As the sun finally sets on the best weather at the Liverpool conference in years, our experts summarise some of the key takeaways from the action-packed agenda:   

The economic backdrop   

The new Government is very supportive of the housing sector, and conversations with them are productive and positive. The economy is growing, and people/organisations are starting to borrow to fund spending. The Government has committed to 1.5m homes and recognises the importance of homes for economic stability. 

This is, however, against the backdrop of a very challenging operational environment. Historic rent cuts and cuts to the affordable homes programme have made investment increasingly challenging. However, the conference looked at the practical things that RPs can achieve and the ways they can get the best for their residents and the wider population. 

The spending review in June will be critical. If there was one key message for Angela Rayner, it came from Kate Henderson from the National Housing Federation (NHF), who asked the Government to recognise that investment in social housing makes real economic sense.

Innovative ways of funding  

Current economic challenges mean it is time for the sector to innovate to avoid stagnation. Gilt rates are at their highest level for 20 years, which has resulted in the majority of funding arrangements being Revolving Credit Facilities (RCFs). Equally median reinvestment in existing stock is at its highest level since the value for money metric was introduced.  

Something needs to change, this must start with a higher risk appetite from all key stakeholders, including RP boards, funders, the Regulator and especially the credit rating agencies.   

Off balance sheet forms of funding, such as equity financing should be considered by RPs as part of a diverse funding portfolio. Equity funding is off balance sheet. The RP forms a joint venture vehicle with the equity funder, who provides an injection of capital while the RP provides seed assets (shared ownership units). However, it’s key to find the correct partner who is happy to share the risk and isn’t going to cherry pickassets. Equity funding requires patient capital with sensible yield expectations.   

Funders in the sector are very clear they are open for business and fully committed to the sector, wanting to continue conversations about how best to serve their customers. 

Is it time to rebrand not for profit RPs as not for distribution and have an honest conversation about the nature of the sector and how income is divorced from expenditure?  

A move back towards the capital markets is likely to come towards the end of this year (with it being noted that gilt rates are unlikely to fall below 5% in 2025), but in the meantime, RPs are innovating by looking at equity funding structures and joint ventures to maximise capacity in their business plans. 

The Regulator’s perspective

Fiona MacGregor, Chief Executive of the Regulator of Social Housing, spoke of a recognition that cash flows were at historically low levels and interest cover was hampering RPs. Nevertheless, she emphasise the urgent need for more social housing and stressed that it is incumbent on all RPs to develop these homes. In its view, investment in existing stock and development should not have to be mutually exclusive. 

Of course, there has been a recent emphasis on consumer regulation, but the Regulator was keen to stress that both governance and financial viability will always remain a focus. Strong governance has to underpin everything that an RP does. Going forward, it appears the Regulator will be interrogating RPs more thoroughly on value for money and efficiency. RPs need to consider how they ensure the money they do have to spend is being used to achieve the most impact. 

The Regulator also wants to see a recognition within the government of the impact that investment in social housing can have on the wider economy and the growth agenda, particularly when it comes to decisions over future grant programmes. 

Valuations update 

JLL and Savills are predicting house price growth of between 20% and 23.4% respectively, over the next 5 years and 17% and 17.6% respectively, in rental growth.  They have seen slower growth in the south of the UK with greater gains in the north, which is a trend they expect to continue.  As mentioned in previous updates, MV-T values are currently more robust than EUV-SH values because of the investment needed in existing stock. 

The valuers identified a number of issues which will be significant and include: 

• The Renters Rights bill - which will be positive for investors as standards improve.
• Gross yields are rising in stock transfer projects, with a recommendation that ‘lotting’ is helpful with tenanted stock transfers as they create bite-size portfolios that are easier to dispose of, and keep pricing steady. 
• Decarbonisation will help stock standards, but is costly to achieve. It will ultimately be helpful for RPs to carry out a full audit and understand stock conditions and potential costs.  

ESG 

We have reached peak ESG in the sector not aided by a constant attack on ESG & EDI stemming from American politics. RPs still want to do the right thing, but with so many competing demands on their time and resources, there has been a shift away from ESG financial products over the past year. 

The social housing finance sector is the only sector that has come together to set out the terms and metrics by which they want to be judged via the SRS. 

The SRS will evolve over time as regulatory demands in this area change. The SRS is developing a reporting tool with Housemark for RPs to utilise. 

ESG is still absolutely vital. Funders need to comply with the FCA’s anti-greenwashing requirements, and there are more regulations coming down the line re-climate reporting (IFRS S1& S2, which enshrine climate reporting in the accounts and require reporting on climate risks and opportunities), so this will have a trickle-down effect on RPs. 

The key is for RPs to report against the SRS as their stakeholders (especially their tenants) want to see their commitment to sustainability and to be prepared for further regulation in this area and it will be necessary to be on top of it to access future funding.  

Conclusion  

Although times are tough, RPs are keen to step up and explore ways to achieve the Government’s targets for new development, as well as investing in their existing stock. Partnerships with the private sector often offer opportunities to do this whilst sharing the risk. 

The Conference was impactful. We are looking forward to the next one.  

How Capsticks can help   

We provide a full range of legal services to RPs and local authorities, and our market-leading teams are actively working on innovative funding solutions, partnerships, development/regeneration, mergers/acquisitions and stock rationalisation schemes that support many of the issues discussed in Liverpool this week. 

If you have any queries around what is discussed in this insight, and the impact on your organisation, please speak to Susie Rogers or Darren Hooker to find out more about how Capsticks can help.