Housing associations could significantly boost their financial capacity and build up to 250,000 affordable homes if they make the right funding decisions over the next five years.
That’s according to the latest Savills research, which identified a range of choices available to housing providers to help solve the cashflow constraints many are facing.
Unveiled at the Social Housing Finance Conference, the research found that English housing associations have the borrowing capacity to increase their long-term debt to £132bn by 2026 – up from £66bn in 2015 and £83bn in 2020.
Savills says that ensuring adequate cashflow to service this increased debt – or interest cover – will be the main challenge, given the recent four-year 1% rent cut and a 25% increase in planned maintenance spending over the past five years.
Housing providers will need to take action to unlock additional cashflow capacity, Savills says, if they are to continue increasing investment in existing homes and ensure adequate financial capacity to build 190,000 general needs affordable homes and 60,000 shared ownership homes by 2026.
Helen Collins, head of Savills Affordable Housing Consultancy (pictured), said: “The housing sector is facing some major costs in the coming years with continued work on building safety, the ramping up of decarbonisation, and increasing costs for new homes to meet the Future Homes Standard.
“Even if the increasing spend on planned maintenance is halted, housing associations could see EBITDA MRI interest cover fall from 138% in 2020 to around 125% in 2026.
“Organisations are very unlikely to want to allow interest cover to fall this far. The range of choices we have identified to help housing providers mean that they should be able to find the right mix to suit their circumstances.”
Savills set out five main areas by which housing providers could increase their cashflow:
- Grant – The government will need to increase grant rates to reflect increasing build costs to ensure that development remains a priority
- Refinancing – The opportunity exists to refinance to take advantage of the lower rates currently available; the average rate of interest on housing sector debt was 4.0% in 2020; refinancing deals are currently being done at interest rates of around 2.5%
- Streamlining – Through more mergers, continued stock rationalisation programmes, and sale of shared ownership portfolios – such as the Hyde and M&G deal in March for 422 shared ownership homes
- New equity – Partnerships with institutional investors and new entrants could help maintain development programmes, while ensuring sufficient resources to invest in existing homes
- Delay – Perhaps postpone spending on decarbonisation and instead increase capacity by building new homes? The new 2035 target for a 78% carbon cut makes this option difficult
Collins added: “There are some tough choices for housing providers to make in the coming years. What is certain is that failing to rise to the challenges faced is not an option.
“Rectifying building safety issues is a top priority for landlords and needs to be dealt with as soon as possible.
“Decarbonisation is non-negotiable and fundamental to the long-term viability of the sector’s housing assets.
“If development is to remain a priority, new ways of delivering additional affordable homes will be needed and should continue to be explored.”
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