Housing association finances are strong despite a year of uncertainty, according to the Homes and Communities Agency (HCA).
Despite unprecedented challenges including rent cuts and Right to Buy, the Homes and Communities Agency concluded HAs are strong enough to meet the demand of building thousands of homes and weather any impact of Brexit.
The conclusion was contained in the 2016 Global Accounts, an annual overview of the financial status of the social housing sector. It is based on analysis of the regulatory financial returns and statements submitted by private registered providers managing or owning 1,000 or more homes.
The report revealed the social housing sector has had a solid year of investment underpinned by strong in-year financial performance.
But there was also advice that management boards would need to carefully consider their use of complex investments such as placing fund in the futures markets.
And HAs have been urged to consider how their boards must adapt to ensure their organisations are managing risks.
The big changes for this year are aimed at enabling boards to benchmark their organisations against other similar housing associations in order to improve performance.
The HCA is providing for the first time an analysis of unit costs at group and entity level, which gives the headline costs per social housing unit, broken down into components, drawn directly from the Global Accounts. This is supported by key data such as supported housing, stock transfer age and regional wages.
The report also sets out group as well as entity level data providing a clearer view of activity, such as open market sales, which typically takes place in unregistered subsidiaries.
In broad terms, the housing stock taken over from local authorities is now less of a risk as major repairs and renovation projects to improve standards are now coming to a close.
The new risk is around new development as they now include products such as open market sale which carry a high financial cost.
The key findings are:
- Over £7.5bn was invested in new and existing stock as the sector continued to leverage the surpluses generated on its trading activity
- The development of new properties for both shared ownership and outright sale increased markedly in 2016 – a 39% increase in total turnover from this activity on the previous year
- Group turnover increased in the year by 8% – despite increases in sale and other non-social housing activity, three quarters of total turnover continues to come from social housing lettings
- Debt increased by £2.2bn in the year to fund capital expenditure
- Improved operating margins and stable costs of debt contributed to an increase in interest cover – while increasing property values contributed to gearing remaining stable.
Fiona MacGregor, HCA’s director of regulation, said: “The 2016 Global Accounts shows a steady picture in the sector overall with substantial ongoing investment in new and existing properties. This is despite the increase in debt being lower than that reported in 2015.
“A marked increase in turnover from commercial activities is an indicator of how providers are maintaining development levels in a more uncertain operating environment. We will remain vigilant as providers continue to adapt, and expect their risk management and mitigation approaches to keep pace with their activities.”
James Prestwich, head of policy at the National Housing Federation, said: “Housing associations are committed to boosting the nation’s housing supply and reinvesting their surpluses into the delivery of vital new homes and services for tenants.
“In total, housing associations delivered a third of all new homes in the country in 2015/16 and our members have ambitions to build even more in the future.
“The development of homes for shared ownership and market sale has generated surpluses which will be reinvested into homes and communities across the country. Diversifying in this way has also highlighted housing associations’ determination to deliver a true offer to everyone in a changing housing market.
“But housing associations are also planning for the future. By driving down costs, the sector will be well-equipped to deal with the challenging financial years ahead.”