According to a report from Octopus Real Estate, nearly half of respondents are not confident they will be able to maintain their development at the same levels as last year.
The report attributed this to a “perfect storm” of pressures in social housing. This includes inflation, construction costs, higher interest rates, decarbonisation work, regulatory and policy-related pressures, and cost of debt.
Octopus Real Estate said that it was more challenging to make affordable housing development projects financially viable, with increased build and finance costs leading a third of Housing Associations reporting a deficit of 11 to 25 per cent on individual development schemes.
The recent seven per cent rent cap on social housing rent has led to an £3.2bn loss in rental income for registered providers.
London-based housing associations said that members were cutting development programmes by as much as a third, with other providers noting that they has reduced development by over 40 per cent due to financial conditions.
The report continued that housing associations have chosen to focus on improving their current housing stock, with overall spend on repairs and maintenance increasing from £5bn in 2018 to £6.5bn in 2022.
Octopus Real Estate added that spending on existing stock was expected to grow further due to the government’s review on Decent Homes Standard and increased scrutiny of social housing quality following the death of Awaab Ishak.
Simulating housing delivery
Professor Alex Lord, lever chair of town and regional planning at the University of Liverpool, said: “How do you address the housing crisis without the essential evidence and analytical tools to plan proactively for new development? Octopus’s report represents an important step in addressing this question by presenting evidence on the effects of current housing policy on registered providers of social housing.
“It is these registered providers — numbering over 1,500 in the UK — that will be essential to delivering the new affordable dwellings that the country so urgently requires.”
He added: “Yet the findings of this research suggest that these providers are unable to fulfil their purpose; those surveyed expect a significant reduction in their development pipelines over the short-medium terms.
“There is a considerable gap between aspirations and what registered providers expect to materialise over the coming years. This timely and important intervention from Octopus presents a clear case that we need to think again about stimulating the delivery of new affordable homes.”
Cost of debt has ‘soared’
Octopus Real Estate noted that housing associations had previously been active in debt facilities to fund projects, but as interest rates have increased dramatically, very few providers were active in debt capital markets.
The report noted that in the majority of cases registered providers were avoiding raising debt altogether.
Jack Burnham, head of affordable housing, Octopus Real Estate, said: “Registered providers have historically relied on private finance to support their development ambitions. But changing economic conditions mean that the cost of debt has soared and social landlords must now pay more to access the finance they need to build new homes.
“This pressure has been compounded by the enormous investment required for landlords to hit net zero targets as well as addressing issues of disrepair in the sector.”
He added: “In producing this report, we’ve had many conversations with key figures in the social housing sector. This has provided valuable and reliable insight into the position that many registered providers find themselves in today.
“When considering the competing pressures in the affordable housing sector, it’s clear that a crucial decision needs to be made. Registered providers can continue business as usual and hope for increased grant rates from government, or they can look for innovative solutions — as they have done in the past — which can help deliver the homes the country needs. Consensus suggests that registered providers are now looking towards equity partnerships as a solution.”
