Cross-party committee to probe “significant financial pressures” affecting social landlords’ development and maintenance of affordable homes

A cross-party of committee of MPs has opened an inquiry into social housing finances.

The Levelling Up, Housing and Communities Committee announced yesterday that it will probe the “financial pressures facing social landlords” and the resources needed to “build thousands of new homes for social rent” while at the same time improving existing social housing stock.

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The committee, chaired by Labour MP Clive Betts, will examine the range of grant funding available and the “increasingly complex financial and corporate structures proliferating in the social housing sector.” It will also look at policy and regulatory changes affecting the affordable housing sector.

Betts said: “The social housing sector is in crisis. The reality is that social landlords face a range of significant financial pressures, not least the urgent need to invest in improving homes, so they are not blighted by mould, damp, and leaks.

”The sector must also meet the pressing demands to build thousands of new homes for social rent, decarbonise the housing stock, and fix building safety defects.

“In the committee’s inquiry, we want to understand the extent of these demands, the impact on the financial resilience of the social housing sector, and the support and resources needed to meet these challenges and ensure we have the supply of good quality social homes we need for the future”.

The inquiry’s launch follows mounting concern about the financial pressures on housing associations. Associations are facing rampant inflation, a 7% rent cap in 2022/23, and competing pressures to build new homes, decarbonise stock and make building safety improvements.

Rating agency Standard & Poors released a report today forecasting that social housing providers will build 110,000 new affordable homes in 2023/24 and 2024/25, down from 120,000 in 2022 and 2023.

It said it now expects providers’ collective debt to increase from its current level of £104bn to £116bn by 31 March 2025, a year later than it originally forecast. S&P said this indicates social housing funding is “on pause.”

>>See also: Can housing associations again keep development going as the rest of the market slows? 

>>See also: Housing association finances to worsen, warns RSH

It said: “We understand that the sector is diverting resources into existing homes, given the focus on asset quality, building standards, and the green agenda across the U.K. In addition, supply constraints on labour and materials have caused delays.”

This was echoed by the Chartered Institute of Housing’s annual UK Housing Review this week, which describes the state of the housing market.

The report warned that the achievement of targets for delivering new affordable homes, while previously affected by the pandemic, is “now threatened by a new combination of factors.”

It said: “Many social landlords are shifting their focus towards improving the quality and safety of their existing stock, while also facing record increases in costs and new constraints on rental income.”

The select committee’s inquiry is calling for written submissions on its terms of reference (see box below) with a closing date of 12 May.

 

The LUHC committee’s inquiry into social housing finances & sustainability: terms of reference

 

MPs are asking for submissions on the following questions by 12 May:

 

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?

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

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

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

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

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

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?

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?

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

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

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

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?

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?

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?

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?

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

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?

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

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

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

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?

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

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?

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?

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

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?