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Under-pressure London housing providers look to merger partners beyond the capital, regulator says
Housing associations in London that are under more financial pressure than elsewhere in the country are looking to merge with providers outside the capital, a senior figure at the English regulator has said.
Jonathan Walters, deputy chief executive at the Regulator of Social Housing (RSH), said that at a “very crude level”, the social housing sector’s finances look “much healthier” once London is stripped out.
“If you take the rest of the country away from London, London looks under more pressure,” Mr Walters told delegates at the Housing Community Summit in Liverpool on Tuesday.
“In very simple terms, organisations that have significant exposures to the London housing market I think are the organisations that are dealing with the most immediate financial pressures.”
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He added that there was a “very definite London focus” among providers with a V3 rating, as more housing associations deal with costs around issues such as building safety.
London has a large proportion of higher-risk tower blocks, many of which still need remediation work to remove unsafe cladding.
The latest report from the Ministry of Housing, Communities and Local Government recently revealed that half of the housing blocks with unsafe cladding – totalling 2,331 – have not started remediation.
As a result of the increased pressure, providers are looking beyond the capital at potential merger partners with more financial capacity.
“We’re seeing organisations that are under pressure in London looking for merger partners, and increasingly those merger partners are coming from outside London,” Mr Walters said.
He pointed to “reservoirs of financial strength” among housing providers beyond the capital.
“There are organisations that probably sit in an arc running from the South West right through to East Anglia where the financial position looks pretty strong,” he said.
Noa Fux, director and lead analyst in the sovereign and international public finance team at S&P Global Ratings, noted that on average the sector has been “trending down” in terms of credit ratings – a tendency seen largely among London-based housing associations.
Speaking on the same panel, Ms Fux said S&P had seen an increase in disposal programmes.
“There is a lot of consolidation, especially of the London-based ones, trying to consolidate geographically,” she said.
“Within London, we’ve been seeing some business plans that are reliant on disposals like that. That’s not positive.”
Mr Walters added: “In London in particular, I think the government’s going to have to think quite long and hard about how it wants to put together programmes in London.”
John Barnes, director of housing and healthcare at Savills, added the need to think holistically about the different priorities for investment.
“That’s difficult when we’ve got constraints. But there are programmes of work that naturally sit together and when we’re having to make prioritised decisions, the risk is that some of those things become detached and then aren’t delivered in the best way for tenants or for value,” Mr Barnes said.
Earlier in the day, Peter Denton, chief executive of Homes England, explained why the Affordable Homes Programme is “struggling” to deliver in rural areas.
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