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HRA business planning: learning from housing associations

Steve Partridge of Savills takes a look at the financial factors councils should consider in their Housing Revenue Account business planning

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Picture: Getty
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HRA business planning: learning from housing associations #ukhousing #socialhousingfinance

The abolition of the cap on Housing Revenue Account (HRA) borrowing in the 2018 Autumn Budget has raised a whole range of questions.

 

What is a realistic and achievable target for local authorities to contribute to the development of new affordable housing? What does a sensible and proportionate borrowing strategy look like for the HRA? How do authorities go about setting their own borrowing capacity limits now that the government is not doing it for them?

 

In the December 2018 edition of Social Housing, Savills published some preliminary work that identified possible borrowing capacity for local authorities as a whole, based on an initial view of authorities’ interest cover at a national level and on 2017 figures. In this feature, we look at key metrics for individual authorities and take a more granular view of the financial factors affecting HRA business plans, updated to 2018 figures. This is the first of a series of analyses that we hope will underpin the debate on future capacity.

 

Savills undertook some research for the Association of Retained Council Housing and the National Federation of ALMOs in 2017 that considered how local authorities with HRAs might usefully learn from the successful experience of 30 years of private finance for housing associations (HAs). With the cap lifted, now is the time to take the analysis a stage further and test the ‘art of the possible’ for the HRA.

 

Introducing the HRA

 

This year is the 100th anniversary of the Addison Act, which introduced a national council housing programme. Over time, the HRA emerged as the statutory way to account for council housing locally, until 2012 always with a national influence.

 

Many readers will be familiar with the HRA as a ringfenced income and expenditure account for council housing within a local authority’s overall services. The HRA contains everything you’d expect for a social housing rental service: income from rents and service charges, operational costs of management, maintenance and major repairs, and debt costs (interest and repayments).


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However, there are some fundamental differences to HAs – all of which arise from the fact that the HRA is part of the local government accounting system, public-funded, statutory reporting frameworks that have been in place for decades. Here are seven of the more important differences:

  • Separate accounting and financing for revenue and capital: the HRA must balance revenue income and expenditure (a statutory requirement since 1990) and cannot be deficit budgeted; capital expenditure must be separately accounted for and explicitly financed – some sources of finance can only be used for capital, such as capital receipts and borrowing.
  • Depreciation is ‘cash backed’, the equivalent of an HA’s ‘major repairs charged to income and expenditure’: a charge to the HRA representing depreciation is credited to a major repairs reserve and funds from that reserve are released for major repairs expenditure on the stock.
  • HRA debt is almost exclusively borrowed from the Public Works Loan Board (PWLB) at low rates linked to gilts; as for registered providers, most loans are maturity loans on fixed rates and interest rate risk is mitigated effectively through having a range of loans at various lengths, allowing refinancing to take advantage of rate movements.
  • HRA debt is usually pooled with other council debt: interest charged to the HRA is based on an average across the entire borrowings of the authority, rather than on the basis of specific loans. Although this is changing, particularly since the 2012 self-financing debt settlement, the majority of HRA debt is pooled, and this means interest rate exposure is further mitigated across a larger pool of borrowing.
  • HRA debt is measured through the Capital Financing Requirement (CFR): this is the underlying need to have borrowed to finance capital expenditure, not the actual loans in place; this is akin to an offset mortgage where, for example, the actual loan might be higher than the net indebtedness, or where the council has used cash from the rest of its services to ‘internally’ lend to the HRA – interest is charged on the CFR.
  • There is not a separate ringfenced balance sheet for the HRA; the valuation basis for dwellings is Existing Use Value (as for HAs) but rather than being cash flow based, it is based on a discounted open market valuation – the discounts are on a regional basis and periodically published by the Ministry of Housing, Communities and Local Government.
  • Debt is not raised against asset values – councils borrow based on the Chartered Institute of Public Finance and Accountancy (CIPFA) Prudential Code under which authorities set prudential indicators (PIs) relating to the prudence of their borrowing – PIs are akin to HA covenants but do not operate in the same way as the code is self-regulated with auditors rather than dependent on the view of external funders.

When looking across both sectors, it is essential that the points above are factored in. Fundamentally, however, as the HRA for a council is doing the same job as the income and expenditure account for an HA, an HRA has debt just as an HA does, we are able to make meaningful comparisons on many levels – and we hope that this helps to expand the thinking around HRA business planning.

Introducing the table

 

The table (titled ‘Local authorities with HRAs’, see below) shows authority-level data extracted from CIPFA’s HRA statistics relating to the year ended 31 March 2018 – they cover the same period as the 2018 HA global accounts published in December.

 

In presenting the data, we have made some assumptions about grouping headings together to enable comparability. We have excluded two authorities that have private finance initiative stock only. Readers will note local and individual factors at play for some authorities – we will do more work to understand the impact of these.

 

The table sets out the following main factors.

