Moody’s warns over debt levels if ‘political pressure’ forces landlords to build more homes

Moody’s report said: “We expect the reduction in SHP (social housing provider) developments will amplify the structural imbalance between demand and supply, which has mixed credit implications.

“While robust demand for social housing supports the credit profile of SHPs by ensuring a steady stream of rental income, a substantial increase in the structural imbalance can carry negative credit implications by heightening political pressure on SHPs to expand their stock to meet demand, in turn escalating their debt levels.”

The agency added: “If the additional investment does not result in commensurate increases in income, for instance if rents are restricted by government policies, this could negatively affect their credit profile.” 

But if landlords are able to continue to cut development plans, this will stop rising debt and help gearing and interest coverage ratios, Moody’s said. 

“In England, development cuts are anticipated to lower the debt level of the sector by around 7% by fiscal year 2028 relative to previous forecasts, a credit positive,” the agency said. 

Moody’s also warned that a reduction in housing supply will hit councils in England as demand for temporary accommodation continues to soar.

In England, 112,660 households were in temporary accommodation as of December 2023, which was 12.1 per up on December 2022, the agency noted. More than half (56 per cent) of this total was in London. 

As a result, temporary accommodation costs for councils rose to £1.6bn in the first three months of the 2024 financial year, up 25% from the same period in the 2023 financial year.

“This occurs in a context where the number of local authorities facing financial difficulties is rising and we expect more to fail,” Moody’s said.

In January this year, around 50 council leaders warned that dealing with the rising cost of homelessness meant that more local authorities would effectively declare themselves bankrupt.