UK housing associations rated by Moody’s made record operating profits in 2017, despite the introduction of a 1% annual social housing rent cut that will be in place until 2020.
Although rents declined in their core social housing business, HAs were able to increase turnover by 6% from the previous year.
However, growth in turnover was slightly subdued relative to a compound annual growth rate (CAGR) of 10% over the last five years.
“Housing associations have adapted to policy changes through efficiency savings, consolidation through mergers and revenue diversification into commercial activities to bolster revenue,” said Matt Fawcett, the report’s co-author.
“The increase in profitability in 2017 was driven primarily by cost reductions across the core social housing letting business, including cutbacks on maintenance costs and major repairs.”
Maintaining strong operating performance will be a key credit differentiator during the next three years of the rent cut.
While HAs’ core social housing letting business remains the least risky and most profitable, its share of turnover has been decreasing every year for the past five years and represented 69% of turnover in 2017.
Diversification into market sales activity has accelerated dramatically in the last five years, doubling as a proportion of revenue to 18% of turnover in 2017. This level of exposure is expected to increase further as HAs focus their development on shared ownership units and properties for outright sale.
The sector’s growth continues to be funded by debt, topped up by operating cash flow and government grants. Aggregate debt rose by 13% between 2016 and 2017, compared to a compound annual growth rate (CAGR) of 8% over the last five years.