This year’s Social Housing Finance Conference was held against a backdrop of difficult economic conditions. The triple challenge of high inflation, high interest rates and some weakening of the job market is likely to result in continuing economic slowdown. Added to this, the cost of living remains high, with wages failing to keep up. It is, however, hoped that inflation will start dropping soon and that interest rate falls should follow next year. In the meantime, housing is moving up the public agenda, with most people believing that the peak of the cost of living crisis is still to come.

In this insight, we summarise the key takeaways from the Social Housing Finance conference.

Rent setting for 2024 will presents a challenge to RPs without transparency

Consumer Prices Index (CPI) is currently in double figures, but will likely fall to around four to five per cent by the time Registered Providers (RPs) begin rent-setting in September. Experts at the Conference suggested that CPI will fall to around two to three per cent by the time those rent increases are actually applied in 2024, and so RPs will want to be very transparent about the increase and how the revenue will be used to ensure no reputational damage.

Access to funding for RPs

The sector is seeing reductions in operating margins and interest cover. Liquidity and access to funding over the next 12 months remain good - even without incurring any further debt or receiving any more sales income. The Regulator of Social Housing (RSH) is following up with any RPs for whom this is not the case.

Data quality is a priority

The RSH stressed that data quality is a clear priority. RPs must know their stock quality and have up to date, accurate, robust stock quality data, supported by their asset register. This is essential, so that RPs can prepare for coming decarbonisation, energy efficiency and updated decent homes targets.

A rolling five year stock condition survey might not be sufficient for these purposes, unless recent surveys have included physical access to sufficient homes to check interiors.

New consumer standards and code of practice coming soon

The RSH will be consulting on the proposed new consumer standards and code of practice soon - hopefully over the summer.

Regulatory ratings and downgrades

A V2 viability grade is a compliant grade. The RSH is very comfortable with V2 organisations, particularly where accompanied by a G1 governance grade, as this shows an understanding and good management of the risks facing the business.

Themes from recent regulatory downgrades include:

  • lease based providers unable to manage commitments
  • RPs losing sight of their treasury management
    • e.g. breaching financial covenants without realising it, and putting the funders in a position to enforce remedies
  • over-trading/over-exposure to the housing market.

Board competency

RPs should still be actively checking that their Board has an appropriate mix of skills. Financial and development skills are usually present, but Boards sometimes lack the skills needed to ensure the organisation is providing quality services to tenants, and to ensure that the stock is meeting current and future requirements.

Funding covenants

RPs may be finding compliance with funding covenants challenging at the moment, particularly interest cover covenants. It is essential to monitor compliance closely and discuss any issues with the funders as soon as possible.

Credit ratings

Funders are also looking closely at credit ratings. Alex Moss from L&G explained that, regardless of the funder’s view of any particular organisation, capital treatment means it is usually too expensive to hold many bonds from RPs with a credit rating of BBB (or below).

Pre-charging exercises

Susan Hickey recommended that all RPs carry out pre-charging exercises to ensure that any uncharged stock can be put into charge quickly, with values maximised. Please contact us for more information or support with this.

Funding to reach EPC C+ followed by zero carbon

Over the past two years, 70% of funding in the sector has been ESG. Capital investment is needed to reach energy performance certificate (EPC) C+ across all stock, followed by net zero carbon. JLL and Savills are appealing to the funders to agree a new valuation basis to ensure valuations can withstand the impact of this investment need.

Planned development

Anecdotally, the sector is likely to see a 10-30% reduction in planned development over the next five years. Some RPs have paused their uncommitted development plans in response to economic conditions. As such this has triggered mitigations under their business case/stress-testing. The good news is that conditions are improving and many RPs are re-starting those development programmes.

Focus on staff development

Mark Hattersely from Clarion stressed the need to train and develop RP staff.

More information about the Capsticks Housing Diploma, endorsed by the Chartered Institute of Housing, is available here.

How Capsticks can help

Conditions continue to be challenging, but most RPs are navigating those challenges well, ensuring that funder confidence in the sector remains high.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie Rogers to find out more about how Capsticks can help.