But Regulator of Social Housing warns providers they still need to be careful to manage non-social housing risks as market decline persists

The forecast number of homes social housing providers will develop for market sale will decrease by 25% over the next five years due to the housing market decline, the Regulator of Social Housing (RSH) has reported.

The RSH’s annual risk social housing sector profile says that registered providers ”have substantially reduced their exposure to market sales activity” as a result of the difficuit environment.

It said however providers are still forecast to deliver a large number of shared ownership properties for sale in the next five years, and that they will need to manage sales and development risks carefully. 

WALTERS Jonathan (960)

Providers warned to protect social housing stock from activities used to subsidise development

The report notes that non-social housing activity, such as market sales, student housing, commercial property and specialist care, poses additional risks to housing providers.  

The RSH notes that a failure to manage these risks “can be detrimental financially and can damage a provider’s reputation”.

The regulator has warned that the boards of registered providers will need to manage sales and development risks and have the appropriate governance structures in place to safeguard social housing assets from cross-guarantees or financial depreciation of non-social assets.

Jonathan Walters, deputy chief executive at RSH, said: “Social housing providers are navigating difficult economic terrain.

“Boards must be clear-eyed and strategic about the risks they face, and deploy appropriate mitigations when needed.

“They must also make sure they are ready for our stronger programme of consumer regulation from next April.”

The risk profile adds that loans continue to account for the majority of providers’ funding, however, private investment in the social housing sector has increased.

The RSH states that while some registered providers have used private investment to achieve “rapid growth” in the number of units they manage, this funding has the potential to more expensive than debt.

>>See more: Regulator of Social Housing promises ‘proportionate’ use of new powers as it opens consultation

The annual risk profile emphasises the importance of boards evaluating risks associated with new types of funding and ensuring that the board maintains independence from the influence of funders on strategic decisions.

The report states that providers entering into contracts, through joint ventures and with funders, insurers, pension providers, contractors can represent “effective ways to deliver key services” and “value for money”. However, it notes that reliance on a small number of third parties or sources of finance heightens the risks registered providers are exposed to. 

The RSH notes that contractors operate on tight profit margins, and that rising interest rates and cost and wage inflation has resulted in insolvencies in Q2 of 2023 being the highest since 2009.