  • Total stock: as at 31 March 2018, virtually all traditional social housing but with some shared ownership and some affordable rent provision and conversions under the Shared Ownership and Affordable Homes Programme.
  • Turnover 2017/18: gross rents less voids loss plus all tenanted and leaseholder service charges for dwellings plus rents on non-dwellings (including garages and shops on estates); turnover also includes contributions made by other council services (for example for grounds maintenance) and some revenue grants.
  • Operating expenditure 2017/18: covers housing management, service costs, day-to-day repairs and maintenance, cyclical and planned repairs, plus the amount of money moved to the major repairs reserve; also includes contributions to bad debt provision, lease costs and the cost of council tax on empty properties.
  • Operating surplus and operating margin 2017/18: turnover less operating costs compared to turnover.
  • Gross asset value: as at 31 March 2018, this includes dwellings at Existing Use Value and fair value of other assets, typically garages, shops and offices; asset value per housing unit is shown from the gross value because the relative value of other assets is low.
  • Debt and debt per unit: the level of indebtedness as measured by the CFR as 31 March 2018, per unit at the same date.
  • Interest and interest cover: interest costs for 2017/18 compared to operating surplus over the same period.
Picture: Getty
Picture: Getty

Interest cover is a key metric/covenant for the HA sector and funders. It is a primary way of measuring the potential capacity for further borrowing but also the resilience of HAs to changes in government policy, inflation and interest rates. Comparisons can usefully be made between the two sectors.

 

Other key covenants for HAs include gearing, asset cover, loan to value etc. Here, comparisons with the HRA are more difficult as the ability of an authority to borrow is not explicitly constrained by asset value cover. We will aim to do some more work with individual councils on the figures in a subsequent feature, and to report on asset cover and gearing in an HRA context.

Local authorities with HRAs (as at March 2018)

