More than half of English housing associations reduce forecast development plans

“The majority of this reduction is driven by one provider reducing their 12-month development spend, accounting for over 40% of the overall decrease,” the regulator said. 

“Over half of providers have also reduced their forecast development, with some pausing or removing uncommitted development due to the current operating environment.”

Actual expenditure on new housing in the quarter amounted to £3.8bn, significantly higher than the previous quarter’s figure of £3bn. 

The regulator said development spend is relatively concentrated, with seven providers each investing over £100m during the quarter and together accounting for almost 30% of the total expenditure within the sector.

The expenditure was 7% above forecast levels, which the regulator said was driven by two providers, one of which is a for-profit, reporting over £300m of combined overspend between them.

Overall, 42% of providers were reporting an overspend against forecasts for committed schemes, the report said.

“Market volatility has resulted in prolonged contract negotiations, and the requirement for updated appraisals, further delaying development works. Other reported issues include delays during the planning process, some developers pausing schemes and setbacks in handovers due to stock quality issues,” it added.

In the report, the regulator described a “challenging and turbulent period” for housing associations, driven by “inflationary pressures and economic uncertainty”. 

It also revealed that the sector spent £1.1bn on reactive repairs and maintenance in the quarter, a small rise on the £1bn spent in the previous three months. 

More than 60% of providers reported that they experienced delays or made changes to repairs and maintenance programmes during the quarter, with price increases and labour and materials shortages continuing to be significant factors.

Expenditure on capitalised repairs and maintenance – planned investment to improve homes – amounted to £678m during the quarter; 21% lower than the amount previously forecast, but 17% higher than the £581m recorded in the previous quarter.

Expenditure is forecast to soar to £933m in the last quarter of the financial year.

“Providers have reported costs being impacted by a number of factors, including the continued effects of inflation combined with high demand for repairs, which has been compounded by recent media coverage of mould and damp issues within the sector,” the regulator said. 

“Additional investment is also being made in areas such as building safety and energy efficiency.”

As costs rose, interest cover (the ratio of earnings to interest due) dipped to 91%, although this was above the projection of 84% resulting from below-budget expenditure on major capitalised repairs. 

Including both capital and revenue works, total expenditure on existing stock is forecast to reach £7.7bn over the next 12 months, the report said. 

Housing associations obtained loan covenant waivers in response to increasing investment in existing stock, with 26 having agreed a waiver to exclude the exceptional costs of building safety works from loan covenant calculations, and 22 waivers being reported in respect of energy efficiency or decarbonisation works.

The sector’s total agreed borrowing facilities increased by £2.1bn over the quarter, to reach £121.8bn at the end of December.

A total of 29 providers arranged new finance during the quarter, with 10 providers each arranging facilities worth £100m or more. 

The funding was heavily weighted towards loans from banks, which accounted for 75% of new finance. Capital markets (bond finance and private placements) accounted for 23%.  

This is a reversal in the trend towards capital markets, which dominated in recent years, and comes as the sector hesitates on major new bond issuances due to the rise in interest rates. 

“As risks begin to crystallise within the operating environment, providers will have reduced financial flexibility to respond to further challenges,” the report said. 

“Providers are expected to closely monitor and update forecasts to reflect ongoing inflationary and interest-rate risks, along with the potential for increasing arrears as cost of living pressures impact upon tenants. 

“Providers must be able to identify areas where covenant headroom or liquidity may be restricted and ensure that contingency plans and mitigations remain robust.”