We attended yesterday’s Social Housing Finance Conference 2024. For all those unable to attend, we have summarised in this insight some of the key points to be aware of.

Extension of the rent settlement

The extension of the rent settlement at CPI + 1% to April 2026 is generally regarded as good news, although a longer-term rent policy is still needed by the sector and was identified as a key sector issue.

Market position

The property sales market is looking more positive and the rental market calmer. Owner occupier demand remains insatiable. Unfortunately, build cost inflation (up 35% at present) is still making new development challenging.

Valuation

MV-T (Market Value Subject to Tenancies) values are expected to be resilient over the coming period.

EUV-SH (Existing Use Value for Social Housing) remains more volatile, however, because it is impacted by squeezed operating surpluses and capital investment requirements. On a positive note, the buoyant stock transfer market is helping to support EUV-SH values.

General election: what is expected under a Labour Government

A new Labour Government is considered a certainty. The Labour Party are unlikely to commit to a long-term rent policy, but are expected to put a focus back on development, and the change in tone to support this was noticeable.

A Labour Government would likely push quality improvements to the housing stock.

Environmental factors are currently further down their priority list, but it is thought that this could change as education around this issue improves and public pressure follows.

While the sector is hoping for a new government to invest heavily in the sector it was noted that a new government will likely take a cautious approach to expenditure.

Sector pressure

The Regulator acknowledged that the sector is under immense pressure with rising stakeholder expectations, challenging economic conditions, increased demand on resources and reputational concerns. However the Regulator stressed that the sector remains attractive to funders with £3.7 billion of agreed financing in the last quarter of 2023.

The need for stress-tested business plans

The Regulator again emphasised the need for stress-tested business plans that are realistic in terms of borrowing costs and interest rates, and which recognise the reduced market sales forecast and a desire to invest in new development.

Balancing capital investment requirements with cash flow pressures is necessary, and Fiona MacGregor issued a firm reminder that early conversations must be held with funders and the Regulator as soon as any covenants could be at risk of breach.

Approximately 25% of housing providers have agreed funder carve outs over the past year. The Regulator expressed how thankful they were at the funders taking such a proactive approach to working with borrowers on their financial covenants.

The Regulator also stressed that it was vital that RPs maintain access to liquidity as part of their core purpose after noting that cash reserves across RPs have fallen to their lowest levels in 10 years.

The new Consumer Standards

When it comes to the new Consumer Standards, the Regulator reported that its new IDAs (In-Depth Assessments) are going well in assessing quality of homes, health & safety and customer engagement, whilst recognising that all RPs have room for improvement.

The Regulator gave a reminder that all RPs should be submitting their TSMs (Tenant Satisfaction Measures) on time on 30 June, and shoud have plans in place to address any improvements needed. Failure to publish, and significant improvements required, will be reflected in regulatory judgements.

Alternative funding models

Long dated private equity investment is a potential option for those seeking alternative funding models within the sector. Other alternative funding models mentioned included for-profit RPs, joint ventures, and sale/lease and leaseback projects.

In particular, we have seen some innovative joint venture models and we expect this trend to continue. Please get in touch if you would like to learn more.

Governance

Good governance remains absolutely critical to raising funding. Talk to us to understand more about what data to present to your funders.

Security charging

The funders talked about potential delays in funding projects caused by security charging, and the importance of getting your security ready in advance to avoid having to put up cash collateral.

Please speak to us about how we can make sure your security is “oven ready” when you speak to the funders. And if you are concerned about having the internal resource to manage a security charging project, we might have a solution through our innovative end-to-end partnership with RedLoft - please see here for more information.

Current economy

The economy is starting to pick up, which is positive news for the sector. GDP is set to improve fractionally over 2025. Once the election period is over, we are hoping for a period of stability in which we can collaborate to the benefit of residents and stakeholders.

Environmental, Social and Governance (ESG)

The conference had an entire strand dedicated to ESG and sustainable finance. Key takeaways from those sessions were:

Sustainable finance and ESG

Sustainable finance and ESG remain a key topic for the sector.

Sustainability linked loans have fallen slightly out of favour due to verification costs and the low discount involved.

Greenwashing is a huge concern to funders particularly with the FCA (The Financial Conduct Authority) introducing anti green washing measures at the end of May. Greenwashing undermines investor and consumer confidence and risks bringing the whole industry into dispute. Funders expressed concerns about certain RPs making weak claims for social impact which wasn’t supported by data.

Sustainable investing for funders

There was an interesting debate about how far funders should “walk the walk” in terms of sustainable investing. Should they be willing to provide their ESG credentials to their borrowers, link the pricing of financial products to the funders’ ESG performance and meet residents, for example?

Reporting

When it comes to ESG reporting, the Sustainability Reporting Standard (SRS) remains the gold standard for the sector. 32 RPs have reported against it for three years or longer with 116 RPs and 37 funders having formally adopted the SRS.

Data from SRS returns

The recent SRS returns provide some interesting data. Adoptees produced 37,000 new homes in 2023 with affordable rent being the largest allocation.

The gender pay gap is also improving and 88% of RPs who report against the SRS now pay a Real Living Wage.

Diversity at board level is improving but there is more to do to attract BAME & LGBTQ+ board members along with those who identify as having a disability as these groups are currently underrepresented.

Focus for funders

From an ESG perspective funders are very focused on

• equality, diversity and inclusion
• Scope 3 emissions
• the condition of stock
• damp and mould issues.

There is a lot of focus on place-based investing and the importance of social value, but with a warning that social value should not be all about ascribing a monetary figure to social activities, but instead should have the clear goal of doing the right thing for tenants.

What is next for ESG reporting? 

The direction of travel for ESG reporting requires the SRS to align with international standards like IFRS S1 & SII and a focus on such topics as biodiversity, waste management, nature and plastics. But the focus needs to be on quality and not the quantity of data.

How Capsticks can help

If you would like to know more about sustainable finance or sustainability frameworks please see our resources here.

To discuss ESG or any other issues discussed in this article, and the impact on your organisation, please speak to Susie Rogers and Naomi Roper to find out more about how Capsticks can help.