Total 1,586,682 95,808,876 60,383 26,012,815 16,394 646 8,267,523 5,980,325 2,287,198 27.66 2.23
Local authority Region No of units Total assets (£000) Asset value per unit (£) Debt (£000) Debt per unit (£) Interest per unit (£) Turnover (£000) Operating cost (£000) Operating surplus (£000) Operating margin (%) Cover ratio interest
Birmingham WM 61,452 2,346,500 38,184 1,090,153 17,740 841 283,505 193,525 89,980 31.74 1.74
Leeds YH 55,897 2,170,943 38,838 815,075 14,582 707 245,714 159,378 86,336 35.14 2.18
Sheffield YH 39,559 1,309,331 33,098 345,969 8,746 361 155,322 111,004 44,318 28.53 3.10
Southwark Lon 37,597 3,478,582 92,523 429,166 11,415 652 265,248 207,791 57,457 21.66 2.72
Sandwell WM 28,771 1,042,727 36,242 437,645 15,211 954 133,173 76,503 56,670 42.55 2.06
Bristol SW 27,038 1,695,313 62,701 244,568 9,045 411 121,807 89,152 32,655 26.81 2.94
Nottingham EM 25,808 970,761 37,615 294,703 11,419 471 106,714 90,101 16,613 15.57 1.37
Newcastle upon Tyne NE 25,698 873,738 34,000 360,738 14,038 634 111,923 90,964 20,959 18.73 1.29
Islington Lon 25,294 3,241,029 128,134 442,261 17,485 998 216,517 164,612 51,905 23.97 2.06
Kingston upon Hull YH 24,193 471,865 19,504 265,103 10,958 498 95,607 49,018 46,589 48.73 3.87
Lambeth Lon 24,050 2,466,102 102,541 399,630 16,617 1,074 203,130 142,094 61,036 30.05 2.36
Camden Lon 23,449 2,789,475 118,959 467,647 19,943 486 186,787 174,968 11,819 6.33 1.64
Kirklees YH 22,569 614,386 27,223 237,740 10,534 383 92,887 75,888 16,999 18.30 1.96
Wolverhampton WM 22,200 749,500 33,761 253,956 11,439 459 97,094 63,259 33,835 34.85 3.32
Hackney Lon 21,966 2,535,606 115,433 100,080 4,556 6 141,093 129,833 11,260 7.98 93.06
Dudley WM 21,943 877,973 40,012 470,300 21,433 800 89,313 62,426 26,887 30.10 1.53
Wigan NW 21,915 585,382 26,711 298,766 13,633 650 95,127 65,580 29,547 31.06 2.07
Greenwich Lon 20,959 1,517,669 72,411 334,630 15,966 702 119,606 94,840 24,766 20.71 1.68
Leicester EM 20,791 935,021 44,972 214,052 10,295 493 83,195 59,724 23,471 28.21 2.29
Rotherham YH 20,393 653,346 32,038 304,125 14,913 658 84,419 57,534 26,885 31.85 2.00
Doncaster YH 20,170 667,196 33,079 266,025 13,189 586 75,729 51,915 23,814 31.45 2.01
Gateshead NE 19,242 712,549 37,031 345,505 17,956 766 80,446 56,759 23,687 29.44 1.61
Barnsley YH 18,498 569,731 30,800 271,734 14,690 560 73,075 52,389 20,686 28.31 2.00
Stoke-on-Trent WM 18,179 527,042 28,992 156,641 8,617 356 67,849 59,623 8,226 12.12 1.27
Barking & Dagenham Lon 17,773 1,020,803 57,436 279,072 15,702 545 109,738 73,690 36,048 32.85 3.72
South Tyneside NE 17,051 584,168 34,260 287,503 16,861 684 67,575 54,555 13,020 19.27 1.12
Wandsworth Lon 16,855 1,430,936 84,897 297,429 17,646 301 142,063 87,467 54,596 38.43 10.78
Newham Lon 16,226 1,484,374 91,481 197,953 12,200 1,004 109,941 85,866 24,075 21.90 1.48
Southampton SE 16,123 670,763 41,603 157,923 9,795 333 75,190 58,062 17,128 22.78 3.19
Manchester NW 15,937 570,562 35,801 269,245 16,894 725 87,396 70,234 17,162 19.64 1.49
Haringey Lon 15,350 1,325,015 86,320 226,273 14,741 687 117,140 79,261 37,879 32.34 3.59
Norwich East 14,805 797,904 53,894 205,717 13,895 538 71,105 50,039 21,066 29.63 2.64
North Tyneside NE 14,767 662,827 44,886 339,341 22,980 996 71,172 37,450 33,722 47.38 2.29
Portsmouth SE 14,765 705,594 47,788 167,735 11,360 422 83,898 52,291 31,607 37.67 5.07
Lewisham Lon 14,227 1,311,300 92,170 57,543 4,045 155 101,011 104,794 -3,783 -3.75 -1.72
Croydon Lon 13,571 990,000 72,950 322,497 23,764 905 92,307 62,904 29,403 31.85 2.39
Hounslow Lon 13,129 995,000 75,786 230,956 17,591 712 85,773 64,007 21,766 25.38 2.33
Derby EM 12,960 519,271 40,067 231,373 17,853 849 59,832 46,037 13,796 23.06 1.25
Hammersmith & Fulham Lon 12,184 1,343,438 110,262 210,263 17,257 734 87,707 72,605 15,102 17.22 1.69
Milton Keynes SE 12,116 646,056 53,323 230,832 19,052 685 55,938 33,883 22,055 39.43 2.66
Ealing Lon 11,947 895,627 74,967 163,584 13,693 570 66,458 52,564 13,894 20.91 2.04
Westminster Lon 11,869 1,359,122 114,510 261,283 22,014 1,019 113,494 111,204 2,290 2.02 0.19
Tower Hamlets Lon 11,568 1,274,150 110,144 83,913 7,254 263 91,564 77,827 13,737 15.00 4.52
Brighton & Hove SE 11,552 1,996,910 172,863 125,502 10,864 468 58,633 38,641 19,992 34.10 3.70
Northampton EM 11,551 574,790 49,761 186,853 16,176 546 53,466 51,423 2,043 3.82 0.32
East Riding of Yorkshire YH 11,349 435,421 38,366 233,039 20,534 681 49,581 27,264 22,317 45.01 2.89
Stockport NW 11,190 432,470 38,648 132,967 11,883 496 48,962 40,838 8,124 16.59 1.46
Basildon East 10,813 817,211 75,577 205,306 18,987 919 53,508 39,192 14,316 26.75 1.44
Cornwall SW 10,317 502,654 48,721 109,597 10,623 325 40,187 32,586 7,601 18.91 2.26
Swindon SW 10,299 440,779 42,798 114,016 11,071 272 50,173 35,190 14,983 29.86 5.34
