:
We agree that stock maintenance and improvement is essential to both give our customers a good quality of life and to prevent problems in the future. Following our planned merger with Network Homes, the new group intends to invest £3.3bn in existing stock.
Sovereign had already begun its programme of stock improvement against our Homes and Place Standard, which is described in greater detail in our response to the next question. Using Homes and Place helps us to prioritise and plan our maintenance and improvement work. This, alongside incorporation of retrofit into maintenance programmes means achieve more with our resource. SHDF funding has been helpful and part-funded our £22.5m initial decarbonisation programme but more will be needed in the future.
The committee should bear in mind that a large proportion of the stock that is held by social housing providers is older, and not built to modern standards. This presents a challenge and adds to cost for social housing providers to maintain places to a high standard.
It is possible to successfully achieve both, although increased investment in maintenance will inevitably have an impact on funds available for development unless other investment is available either from government or through capital markets.
Sovereign has revolutionised its approach to its homes through its Homes and Place Standard, which is a holistic standard co-created with our residents alongside the latest social and environmental sustainability evidence. We use the standard to guide our decisions around maintenance, retrofit and new building as it enables us to take a step back from immediate pressures or issues and instead look at the best solution for our residents and future residents over decades.
The Standard is built around four key pillars: customers, homes, places and sustainable future. Our homes will be adaptable, digitally connected and cost effective. The places we create will be inclusive and safe. Most importantly, our Standard will empower our customers to have a positive impact on the environment and enable us to achieve net zero by 2050.
We are currently in conversations with officials in BEIS around how the Homes and Place Standard could play a role in decarbonisation of social housing stock.
All our places and upcoming developments have been scored against this standard, which helps us make evidence-based decisions about our homes and the most effective way to improve them. We believe that this standard, or a similar standard, could be adapted by others within the sector and have a significant impact to improve the long-term viability of the sector, sustainability, and the resident experience.
We would welcome the opportunity to give evidence or provide the committee with further information about our approach and the Homes and Place Standard.
Planning policy is the critical factor in decision making and we will be guided by local need. Within our investment plans, we are actively looking for sites in high street regeneration areas, so that we can reinvigorate areas and build sustainable communities. Sustainable communities require the provision of homes to accommodate all needs be it houses, apartments or bungalows. We also design our new homes to be adaptable, so that they meet people’s needs throughout their lives.
Any resource we use to remediate building safety risks or to retrofit homes to make them more efficient reduces our capacity to build new homes, or to make improvements to homes that do not make them more energy efficient.
The cost of decarbonising social housing has been estimated at £104bn, or an average of around £20,000 per social home. While social housing providers are preparing to invest billions in improving stock to be net zero by 2050 it will have an impact on their ability to invest in other things.
In terms of energy efficiency, however, most improvements we would make to a home will have a direct or indirect positive impact on energy efficiency. Replacing doors and windows improves insulation, reducing energy use. Where more substantive improvements are needed, we would use materials that will improve a home’s energy efficiency. Other measures, such as improving ventilation to reduce damp and mould can have an indirect positive effect, making it easier for a resident to keep their home warm.
Our customers’ safety is our number one priority and all our customers should live in a home that is safe and meets all statutory building safety requirements. However, remediating building safety does not always bring an immediate, tangible benefit to residents’ day-to-day lives if they are social housing tenant. For example, replacing an external wall system that does not meet building safety standards may have no impact on the energy efficiency of the homes in a given block.
Sovereign is committed to ensuring all our customers live in homes which meet the highest standards of building safety as well as meeting all regulatory requirements. In some cases, failure to meet standards may rest with developers and, where that is the case, we would like them to fund work to bring developments they built up to standard.
No view
No view
Sovereign is currently engaged in merger discussions with Network Homes. This is an example of complimentary associations coming together to improve our stock profile and gather more investment to support the growth of our new home pipeline, rather than one association struggling. We see no reason why this process should not continue.
There has been some rhetoric on this issue, but little evidence presented that larger associations offer a relatively poorer service for their customers than smaller providers. We would be interested to see evidence that is provided to the committee on this point, so that we could identify areas where attention might be needed.
Economies of scale allow for greater investment in innovation, new homes, maintenance, community and personal support, which all benefit customers and the wider community. As an example, it is unlikely that Sovereign would have been able to develop its Homes and Place Standard or create its new community foundation that will both have a measurable impact to improve tenants lives as a smaller association.
