The Finances and Sustainability of the Social Housing Sector – Report Summary

Summary

The social housing sector is crucial for providing shelter and support for millions of households. The sector is, however, under serious financial pressure, although it remains resilient for the time being. The sector has been presented with massive bills for decarbonisation, fire safety and regenerating old homes. At the same time, the maximum rent social housing providers can charge has been unexpectedly capped by the Government.

In order to deal with the financial headwinds, social housing providers have cut the amount they plan to spend on building new social homes. This reduction in new building has been necessary for social housing providers to remain financially secure.

However, this comes at a time when the country needs to build significantly more social housing and if this continues it will present a major problem for individuals that need social housing. Moreover, all stakeholders are clear that England has been facing a chronic shortage of social housing which must be addressed.

• We therefore once again call on the Government to invest to build the social homes the country needs. The Government’s current use of grant to fund mainly affordable rent and shared ownership is inefficient when these homes can be financially viable with no direct grant: we recommend that the Government should conduct an early assessment of the adequacy of grant funding allocations and how much social rent is to be supported. The Government should also assess the role of appropriate private investment providing affordable rent or other forms of tenure in order to free up grant funding to better support more social housing provision. As a first step the Government should set and publish a target for the number of social rent homes it intends to build each year.

Although we have heard of encouraging signs that private investors are able to fund the building of more social homes, it is imperative that these investors are properly regulated and committed to long-term investment in the sector. In addition, land value capture presents an opportunity to finance social housing. We recommend that:

• Land value capture should be used as a tool to support social housing. The Government and local authorities should use their planning powers to ensure that the price of land does not inhibit the development of new social homes and the Secretary of State must be prepared to be flexible with the powers provided by the Levelling up and Regeneration Act.

As well as the financing of social housing development, our report also raises issues with the costs of maintaining social housing and the different financial risks faced by registered providers, as well as related issues.

As well as the cost of delivering new homes, the social housing sector also has to make expensive improvements to the homes it has, and has received too little help from the Government to meet these costs. We must improve the energy efficiency of homes for the UK to meet its climate change objectives, but Government funding for social housing decarbonisation is insufficient. Many social homes, like other buildings, need to find money for fire safety work, but the Government still refuses to provide the social housing sector with the same fire safety funding as the private sector: this must be changed.

• We once again reiterate the recommendation from our 2020 Report, The Regulation of Social Housing, that “Social housing providers must have exactly the same access to funds for building safety remediation as private sector landlords.”

In many cases social housing providers are faced with the challenge that some homes would cost more to remediate than the homes are worth. These homes need wholesale regeneration, but this is expensive. Homes England is becoming more flexible about the funding it provides for projects like these but it is restricted by the Government’s net additionality guidelines from funding refit and refurbishment projects.

• We therefore recommend that the Government give greater weight to the positive benefits of regeneration so more funding can be made available for regeneration, and that Homes England should increase the flexibility it offers housing providers on funding for replacing homes.

Finally, the level of financial risk varies significantly across the sector. This requires the Regulator of Social Housing to take a clearer and more proactive approach to regulating individual providers. Where registered providers have significant financial reserves, the Regulator should be more ambitious in its expectations for how they can support tenants by making improvements to their homes. However, the possibility of even one housing association defaulting on its loans could have a knock-on effect on rest of the social housing sector’s ability to attract investment.

• Where registered providers face more financial risk, we recommend that the Regulator should engage with them more regularly.