Enfield Lon 10,221 727,300 71,157 178,805 17,494 782 70,214 46,943 23,271 33.14 2.91
Dacorum East 10,104 904,687 89,538 346,740 34,317 1,148 56,937 36,060 20,877 36.67 1.80
Waltham Forest Lon 10,020 862,749 86,103 200,631 20,023 932 62,792 44,596 18,196 28.98 1.95
Solihull WM 9,956 425,899 42,778 172,895 17,366 735 44,559 32,089 12,470 27.99 1.70
Hillingdon Lon 9,925 760,473 76,622 190,643 19,208 643 61,009 36,294 24,715 40.51 3.87
Thurrock East 9,919 745,442 75,153 181,843 18,333 552 54,347 45,183 9,164 16.86 1.67
Barnet Lon 9,819 1,968,000 200,428 201,614 20,533 756 59,795 49,854 9,942 16.63 1.34
Havering Lon 9,560 592,547 61,982 174,669 18,271 612 57,248 38,088 19,160 33.47 3.27
Harlow East 9,279 748,685 80,686 187,370 20,193 731 49,235 39,754 9,481 19.26 1.40
Chesterfield EM 9,150 350,860 38,345 132,344 14,464 542 38,113 27,522 10,591 27.79 2.13
Welwyn Hatfield East 8,916 986,187 110,609 240,571 26,982 748 52,022 34,196 17,826 34.27 2.67
Northumberland YH 8,540 318,351 37,278 105,145 12,312 474 32,380 24,496 7,884 24.35 1.95
Brent Lon 8,005 649,300 81,112 148,574 18,560 791 55,742 41,718 14,024 25.16 2.21
Stevenage East 7,983 633,712 79,383 206,006 25,806 879 43,286 29,446 13,840 31.97 1.97
Bury NW 7,934 233,197 29,392 118,784 14,972 559 30,751 22,820 7,931 25.79 1.79
Ipswich East 7,902 432,915 54,785 118,855 15,041 472 36,223 20,449 15,774 43.55 4.23
Crawley SE 7,871 615,227 78,164 260,325 33,074 1,056 47,025 24,183 22,842 48.57 2.75
North East Derbyshire EM 7,862 366,569 46,625 173,478 22,065 675 32,309 20,650 11,659 36.09 2.20
Luton East 7,731 482,058 62,354 123,991 16,038 611 37,423 30,628 6,795 18.16 1.44
Oxford SE 7,715 737,795 95,631 198,528 25,733 998 45,451 28,366 17,085 37.59 2.22
York YH 7,656 467,971 61,125 139,034 18,160 583 33,352 22,160 11,192 33.56 2.51
Lincoln EM 7,643 245,182 32,079 58,503 7,654 302 28,689 25,708 2,981 10.39 1.29
Cambridge East 7,170 656,142 91,512 214,321 29,891 1,045 42,479 24,742 17,737 41.75 2.37
Kensington & Chelsea Lon 6,830 840,195 123,015 210,164 30,771 1,349 61,353 53,190 8,163 13.30 0.89
Reading SE 6,778 474,695 70,035 189,341 27,935 986 41,292 21,947 19,345 46.85 2.89
Bassetlaw EM 6,750 293,012 43,409 92,357 13,683 561 26,887 19,567 7,320 27.23 1.93
Ashfield EM 6,747 223,626 33,145 80,081 11,869 526 24,364 15,184 9,180 37.68 2.59
Mansfield EM 6,508 215,943 33,181 81,437 12,513 453 28,055 19,602 8,453 30.13 2.86
Epping Forest East 6,374 695,605 109,132 146,749 23,023 864 35,192 25,159 10,033 28.51 1.82
Slough SE 6,154 535,484 87,014 158,077 25,687 841 36,568 29,850 6,718 18.37 1.30
South Kesteven EM 6,078 237,638 39,098 106,070 17,451 484 26,394 16,793 9,601 36.38 3.26
Southend-on-Sea East 5,980 369,116 61,725 98,740 16,512 546 28,922 19,156 9,766 33.77 2.99
Colchester East 5,950 355,165 59,692 127,933 21,501 951 30,001 21,459 8,542 28.47 1.51
West Lancashire NW 5,932 171,359 28,887 80,106 13,504 515 25,689 15,905 9,784 38.09 3.20
Sutton Lon 5,875 421,836 71,802 171,603 29,209 1,037 38,151 25,021 13,130 34.42 2.15
Great Yarmouth East 5,829 231,117 39,650 81,418 13,968 440 23,664 17,117 6,547 27.67 2.55
Redditch WM 5,782 267,808 46,318 122,158 21,127 722 24,449 19,353 5,096 20.84 1.22
Nuneaton & Bedworth WM 5,744 200,771 34,953 77,518 13,495 371 25,876 19,584 6,292 24.32 2.95
Taunton Deane SW 5,737 288,904 50,358 104,850 18,276 473 26,803 22,688 4,115 15.35 1.52
Gravesham SE 5,686 318,698 56,050 88,665 15,594 452 29,003 19,705 9,298 32.06 3.62
Charnwood EM 5,610 263,808 47,025 81,552 14,537 481 22,477 14,252 8,225 36.59 3.05
Warwick WM 5,490 351,168 63,965 135,787 24,734 858 27,097 16,855 10,242 37.80 2.17
Newark & Sherwood EM 5,465 288,396 52,771 100,467 18,384 746 22,540 14,019 8,521 37.80 2.09
Cheshire West and Chester NW 5,397 183,390 33,980 102,315 18,958 447 22,631 12,847 9,784 43.23 4.05
Darlington NE 5,336 112,518 21,087 70,225 13,161 538 24,188 11,522 12,666 52.36 4.41
Wiltshire SW 5,311 304,445 57,323 123,297 23,215 692 25,810 20,856 4,954 19.19 1.35
South Cambridgeshire East 5,298 491,049 92,686 204,429 38,586 1,358 31,627 16,880 14,747 46.63 2.05
Guildford SE 5,212 515,176 98,844 197,024 37,802 960 32,641 16,934 15,707 48.12 3.14
Central Bedfordshire East 5,196 437,564 84,212 164,895 31,735 758 29,171 19,839 9,332 31.99 2.37
Stroud SW 5,171 281,516 54,441 95,742 18,515 667 23,341 16,188 7,153 30.65 2.07
Cannock Chase WM 5,158 185,017 35,870 81,039 15,711 629 20,281 11,035 9,246 45.59 2.85
Canterbury SE 5,116 320,298 62,607 84,687 16,553 460 25,927 16,312 9,615 37.08 4.09
Bournemouth SW 5,115 310,935 60,789 58,276 11,393 471 24,996 17,973 7,023 28.10 2.92
Bolsover EM 5,084 178,071 35,026 104,134 20,483 675 23,307 15,501 7,806 33.49 2.27
New Forest SE 5,021 368,181 73,328 144,601 28,799 889 27,960 18,334 9,626 34.43 2.16
Winchester SE 4,987 456,511 91,540 164,022 32,890 1,039 29,193 17,896 11,297 38.70 2.18
