Tough times are the mother of innovation

The sector has grown accustomed to refinancing at favourable rates – a luxury that is simply no longer available in today’s volatile economic climate.

 

According to the most recent Global Accounts published in January by the Regulator of Social Housing, English housing associations are forecasting that interest payments will increase by £1.6bn over the next five years to £25.7bn – an increase of seven per cent in comparison to previous forecasts.

 

This forecast came before the recent turmoil unleashed by the tariffs announced by the US, so it is likely to change as the effects on cost of debt, materials and labour filter through.

 

Meanwhile, the fundamental need to deliver new affordable homes while improving existing stock remains as pressing as ever.

 

This creates a perfect storm of financial pressure that demands fresh thinking. Here are some reflections from conversations I have had in the past few weeks.

 

Exploring new financial models

 

Equity partnerships with investors represent one of the most promising avenues. But what does an effective equity partnership actually entail?

 

It requires us to critically examine whether we can help build the right homes in the right areas to ensure properties can be managed effectively.

 

It also forces us to question whether we have a comprehensive understanding of our cost base and associated risks to run homes under management profitably.

 

The recent Vistry approach in forming large-scale partnerships with housing providers offers valuable insights, but prudence dictates that we shouldn’t place all our eggs in one basket.

 

Joint ventures with building partners could unlock better capital pricing for schemes, while sharing some of the sales risk.

 

During my previous role at Radian, I gained valuable experience establishing such a partnership with Thakeham for 600 homes. The key lesson: carefully mitigating the risk exposure on market sale properties is essential.

Grant funding realities

 

We cannot ignore that government grant rates for new homes have remained stagnant for an extended period, despite recent high inflation and increased interest rates.

 

Current grant support sits significantly below historical levels, creating a widening gap between grant funding and actual project costs in today’s market.

 

While the recent top-ups by the government to the existing Affordable Homes Programme (AHP) are welcome and will allow more social and affordable homes to be built, long-term certainty through a new AHP will provide the basis for housing providers to be more innovative in meeting the 1.5 million homes target by 2029.

 

Addressing temporary accommodation

 

The rising costs of temporary accommodation illustrate where housing associations could create better options for local authorities, while still achieving returns above social rents – although not at the inflated rates that councils often pay now.

 

The focus should be on providing quality accommodation and creating long-term partnerships, rather than merely providing the lowest-cost solution.

 

Investment potential

 

Despite some recent revisions by credit rating agencies, it’s worth remembering that housing is still viewed as an A-rated sector.

 

We present a more secure investment than utilities, for instance, making us attractive to investors – particularly during the current volatility in financial markets.

 

At Stonewater, we require approximately £700m over the next five years – a mixture of refinancing and new funding, adding to our current total debt of around £2bn.

 

While we’ve been recalibrating our development pipeline, we’re balancing this against our strategic partnership programme commitments with Homes England.

 

Looking forward

 

The upcoming Spending Review in June should provide greater certainty regarding rents and grant rates – fundamental pillars for our planning. However, these will only take us so far.

 

The onus remains on us as social housing providers to continue thinking creatively and prioritising initiatives where we can deliver the greatest impact in alignment with our mission and objectives.

 

In this challenging environment, innovation is not merely desirable – it’s essential.

 

By embracing new financial models, strengthening partnerships and focusing on strategic priorities, the social housing sector can navigate these choppy waters while continuing to fulfil our vital role.

 

Anne Costain, chief financial officer, Stonewater