Fire costs and weak market ‘hitting housebuilding’

Two major developing housing associations have warned that the cost of fire safety work and the weak market for housing sales will hit the supply of new homes from social landlords.

Paul Hackett, chief executive of 45,000-home London and South-east housing association Optivo, said the sector was being forced to “recalibrate” its expectations in the light of both the huge costs of carrying out fire safety remediation work following post-Grenfell changes to building regulations, and the weaker market.

In October the Regulator of Social Housing estimated that development capacity in the sector would peak at 87,000 new homes per year in 2022. However, the G15 group of leading London and South-east housing associations, of which Optivo is a member, estimated in September that their combined bill for fire remediation work would top £7bn, impacting on surpluses and borrowing and development capacity.

Hackett said: “If you look at the forward [development] programme of housing associations, and the sector’s risk profile, then the level of delivery doesn’t now reflect the costs. The 87,000 is going to prove challenging. We’ll see a recalibration.”

His comments follow a recent trading update from Optivo, in which it revealed that the number of unsold homes on its books had tripled in the past year, and that its pre-tax surplus had fallen by almost a quarter. He added: “We’ve made a decision to de-risk our programme from market sale, we’re not taking on new cross-subsidy schemes.”

Hackett said Optivo had stopped taking on housing schemes where the profit from private sales paid for the construction of new affordable houses, in a bid to reduce its development risk. Since the spring, he said, Optivo had been only developing grant-funded affordable housing. Previously, private-sale homes had made up around 15% of its programme.

“I don’t think cross-subsidy is dead, but it is resting,” Hackett said. ”In a down market like this we need to look for higher levels of grant. The number of unsold homes on associations’ books is at the highest level since the financial crisis.”

His comments come as Peabody chairman Lord Kerslake highlighted the enormous challenges posed by the cost of fire remediation work in an article for Housing Today. Kerslake called for the government to pay for the cost of work on buildings previously signed off as safe prior to Grenfell, without which “the continuing need for the sector to respond will impact on its capacity to deliver on its other priorities including supply [of new homes]”.

>> Read Lord Kerslake’s column: Here’s what should be at the top of the housing agenda

Kerslake also highlighted the parallel impact of necessary work to improve the energy efficiency of housing stock in line with meeting decarbonisation commitments. This which would probably require the replacement of all gas boilers over the next decade.

He said: “Like on safety, delivering this will require action and investment by the sector but cannot be delivered by the sector alone. Greater government investment will again be needed.”