Ashford SE 4,965 282,613 56,921 118,473 23,862 506 29,969 15,603 14,366 47.94 5.71
Exeter SW 4,884 267,953 54,863 57,882 11,851 407 21,100 13,659 7,441 35.27 3.74
St Albans East 4,877 584,279 119,803 173,416 35,558 1,039 28,087 17,787 10,300 36.67 2.03
Harrow Lon 4,813 460,051 95,585 150,984 31,370 1,313 32,485 26,237 6,248 19.23 0.99
Waverley SE 4,803 397,288 82,717 188,700 39,288 1,207 29,993 16,473 13,520 45.08 2.33
Blackpool NW 4,747 116,297 24,499 4,849 1,021 81 18,770 14,766 4,004 21.33 10.45
Corby EM 4,673 217,440 46,531 78,587 16,817 523 19,266 14,650 4,616 23.96 1.89
Kingston upon Thames Lon 4,612 389,155 84,379 131,411 28,493 951 32,257 26,086 6,171 19.13 1.41
Poole SW 4,517 277,782 61,497 86,455 19,140 691 22,253 15,152 7,101 31.91 2.28
Cheltenham SW 4,477 211,973 47,347 44,777 10,002 376 20,853 15,912 4,941 23.69 2.93
Broxtowe EM 4,457 178,015 39,941 81,330 18,248 527 16,525 12,547 3,978 24.07 1.69
Redbridge Lon 4,444 308,423 69,402 67,658 15,225 535 28,167 19,690 8,477 30.10 3.57
Waveney East 4,435 210,703 47,509 77,377 17,447 506 20,811 12,551 8,260 39.69 3.68
Dover SE 4,311 198,820 46,119 74,134 17,196 627 19,920 10,184 9,736 48.88 3.60
Tamworth WM 4,269 176,679 41,387 68,041 15,938 617 20,840 13,792 7,048 33.82 2.68
North West Leicestershire EM 4,268 227,914 53,401 73,993 17,337 538 17,924 10,974 6,950 38.77 3.02
Dartford SE 4,213 304,185 72,202 57,613 13,675 365 21,616 10,784 10,832 50.11 7.05
East Devon SW 4,204 237,340 56,456 80,601 19,172 601 18,338 11,674 6,664 36.34 2.64
Shropshire WM 4,075 195,767 48,041 84,595 20,760 718 18,865 12,906 5,959 31.59 2.04
Sedgemoor SW 4,045 142,997 35,352 56,478 13,962 378 18,203 13,702 4,501 24.73 2.95
High Peak EM 3,964 170,210 42,939 55,859 14,092 512 15,211 9,224 5,987 39.36 2.95
North Kesteven EM 3,851 162,764 42,265 67,724 17,586 531 15,536 9,285 6,251 40.24 3.06
Harrogate YH 3,840 242,855 63,243 60,756 15,822 423 18,006 11,714 6,292 34.94 3.87
South Holland EM 3,805 151,585 39,838 68,609 18,031 764 16,358 9,667 6,691 40.90 2.30
Rugby WM 3,796 190,849 50,276 61,632 16,236 332 18,207 10,958 7,249 39.81 5.74
Lancaster NW 3,717 128,465 34,561 40,394 10,867 515 15,829 11,708 4,121 26.03 2.15
Kettering EM 3,678 167,600 45,568 63,722 17,325 556 15,360 10,368 4,992 32.50 2.44
Eastbourne SE 3,410 191,520 56,164 42,649 12,507 544 15,718 12,530 3,188 20.28 1.72
Babergh East 3,390 216,316 63,810 85,753 25,296 839 16,626 9,612 7,014 42.19 2.47
Shepway SE 3,376 173,837 51,492 47,417 14,045 491 16,237 9,649 6,588 40.57 3.98
Woking SE 3,342 303,755 90,890 123,293 36,892 1,417 19,364 17,299 2,065 10.66 0.43
Arun SE 3,339 216,662 64,888 55,400 16,592 478 16,631 12,898 3,733 22.45 2.34
Hinckley & Bosworth EM 3,287 177,674 54,054 71,915 21,879 701 13,811 8,885 4,926 35.67 2.14
Mid Suffolk East 3,244 221,155 68,174 86,759 26,744 834 15,150 9,787 5,363 35.40 1.98
Lewes SE 3,212 240,042 74,733 65,126 20,276 564 16,745 14,435 2,310 13.80 1.28
Tendring East 3,134 125,245 39,963 43,434 13,859 474 14,106 10,289 3,817 27.06 2.57
Gosport SE 3,126 145,309 46,484 61,903 19,803 605 14,848 11,633 3,215 21.65 1.70
Selby YH 3,060 159,102 51,994 52,856 17,273 820 12,372 7,801 4,571 36.95 1.82
Medway SE 3,016 168,810 55,971 41,641 13,807 684 14,453 9,997 4,456 30.83 2.16
Thanet SE 3,015 146,988 48,752 20,787 6,895 268 13,903 11,189 2,714 19.52 3.36
Mid Devon SW 3,005 155,153 51,632 43,167 14,365 404 13,535 8,057 5,478 40.47 4.52
South Derbyshire EM 2,992 126,012 42,116 61,584 20,583 525 12,822 9,919 2,903 22.64 1.85
Wealden SE 2,927 198,139 67,694 64,243 21,948 604 15,019 10,101 4,918 32.75 2.78
Runnymede SE 2,881 306,065 106,236 101,956 35,389 1,189 17,025 9,813 7,212 42.36 2.11
Uttlesford East 2,778 330,720 119,050 86,622 31,181 943 15,355 10,107 5,248 34.18 2.00
North Warwickshire WM 2,682 132,836 49,529 51,589 19,235 594 12,170 8,492 3,678 30.22 2.31
Tandridge SE 2,607 324,131 124,331 61,725 23,677 626 15,381 11,906 3,475 22.59 2.13
Wokingham SE 2,600 202,382 77,839 90,322 34,739 1,748 15,399 9,876 5,523 35.87 1.21
Barrow-in-Furness NW 2,584 70,788 27,395 19,657 7,607 373 11,706 8,892 2,814 24.04 2.92
Adur SE 2,568 178,666 69,574 60,103 23,405 883 13,175 10,415 2,760 20.95 1.22
Brentwood East 2,434 262,645 107,907 61,591 25,304 792 13,143 9,157 3,986 30.33 2.07
Fareham SE 2,411 123,110 51,062 51,141 21,212 745 12,331 9,379 2,952 23.94 1.64
City of London Lon 1,944 286,500 147,377 0 0 0 16,000 17,685 -1,685 -10.53 0.00
Melton EM 1,821 94,520 51,906 31,484 17,289 642 8,084 5,154 2,930 36.24 2.51
Richmondshire YH 1,518 66,535 43,831 19,247 12,679 318 6,513 4,634 1,879 28.85 3.89
Castle Point East 1,517 115,965 76,444 36,418 24,007 717 7,741 5,483 2,258 29.17 2.08
Oadby & Wigston EM 1,215 59,117 48,656 19,628 16,155 451 5,088 3,978 1,110 21.82 2.03

