A turning point for social housing?

Posted: June 13, 2023 | Author: julesbirch | Filed under: Cost of living, Council housing, Housing associations, Housing finance, Social housing |Leave a comment

Originally written as a column for Inside Housing.

For as long as I can remember the social housing business model seems to have been at a turning point.

From private finance to stock transfer, from affordable rent to welfare reform and from austerity to the rent cut, the policy changes have kept coming against a wider backdrop of financial crisis, Grenfell, Covid, Rochdale and the cost of living crisis.

For years it’s seemed that something has to give – until it does and landlords have to do more with less and tenants get less for more and apparent turning points become spinning in ever-decreasing circles.

This time around, though, you really get the sense that things can’t simply continue as they are and as they have been.  

That was what came across quite powerfully both from this week’s first hearing of the Levelling Up, Housing and Communities Committee’s inquiry into the finances and sustainability if the social housing sector and from the written evidence submitted in advance. The inquiry continues with a new set of witnesses on Monday.

This is not just about the impossibility of squaring the circle between competing priorities, of continuing to deliver new homes at the same time as fixing unsafe buildings, regenerating ageing estates and decarbonising existing homes.

And it’s no longer just about doing more with less either. The return of inflation, and even larger increases in construction prices, mean delivering the same with much less.

Fiona Fletcher-Smith, chief executive of L&Q and chair of the G15, told the committee that London landlords were seeing repair and maintenance costs up 16 per cent and new build costs up 25 per cent this year. That’s on top of rising costs for electricity (225 per cent) and gas (an incredible 573 per cent).

The assumption is that the sector as a whole is financially resilient but, as the Housing Finance Corporation points out in its written evidence: ‘The sector averages mask a wide range of resilience levels, with a number of housing associations finding themselves financially stretched with concomitant impact on the ability to develop new homes. The downward movement in financial resilience is evident in the significant number of HAs who are having to renegotiate their lender covenants to avoid defaulting.’

The cost of living crisis means landlords cannot simply pass those increased costs on to tenants, as seen in the decision to cap rent increases at 7 per cent this year rather than the 11 per cent implied by the rent formula.

But for landlords the cap comes on top of the four-year cut in rents from 2016, with the G15 estimating that the impact on its members alone is a loss of £6.6 billion in reinvestable resources to 2024.

Kate Henderson, chief executive of the National Housing Federation, called for ‘certainty and consistency in consultation on the next rent policy framework, including reintroducing a convergence mechanism’.

Convergence means allowing landlords to catch up with past losses in the new settlement that will apply from 2025. Kate Wareing, chief executive of Soha, said it had held this year’s rent increase at 5 per cent and: ‘By giving individual boards the discretion to be able to recover, you also give them the freedom to be able to protect during times when things are really tough.’

Landlords hope a new framework for five or 10 years will give long-term certainty. However, previous ‘long-term’ settlements have proved to be anything but and the consultation on this one will be taking place with the cost of living crisis still top of the political agenda.

There was also noticeable push-back on rents and surpluses from Conservative members of the committee like Natalie Elphicke.

At the same time, billions more in costs for building safety, decarbonisation, estate regeneration and potentially Decent Homes 2 all have to be paid for, with government funding inadequate for the first two, non-existent for the third and not yet clear for the fourth.

In its written evidence, the Local Government Association says that the underlying assumptions behind the 2012 self-financing settlement for council housing have been superseded, with lower income expected to cover higher costs and higher standards.

The same point applies across social housing and arguably across the whole of the public sector, of course, so something has to give – but what and how?

If the prospect of a change of government is grounds for optimism, recent moves by Labour to scale back its green prosperity plan (including housing decarbonisation) so that it can look more fiscally responsible might serve to temper them.

Witnesses highlighted the billions spent on homelessness and temporary accommodation and the wider consequences for health and education at the hearing this week but you sense that something more radical and structural will be needed to shift attitudes inside Whitehall and especially the Treasury.

One change would be to challenge notions of fiscal responsibility by treating investment differently to day-to-day spending and taking account of the assets created as well as the money spent. As Fiona Fletcher-Smith put it to committee: ‘Think of building social housing as adding to the national infrastructure rather than adding to the national debt. We have to change our mindset on this, because it is regarded as borrowing or grant and a drain rather than the creation of an asset that will reduce expenditure in lots of other ways. It is a flip of mindset.’

Another, as a report from the Joseph Rowntree Foundation argued in February, would mean seeing the coming housing market downturn as an opportunity that must not be wasted, the chance for a long-term reset of housing than a short-term response to a crisis.

Something has to give – could this be a turning point at last?

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