The annual sector risk profile report from the Regulator of Social Housing (RSH) shows that higher borrowing costs have led to viability risks intensifying over the last year.
The report states that social landlords are facing significant and competing pressures to deliver better and more social homes despite the rising costs, and, while the sector remains resilient overall, many landlords have less capacity to deal with new challenges and less margin for error in decision-making.
The RSH’s report continued to say that all landlords have a fundamental responsibility to ensure the safety of the tenants by carrying out essential safety work including cladding issues and tackling issues such as damp or mould. To do so, the regulator says that it is critical landlords continue to be well run and financially viable to allow them to be proactive in addressing issues and continue to build much-needed new homes.
London and other urban areas are experiencing the most acute financial pressures particularly where large numbers of flats need building safety works. These challenges are expected to persist for the foreseeable future, as social housing undergoes a long-term shift, with higher borrowing costs and an ongoing need to invest in existing homes and build new homes for the future.
Fiona MacGregor, chief executive at RSH, said: “Most housing associations are investing record amounts in new and existing homes without threatening their financial viability.”
“However, some individual landlords face particular pressures, and we expect those to sustain for some time before the position eases.”
“There is very little margin for error, and it is absolutely critical that landlords are well run, with robust systems for identifying and mitigating risks.”
“Boards must maintain a real clarity of purpose to successfully navigate these competing demands while remaining financially viable.”
For the first time since 2009, the cost of servicing debt for private registered providers (PRPs) exceeded net earnings last year. In aggregate terms, forecast sector interest cover over the next five years is just 111%.
RSH has already identified a number of individual landlords who were not financially viable and who have since merged with others to protect tenants’ homes and lenders’ capital. RSH expects that more individual landlords will fail to meet the outcomes in its economic standards over the coming months, as this challenging environment continues.