Operating margins

 

Total stock holding for HRAs at 31 March 2018 was 1,586,682. This has reduced by around 10,000 from the previous year, the main impacts continuing to be the Right to Buy and selective disposal/demolition for regeneration offset by growing development programmes. At its peak, council housing totalled more than five million homes, reduced over 40 years through the Right to Buy, demolition and around half of all authorities transferring under the large-scale voluntary transfer programme.

 

Turnover was £8.27bn – around £5,211 per unit annually. Average rents were £86 per week across the entire sector, across a range from £66 to £130.

 

Other income from charges and contributions added £14 per week to that total, with the higher amounts seen in authorities with the highest amount of flats and also numbers of leaseholders.

Operating costs were £5.98bn – around £3,769 per unit annually. Average day-to-day operating costs (management and maintenance) were around £2,738 per unit – about £52 per week – with the allocation for long-term major repairs expenditure about £1,026 per unit.

 

As would be expected, unit operating costs ranged widely, with the higher costs seen in London and in those authorities with more flats. As most HRAs have a combination of general needs and supported (traditional sheltered) housing, rather than being specialist towards any specific type, the range is generally narrower than for HAs.

 

Because of the ebb and flow of refurbishment and major repairs programmes, not all of the amount transferred to the major repairs reserve will have actually been spent in the year. Major repairs reserve balances are in the tens of millions. The amount transferred has also increased in recent years.

 

Operating surpluses were £2.29bn – around £1,441 per unit annually and around £28 per home per week, representing a gross HRA sector-wide operating margin of around 28%. Highest margins were seen at 52% and the lowest below zero in a debt-free authority drawing on reserves; the median was 30%.

 

The table compares these figures at a sector-wide level to HAs that form part of the global accounts (230 HAs with more than 1,000 units). Turnover and costs are lower and operating margins tighter for HRAs – this is to be expected given a range of factors:

  • There has generally been less of a focus on increasing income via service charges.
  • Costs exclude any irrecoverable VAT.
  • Major repairs costs charged to the HRA are being held in reserve pending future commitment.

Leverage

 

Total debt at 31 March was £26.01bn – some £3.1m below the borrowing cap at that time. Debt was relatively stable between 2017 and 2018 having increased markedly the previous year.

 

Savills’ 2017 research highlighted that borrowing headroom beneath the former debt cap was being held for a range of reasons, typically as a buffer against Right to Buy, but also as a result of the four-year social rent reductions. Will authorities have more confidence now?

