The Government’s commitment to the housing sector 

The Deputy Prime Minister left no doubt that she is genuinely committed to the sector and wants to work in partnership with RPs to tackle issues including health & safety, rent levels, and new development.  Angela Rayner spoke movingly about how she had gotten where she is today because she came from a council home and is proud of that fact. The Deputy Prime Minister urged the sector to work with her to “unleash a new generation of social homes” and spoke about the Government’s target to deliver 1.5m new homes, acknowledging that it was a “stretch target”. She spoke about the government’s desire to see below-market rent properties available for those who need them, and affordable homes available for those who want to buy.   

Her speech stressed that: 

• Social housing will no longer be seen as an afterthought by the new Labour Government and they want a “council housing revolution” and to “remove the shackles of stigma from social housing” 
• The Government has committed £500m to the affordable homes programme next year, with a view to delivering 5,000 homes.   
• The current consultation on the rent settlement shows that the Government is listening to RP needs. 
• Labour is committed to the Right to Buy scheme as a “house is not an asset but a home”  
• Local authorities should be able to retain Right to Buy receipts, to invest in new homes, and a consultation on this was launched just before her speech. 
• The Right to Buy will not be extended to RP tenants 
• New legislation and guidance, including Awaab’s Law and the upcoming revised Decent Homes Standard, will aim to stop the scandal of people living in substandard homes 
• RPs need to “step up”, ensure the 150,000 children in the UK in temporary accommodation are given safe, secure accommodation and restart delivery programmes and regeneration plans to get more people into appropriate housing.   

Regulatory update

Bernadette Conroy spoke on behalf of the Regulator of Social Housing, making the following key points: 

• The sector is still operating in a difficult financial market, and additional challenges are coming – including a review of the Decent Homes Standard; Access to Information rules; Energy efficiency standards/targets; employment law requirements; and Health & Safety obligations – including Awaab’s Law. These challenges mean investment is needed at a time when interest rates are higher than they have been for years. 
• The sector is still financially viable but the cost of capital is increasing. The sector is facing the toughest financial difficulties since the 2008 crash and the interest cover of RPs (especially in London) is set to be 110% or less over the next year. 
• It was noted that the sector may need 3 or 4 years to financially recover but it was stressed that there are still plenty of lenders willing to lend to the sector. 
• Investment in existing stock, net zero, remediation works is expected to be £50 billion over the next 5 years. 
• The number of new homes forecasted have dropped whilst the number of disposals have increased.  Disposals are often for very good reasons but provide a one-off income and so longer-term solutions are also needed. 
• The new inspection regime is working well, with 3 main themes emerging: health & safety; tenant engagement; and governance.   
  • Better performers have a strong understanding of condition of their stock and health and safety requirements. 
  • Boards must have oversight on health & safety. 
  • Where critical fire safety defects are identified, plans for rectification must be put in place – including interim plans to keep tenants safe pending completion of those works.  
  • A quarter of all buildings that they inspected had poor remediation plans. 
  • Strong internal controls framework, and up to date assets & liabilities register, are essential to identify where risk sits.   
  • Poor or outdated data continues to be an ongoing issue. 
  • Good governance is essential. Risk appetite of boards must be reflected in board decisions and boards need to be able to articulate a clear sense of purpose. 
  • Regulatory responsibility cannot be subcontracted and so there must be robust contract management of third parties.   
  • RPs must communicate and engage transparently and effectively with their tenants 

• Strong messages must not wait before serious issues occur and before self-referring to the Regulator.  

Attracting investment  

• The sector has a solid category A credit quality.  The outlook is positive, although it will take 3 or 4 years to return to 2019/20 levels 
• Plenty of lenders are willing to lend to the sector, albeit at higher rates 
• Peter Benz from Sovereign Network Group stressed 3 key things that are needed, including: being more confident around the policy statements needed, particularly around the divorce of income and expenditure lines; extolling the virtues of a positive and constructive relationship with the Regulator; and stressing how RPs have surrendered some margin over the last decade to modernise and improve sustainability. 

For Profits 

• Key message that For Profit Registered Providers (FRPRs) are no longer new entrants to the sector. They are a significant part of the sector.  
• FPRPs accounted for 20% of new stock in the sector last year 
• FPRPs are very happy to partner with not for profit RPs. 
• Time taken to register new FPRPs  may be inadvertently creating a secondary market in buying & selling RPs. 
• When the panel was asked what one thing they wanted in the future re FPRPs the answers were: 
  • Greater scale and increased number of new entrants 
  • Growth level of activity 
  • A higher level of non-domestic investment in the sector  
  • Equal treatment for For Profits and non-profits  

Valuations 

• The Stock rationalisation market is very active, and it is important to consider how you make portfolios attractive to bidders (including use of lotting). 
• Lower inflation, and continuing pressure on operating costs, will make the picture for EUV-SH values in the spring very tricky.   
• MMC – a rigorous valuation system is in place and there should be no reason MMC units can’t be put into charge provided they are from a quality manufacturer 
• Shared ownership – continues to be a very successful product, with demand outstripping supply, making it very investible and chargeable. 

Building Sustainable Homes 

• The local planning system doesn’t allow for a holistic view of a community 
• The cost of building housing to high environmental standards is high, and there is a disconnect between what RPs need to deliver and the cost 
• RPs should be collaborating on decarbonisation and sharing the skills needed to develop sustainable, inclusive homes  
• Accessible homes release £94K in value over a 10 year period. They provide tenants with greater independence while reducing the cost of care support 
• RPs need to build 35,000-50,000 adaptable homes a year to keep up with the ageing profile of tenants 
• Delivering accessible homes is essential – it has social impact but also financial impact. Cost of investing now is less than it will be years down the line. 
• Accessibility and sustainability go hand in hand.  

Conclusion

It was an action packed and interesting day at the conference, with hundreds of delegates taking part and networking.   

The overall message was that this is a challenging market, but there are still key opportunities available for RPs of all sizes.  In particular, partnerships (e.g. to support SME developers) are a great tool to spread risk and secure the future. 

How Capsticks can help 

We provide a full range of legal services to RPs and local authorities, and our market leading banking and finance and security charging teams headed by Naomi Roper and Susie Rogers are actively working on innovative funding solutions, partnerships, development/regeneration projects and stock rationalisation schemes that actively address many of the issues raised during the conference.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie or Naomi to find out more about how Capsticks can help.