Towards a sustainable social housing sector

Naomi Roper examines the key findings of the Levelling Up, Housing and Communities Committee on the finances and sustainability of the social housing sector.

On 8 May 2024 the House of Commons Levelling Up, Housing and Communities Committee (the Committee) published a report entitled The Finances and Sustainability of the Social Housing sector (the Report). The Report is a follow up to the Committee’s previous report in 2022 on The Regulation of Social Housing.

For the purposes of drafting the Report the Committee met with and took written evidence from academics, registered providers (RPs), investors, local authorities, and ratings agencies. The Report makes a number of recommendations to Government.

The Report’s key findings and recommendations are as follows:

Need for government investment

The Report acknowledges that there is a “significant unmet need for social housing” citing a report from the National Housing Federation published in January 2024, which stated that “England is in a housing emergency.”

The Report noted that it was “deeply concerning” that financial pressures on social housing providers were resulting in less new social housing being built. The Committee called upon the government to invest in the social housing sector, so that the country can increase delivery to 90,000 social rent homes a year. The Report also called upon the Government to publish annual targets for the delivery of social housing noting that the “confusion and delay around targets must end now.”

Sector resilience

The Report noted that RPs finances are under pressure. It acknowledged RPs are facing various increased costs including the rising cost of living, higher energy prices, insurance costs and legacy COVID costs as a result of delayed maintenance works and greater costs supporting social housing tenants with increasingly complex social needs.

However, the Report noted that the sector remains financially resilient. Furthermore, the Committee was concerned about the challenges RPs face as a result of these financial pressures and recommended that where RPs were facing economic challenges that the Regulator engage with them more regularly.

Grants

The Report notes that the Government’s use of grants to fund affordable rent and shared ownership properties is “inefficient when these homes can be financially viable with no direct grant.” This may be a controversial finding given the sector’s call for increased levels of grants. The Report recommends that the Government conduct an assessment of the adequacy of grant funding allocations and how much social rent is to be supported.

Long-term rent settlement

The Committee noted that it was concerned about the impact of rent increases on social housing tenants and recommended that social housing providers involve their tenants in discussions about rent levels and explain why any rent increase is necessary.

However, the Report acknowledged the sector’s need for a long term rent settlement and recommended that the next rent settlement should be set for a minimum of five years and linked to inflation.

The Committee also recommended that when setting the rent settlement, the Government publish “a non-exhaustive list of the types of events that would, in its view, likely lead to the reintroduction of rent caps in the future.”

Fire safety funding

The Report noted that the costs of fire safety works are significant for housing providers. The Report stated that the Government has placed the responsibility for remediating building safety work on social housing providers. While private sector landlords are treated more favourably. The Committee stated there was no justification for this and reiterated the recommendation from their report on The Regulation of Social Housing, that “Social housing providers must have exactly the same access to funds for building safety remediation as private sector landlords.”

Decarbonisation and Net Zero

The Report stated that the current government funding available to the sector to cover decarbonisation and net zero was insufficient and calls on the Government to urgently bring forward the next tranches of the Social Housing Decarbonisation Fund.

The Report also suggested that the Government look to private investment and equity to cover the costs of decarbonisation.

The Committee reaffirmed the conclusion of their Local Government and Net Zero report that the Government should set out its long term net zero funding plans post 2025, and encourage private investment.

Land value capture

The Report recommends that land value capture should be used as a tool to support social housing with the Government and local authorities using their planning powers to ensure that the price of land does not inhibit the development of new social homes.  

Regeneration of old stock

The Committee noted that the responsibility for ensuring that existing and future social housing stock is of an acceptable standard lies with the housing providers and that regenerating old stock is a costly exercise. The Report recommends that where housing providers have “significant reserves” and homes that require improvement that the Regulator of Social Housing should encourage those housing providers to “deploy their reserves to remediate and regenerate their existing properties, or to replace them with new ones if necessary.” The Committee found that the Regulator should “proactively assess how registered providers use their reserves not only as an indication of financial viability, but also as an indication of a providers’ governance, value for money and responsiveness to tenants.”

The Committee also recommended that the Regulator ensure RPs listen to and act on their tenants views and consider the level of input tenants have in any regeneration projects as part of its consumer standards.

Skilled boards

The Committee noted that RPs must demonstrate that they properly understand any capital markets and financial products they are exposed to. As such the Report recommends that the Regulator ensure that, “as part of its governance ratings, it examines whether registered providers’ boards and executive teams have individuals with sufficient expertise in the financial models the provider is using.”

Naomi Roper is a Partner at Capsticks.