 

Unit debt levels were around £16,400. Interest on debt represented a net overall weighted average rate of 3.94%, which has been a consistent average since the self-financing settlement of 2012.

 

With more authorities now planning to borrow to invest in new homes and regeneration, and interest rates currently running well below this level for long-term PWLB funding (and likely to do so for some time), we can expect to see average costs of capital reduce over the forthcoming period.

 

Compared to HAs, average debt levels are lower, as are average costs of capital. This is to be expected as councils have been constrained by an artificially low cap, which has encouraged defensiveness while their interest costs have been drawn on a large amount of self-financing debt taken on for the 2012 settlement at preferential rates offered by Treasury via the PWLB.

 

Interest cover

 

Comparing operating surpluses to interest costs gives us a proxy for interest cover. Nationally, operating surpluses cover interest costs by around 2.23, a much higher figure than we see in the HA sector.

 

In theory, at least, this suggests significant amounts of additional capacity to borrow: by setting a minimum of 1.8 across those authorities above that level, immediate additional borrowing capacity could be up to £11bn, which with receipts and grant could give investment potential of up to £15bn.

 

As ever, the local picture is far more complex, with some wide variations in interest cover between authorities, and in one debt-free case, no interest at all. We will be doing more work to understand the position at the individual authority level so that we can make a more informed assessment of the potential for additional investment.

