Housing associations’ ability to build maybe ‘seriously undermined’ by cuts

4 May 18

Housing associations’ ability to build more homes to help solve the housing crisis is being hampered by centrally-imposed funding cuts, a real estate advisor has warned.

To meet housing need in England 300,000 new homes are needed each year, 100,000 of them affordable, Savills noted, in analysis released on Wednesday. 

“Many housing associations have a real appetite to build more to help achieve this,” the consultancy explained in its analysis, released at a social housing finance conference.

But limited grant funding and a four-year programme of rent cuts “could be dramatically undermining” their efforts to help meet this demand, Savills said.

In 2010, the coalition government cut the level of grant funding by 60%, and funding for housing associations has stayed low ever since.

The Welfare Reform and Work Act 2016 said that providers of social housing must reduce rent payments by 1% for the next four years.

The sector produced 23,000 affordable homes, representing 90% of the annual total, in 2016, Savills noted, although they were in the first year of the rent cut regime.

Its core margin from social housing lettings also increased by an average of more than two percentage points in the first year of rent cuts, from 32.3% in 2015-16 to 34.5% in 2016-17, according to Savills’ analysis of the published accounts of over 200 housing associations.

Helen Collins, head of housing consultancy at Savills, said: “To achieve margin improvements in the face of rent cuts is a significant achievement.

“However, many in the sector caution that they were able to make some large, one-off efficiencies.”

She added: “This low hanging fruit can only be picked once and keeping the focus on cost efficiency going forward will be key as the rent cut continues to 2020.”

She explained maintaining margins for housing associations was important as it allows them to borrow more to fund development.

“Development activity is capital-intensive and sales tenures carry market risks,” she said.

In October 2015, the Office for National Statistics reclassified housing associations as ‘public sector’, before moving them back to the private sector in November 2017, which the government said would allow them to borrow more to build.  It also took £66bn off the public balance sheet.

Savills’ research involved analysis of the accounts of 202 housing associations.

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