The current state of financial resilience of social housing providers:

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

We believe that it is weakened, with the impact of recent inflationary changes on utilities costs, materials costs, contract costs and the ability to hire construction related staff meaning that we are in a potentially very weak position. Costs are rising faster than income and we expect a series of additional challenges through Net Zero and Building Safety costs that were never in the original (self-financing) business plans which are very destabilising financially.

Hull CC has a position whereby we potentially have a medium term viability issue prior to taking any account of Net Zero costs.

Making a scheme stack up financially, even with grant and RTB receipts, is increasingly challenging.

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

In our case considerable – overall costs increasing by an average of around 10% and income increasing by 7% has generated a significant (& ongoing gap) in our business plans.

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

This is very challenging – the cost of new build is already increasing by around 25%, which means we are going realistically to have to scale back our overall aspirations for new build properties over the medium term.

We are continuing with the schemes we originally had commenced by future new build projections for sites unknown at this juncture have been halved.

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

No response

Does the cross-subsidy model, by which market housing helps pay for social and affordable housing, have any continuing viability?

This has never really been a feature of new build in Hull. We have been unable to develop sites to generate sufficient profits from market sales, with the exception of those sites which were part of the Housing Market Pathfinder.

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

In Hull we have only recently been made explicitly aware of private equity investors and international investors providing finance for new affordable housing development.

Whilst the finance on offer assists to deliver a viable scheme the affordable product being offered in this case is a flexible rent model – whereby the number of affordable rent units ratchets up and down dependant on how market rents perform when compared with CPI. The challenge this creates is a further watering down/stretching of the definition of affordable housing and potentially further limits the ability to deliver more truly affordable housing.

New challenges to the social housing sector:

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?

This is increasingly difficult to balance whilst at the same time trying to grow the stock through new build.

A significant number of properties remain challenging financially, in particular MSF blocks and non-traditional housing.

The use of RTB receipts is increasingly directed towards new build rather than acquiring existing (non-socially rented) stock.

Whilst we very much welcome the 2 year pause on this percentage increasing it is often the case that acquisitions represent better value for money. Should there be a number of landlords exiting the private rented market [as seems to be the case based on very recent (12 months) anecdotal market sentiment, and the recent marketing of some large PRS portfolios,  gathered from our acquisitions team).

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?

Maintenance and upkeep of existing stock and how we afford to do that will increasingly become our focus, alongside removing stock that is financially challenging. Net Zero aspirations – if they don’t come with the necessary funding will severely exacerbate this issue.

It will become increasingly challenging to do both.

Lots of consideration being given to the mix of properties, with a particular challenge in delivering family homes which have been the most affected by historic RTBs but financially more challenging – increases in rental for bigger properties don’t compensate for increases in cost. The number of larger homes that become available to let is around 1 per week which isn’t enough to meet demand.

Whilst it increases net supply, housing will be built or acquired under the LAHF to assist refugees currently in bridging accommodation (4+ beds). Existing potential tenants on the waiting list unable to access properties of this size may perceive an element of unfairness.

Basically we need a grant system that allows us to deal with funding gaps not a percentage funding model that works OK in areas where rents are higher and in particular infrastructure costs are lower (ground conditions/ flood alleviation etc).

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

No response

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

In terms of our plans, we started with sufficient headroom to undertake a new build programme but the increased flexibility is helpful in longer term planning.

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

No response

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?

No response

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 believe so – in Hull we are in the initial stages of developing a LA/RP housing partnership which spans Hull and the East Riding (similar to what has been developed in North, West and South Yorkshire); the intention of those partnerships is to develop a shared understanding of each operators development ambitions (and tries to match those with land opportunities) and begin to consider the regional materials and labour requirements for decarbonisation works (and develop joined up SHDF bids whereby works are planned geographically rather than landlord by landlord).

The effect of these types of partnerships remove some element of competition between providers and establish clear delivery pipelines/land opportunities over the longer term and ensure that planning for accessing the same scarce materials and skills (particular the latter in the case of retrofit works) is shared.

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?

Traditionally, in areas like Hull the shared ownership product does not really work and we have previously seen little or no demand for it.

However, given the recent direction in travel in house prices we do anticipate there will be a small increase in demand and desirability for this form of tenure (and our developing Housing and Economic Development Needs Assessment does identify this).

It remains the case though that affordable housing need in Hull and other lower income areas is primarily and overwhelming best met through low/no barrier affordable rented products.

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?

We don’t see this as a viable answer in areas like Hull where building and selling at a profit is a risk/ challenge that we are not really equipped to meet and market rents are not sufficiently high to allow us to generate surplus on market rental properties to subsidise non-market properties on the whole.

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

This poses a risk to development in the city if the Government moves to a standard levy that doesn’t take account of local circumstances and creates a risk that sites that were marginal could become unviable without substantial reductions in affordable housing levels.

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

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

No – current policy and funding programmes are not granular/specific enough in focus to understand the particular issues affecting different parts of the country and as a result increasingly focus on affordable ownership products (shared ownerships, First Homes, etc) which do not meet the greatest amount of need for affordable housing in Hull.

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

No response

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

No response

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

No – there needs to be a lot more focus on dealing with issues around existing stock – whether it be Net Zero for those to be retained or supporting replacement of stock that is past its sell by date.

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?

No response

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

No response

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?

No response

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?

No response

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

No response

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?

We would expect this to be the case without additional Government support. Dealing with existing properties, increasing disrepair claims and general inflationary pressures not flowing through into increased rent will reduce the amount we have to subsidise new build numbers.

Other observations

RTBs

The two year scheme to allow us to retain all RTB receipts is helpful but what would be even more helpful is to

-          Allow them to be used in conjunction with Homes England grant where that was needed to make schemes viable

-          (especially in the current market) allow a longer time frame than 5 years to use them. Whilst 5 is far better than 3 it is still a relatively short period should the values increase and we have to develop schemes from scratch.

Disrepair

This is becoming an increasing challenge for us with exponential growth in claims coming over recent years. The more egregious firms of solicitors need to be discouraged from pursuing claims with minimal credibility. There is a danger that we will become overwhelmed dealing with spurious claims rather than investing in our properties.