Larger does not always mean less localised services. As an example, Sovereign operates a ‘localities’ model where there are locally focussed teams for residents that prefer a consistent relationship, but we have retained our central customer service management centre as we know that many residents appreciate the speed and ease of access enabled by a central contact centre rather than having to go through a housing officer.
We have limited experience in partnership working to jointly deliver homes with Local Authorities. Across our operating area several authorities have established their own housing companies and facilitate development through them.
Most authorities actively consult with partner associations to inform and influence forthcoming development plans. Consultation is specifically on the plan making process but more typically regarding policy decisions.
Shared ownership has its place and works well for some groups of customers. Since the withdrawal of Help to Buy we have seen a rise in interest in shared ownership as an affordable route to home ownership. We support the principle of encouraging people to be able to buy a home, and shared ownership is a desirable product for us, however, government must be careful that it is not at the cost of creating enough homes for people for whom ownership is either inappropriate or undesirable for them.
Again, a transition to a more holistic approach, as exemplified by our Homes and Place Standard, that is focussed on the social success and sustainability of new homes and communities rather than a particular tenure type is likely to lead to better long-term outcomes for customers, government at all levels and social housing providers.
No view
No view
Sovereign has significant concerns about the new infrastructure levy. The complexity of the arrangements including setting the appropriate levy, coordinating a choice of development partner, and negotiating a contract and specification is considered exceptionally complex and likely to lead to delay, cost and a reduction in quality.
More generally, Sovereign is moving to reduce its reliance on s106 and instead develop our own sites, although this is related to our requirement to meet the quality demanded by our Homes and Place Standard, which has proven difficult in some cases when purchasing s106 homes from other developers.
What are the policy and regulatory challenges to the Department and the Regulator?
The department is right to be focussed on making sure homes are good quality and that residents can enjoy living in them. How the department ensures that this is achieved is a more challenging question, as is how it also supports the creation of enough new housing to meet need.
Our concern is that housing policy has, understandably, been heavily driven by short term focus on specific issues, events and campaigns rather than taking a long-term holistic view, which would support providers to think broadly about achieving impact, while also reducing the risk of unintended consequences when setting policy.
A key advantage of social housing providers over commercial developers should be their ability to plan and invest over a longer term, making decisions that deliver over decades. The uncertainty that has been a feature of the recent years as the Levelling Up and Social Housing Bills move through parliament have made long-term thinking more challenging, especially around planning policy where certainty is now urgently needed.
The department must take care to avoid ‘cakeism’, continually demanding more from social housing providers while maintaining reduced levels of funding and support. Housing associations have proven to be adaptable and resilient, but there will always be a limit to how much this balance can be pushed without seriously impacting effectiveness. We are aware that for many providers they are at that limit and some of the stories of serious service failure are likely to be symptoms of the underlying underinvestment in housing against demand.
Investment in housing is a powerful multiplier for government and society, reducing overall spending on health and welfare and we feel that greater arguments should be made for the sector by the department.
The relatively new strategic partnership arrangements have made delivery far easier for associations. The ambitions of the programme feel appropriate and are reflective of market condition. Overall Sovereign feels Homes England is being appropriately directed.
No view
No. The sector has been underfunded against government ambition for some time.
No view
The powers of the Regulator directly relate to its standards and the remedies it can use in relation to any social housing providers which do not meet their expectations.
In terms of financial viability for merging organisations, the Regulator is not in a position to assure the future financial viability of the merged organisation as its consent is not required for mergers. What it can, and does do, is review the merged organisation’s compliance against the requirements of its Governance and Financial Viability Standard, which would take into consideration the business case for the merger and the business plan for the merged organisation. Any providers not meeting the requirements of that Standard in full would be required to improve. Any providers not compliant with the Standard are subject to regulatory intervention. That Standard incorporates risk management as an aspect of good governance.
There is a separate Value for Money Standard for which the Regulator has the same powers to require improvement, or to intervene.
The Regulator’s co-regulatory approach includes regular publication of findings from its regulatory activities and a sector risk profile to support providers’ Boards in recognising issues as they arise across the sector.
Arguably the question is not whether the Regulator has appropriate powers to ensure financially viable mergers, value for money and low risk, but whether its Standards set expectations which will produce the required outcomes and whether the Regulator’s existing powers are utilised to consistently optimal effect to assure this.
It could be noted for example that Regulator has downgraded the financial viability rating for a large proportion of providers has been reduced in the last 6 months to a (albeit compliant) V2 rating in light of those providers planned investment in their existing stock and continued development of new high quality housing to improve supply, within a context of uncertainty around inflation and interest rates.
May 2023