Accounts of the largest housing associations 2018

Housing association Total social and non-social units owned and/or managed Total debt (£000) Turnover (£000) Turnover from social housing lettings (£000) Operating cost (£000) Operating surplus/(deficit) Headline social housing cost per unit (£) Operating margin (social housing lettings) (%) Operating margin (overall) (%) EBITDA MRI interest rate cover (%)
Places for People 115,678 2,897,461 754,390 315,709 569,848 184,542 3147.67 48.04 24.46 126.83
Clarion 109,606 3,603,300 828,600 681,700 552,300 276,300 4519.9 36.19 33.35 149.09
Sanctuary HA 93,699 2,728,600 708,100 401,500 519,500 188,600 4208.3 40.07 26.63 128.44
L&Q 81,262 4,400,939 1,025,932 520,954 724,819 301,113 4014.41 45.6 29.35 243.96
The Guinness Partnership 62,254 1,205,300 374,000 336,100 266,900 107,100 3533.56 32.91 28.64 190.17
Sovereign 52,218 1,595,194 378,198 291,480 240,875 137,323 2909.99 42.31 36.31 255.09
Peabody 50,807 1,929,747 608,937 364,958 438,803 170,134 5741.22 31.63 27.94 192.23
Home Group 50,296 983,857 364,703 276,954 284,789 79,914 4409.18 26.86 21.91 197.68
Riverside 50,184 768,200 346,160 279,526 266,153 80,007 4341.47 24.85 23.11 177.79
Hyde 43,376 1,649,469 339,560 233,669 244,731 94,829 3911.53 37.72 27.93 57.75
Optivo 42,133 1,083,395 317,431 267,134 220,485 96,946 4303.62 30.18 30.54 224.01
Orbit 37,980 1,204,606 357,435 209,772 266,606 90,829 3763.53 37.79 25.41 183.97
Together Housing 36,678 622,896 184,155 161,622 162,197 21,958 3382.53 23.74 11.92 120.18
LiveWest Homes 34,143 732,630 230,626 171,169 169,024 61,602 3245.23 30.56 26.71 241.24
Metropolitan 33,493 1,138,118 288,131 202,248 203,807 84,324 4961.8 33.24 29.27 133.41
Thirteen 32,408 245,410 159,827 148,274 120,871 38,956 3073.17 29.12 24.37 341.76
A2Dominion 31,520 1,544,647 300,684 212,064 213,875 86,809 4264.27 40.66 28.87 125.99
Wakefield and District Housing 31,295 410,600 155,047 137,869 105,906 49,141 2928.39 36.96 31.69 263.82
Stonewater 31,166 847,581 187,225 166,597 132,790 54,435 3234.13 30.7 29.07 172.7
Onward 31,161 394,472 170,926 155,506 128,772 42,154 3501.17 23.75 24.66 316.01
Midland Heart 30,463 556,868 193,450 172,361 124,884 68,566 3114.11 39.54 35.44 247.07
Bromford Housing Group 29,115 621,775 174,248 145,650 116,155 58,093 3311.37 41.93 33.34 208.25
Gentoo 29,107 559,829 182,330 131,695 137,010 45,320 2732.72 31.25 24.86 230.05
Notting Hill Housing 28,746 1,677,400 371,100 228,100 257,300 113,800 5429.58 33.41 30.67 215.85
Genesis 28,695 1,590,300 324,500 249,500 285,500 39,000 7530.87 17.88 12.02 39.56
Anchor 28,501 312,113 389,062 347,092 366,410 22,652 10599.91 8.33 5.82 289.77
Aster Group 28,440 867,004 204,728 152,142 147,430 57,298 3639.14 34.84 27.99 216.67
WM Housing 28,100 619,869 149,583 140,027 109,375 40,208 3321.25 26.71 26.88 48.67
Vivid 27,946 998,212 228,488 164,882 142,134 86,354 2790.68 45.06 37.79 277.02
Your Housing Group 27,369 341,009 161,862 148,748 109,629 52,233 3811.43 34.31 32.27 171.01
Waterloo Housing 25,676 711,332 142,109 122,615 80,505 61,604 1920.06 49.03 43.35 228.46
Southern Housing Group 24,998 719,529 199,722 155,454 150,565 49,157 4726.38 24.63 24.61 127.57
Karbon Homes 24,417 279,211 126,678 107,146 98,191 28,487 3166.6 24.46 22.49 265.04
ForViva 23,084 171,120 142,319 79,061 123,982 18,337 2744.3 29.67 12.88 211.04
Flagship Homes 22,705 639,849 133,725 106,970 77,793 55,932 2446.23 47.29 41.83 233.21
PA Housing 22,304 688,636 164,666 138,052 107,729 56,937 3900.38 36.29 34.58 167.66
Incommunities 21,897 287,682 98,519 94,403 83,719 14,800 3005.71 20.21 15.02 137.26
Torus62 21,821 121,241 112,386 99,910 74,000 38,386 2684.98 37.51 34.16 532.62
Longhurst Group 20,370 543,706 145,602 102,399 99,928 45,674 3264.8 37.62 31.37 177.53
Radian 20,233 825,819 161,676 120,220 103,312 58,364 3310.94 39.28 36.1 213.87
WHG 20,039 396,491 105,635 94,554 68,215 37,420 3025.43 40.51 35.42 194.05
New Charter Homes 19,461 370,786 103,618 89,335 79,399 24,219 3412.11 25.55 23.37 134.61
EMH Group 19,012 383,935 101,510 81,921 69,601 31,909 3344.11 35.97 31.43 177.35
Accent Group 18,944 329,912 96,058 91,645 67,081 28,977 2996.62 33.43 30.17 232.39
Housing & Care 21 18,784 622,412 178,770 142,612 141,106 37,664 6022.52 25.19 21.07 166.77
Moat Homes 18,468 456,724 124,343 97,082 81,909 42,434 2992.18 42.71 34.13 232.48
County Durham Housing Group 18,065 113,798 67,619 66,025 39,819 27,800 2920.84 40.2 41.11 243.61
Catalyst 17,985 651,327 214,279 123,682 151,322 62,957 4759.47 35.52 29.38 187.57
Great Places Housing Group 17,779 554,482 100,683 84,796 69,993 30,690 3147.14 35.82 30.48 127.54
Bolton at Home 17,622 30,000 81,557 73,998 71,597 9,960 4254.74 20.02 12.21 18.45
Network Homes 17,048 858,784 210,093 145,899 151,222 58,871 6128.65 26.11 28.02 180.85
BPHA 16,515 738,894 117,322 86,455 61,945 55,377 2890.18 44.31 47.2 177.07
Fortis Living 15,948 289,733 101,357 79,471 58,546 42,811 2596.69 48.75 42.24 372.67
Liverpool Mutual Homes 15,503 157,529 77,235 71,303 51,236 25,999 2710.31 35.24 33.66 141.89
Yorkshire Housing 15,358 452,544 100,533 86,798 69,743 30,790 3737.7 31.89 30.63 156.12
Plymouth Community Homes 14,237 109,794 69,307 59,770 60,134 9,173 3543.47 10.3 13.24 33.99
Hanover 13,895 265,837 141,603 104,549 106,767 34,836 5250.92 22.81 24.6 309.76
Paradigm 13,862 711,244 123,942 87,765 69,950 53,992 2739.66 48.47 43.56 171.84
Jigsaw 13,795 299,256 68,882 60,634 39,176 29,706 2368.54 43.88 43.13 208.83
Bernicia 13,751 149,126 74,991 67,775 55,501 19,490 3394.42 28.73 25.99 194.94
Total top 60 1,901,415 51,061,534 14,146,157 10,337,301 10,192,864 3,953,293 3886.71 33.78 27.95 166.33
Total 230 2,815,250 72,531,667 20,459,299 15,364,118 14,815,724 5,643,575 3919.01 32.8 27.58 173.64

The regional picture

 

In future features we will aim to further break down the analysis into different types of authorities operating in different parts of the market. Regionally, the figures show some clear patterns.

 

Unit asset values are highest in London at £96,000 and lowest in the North West at £31,000, but by contrast there are relatively even levels of unit debt across all regions. This is influenced by the basis on which the 2012 self-financing settlement was operated – being the net present value (NPV) of a 30-year cash flow, while asset values are not cash flow based.

 

Turnover and cost levels vary in a similar way across the regions and operating margins show a similar pattern. Around 57% of operating surpluses arise in the four southern regions, generated from 51% of the stock highlighting that rent levels are proportionately higher in these regions.

 

There are many factors influencing rents and costs, not least council policy towards rent setting. It will be interesting to see how this evolves now that the debt cap has been removed and whether councillors will be encouraged to increase rents in order to finance new development.

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