A third of England’s social landlords are paying more on interest payments than is covered by their annual income, analysis by Housemark suggests.
The analysis of the sector’s annual accounts shows that English housing associations face mounting economic, as well as social pressures.
Data compiled by the organisation reveals that the average level of interest cover has dropped below 100% for London housing associations. A key measure of financial health, annual income was less than interest payments in 2022/23 for one in three landlords across England.
Further findings in Housemark’s analysis of housing associations’ 2022/23 annual accounts show operating margins have dropped 10 percentage points in the last five years, as housing providers invest more cash in improving their homes.
The wider UK economy went through a period of double-digit inflation during 2022, but for the housing sector operating costs increased at a faster rate during this period.
Median cost per unit increased by 13% in nominal terms – higher than September 2022 CPI inflation of 10%. The increase in overall costs is driven by maintenance. Major works expenditure rose by more than 20%, while routine maintenance rose by 15%.
By contrast, inflation outstripped nominal management costs, which only increased by 2%.
Jonathan Cox, Housemark’s director of data and business intelligence, said: “These results show the stark effect of wider economic upheaval in the social housing sector. Cost increases led by construction industry price inflation have squeezed margins.
“With interest rates at a 15-year high, the sector’s understandable use of cash reserves for reinvestment rather than borrowing has pushed cover for existing debt below 100% for many landlords.
“While economic cycles tend to play out over the medium term, the need for increased investment in building safety, decency and energy efficiency, in addition to new stock, is part of a longer-term trend that may require substantial changes to the way social housing is funded and financed.”
Each year the Regulator of Social Housing publishes its Value for Money (VFM) Metrics Report. The VFM Metrics are a key part of the regulatory framework for English housing associations and private registered providers with more than 1,000 units are required to publish a set of nine standardised metrics. These outline the financial viability of the landlord as part of its publicly available financial statements.
Housemark compiled a dataset of over 130 of the country’s largest housing associations’ VFM Metrics. This, the organisation says, provides the “earliest comprehensive view” on the sector’s financial health for the year to March 2023.
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