Special report: associations’ capital commitments revealed

Discussing the figures, Ed Farnsworth, director of business planning and development finance at L&Q, said: “During 2018/19, L&Q’s overall development pipeline of secured opportunities grew, including growth in our strategic land promotion sites.

“This underpinned our ambitious growth plans for tackling the housing crisis by building 100,000 homes over the next 10 years. However, as much of this growth has been in the form of securing long-term opportunities with options and pre-emption rights over homes and land, much of this has not been reflected in capital commitments.”

Places for People’s total capital commitments were up 10 per cent to £1.7bn. The bulk of this (£1.6bn) was made up of authorised but not contracted. In its latest accounts the HA said it had 19,000 homes in the pipeline, compared with 16,000 the year before.

Peabody (£1.5bn), Orbit (£804m) and A2Dominion (£773m) followed – the latter of which was in spite of a 15 per cent decrease on last year.

In its 2018 company accounts, A2Dominion said it would meet its commitments through £330m of undrawn loan facilities and £814m coming from social housing grants and project proceeds from first tranche sales of shared ownership and build-for-sale properties.

Elsewhere, Sanctuary, which had one of the largest amounts of units in the list (101,114), saw a seven per cent increase in its total spending plans to £762m. Of this, authorised commitments made up 85 per cent, which was down slightly on last year’s 88 per cent.

Top 30 increased capital commitments

Clarion was also the HA with the largest year-on-year increase after its authorised commitments rose by £2.2bn, which Mr Hattersley attributed primarily to two major Clarion regeneration schemes.

“The big reason behind [the authorised commitments increase] is our big regeneration schemes in Merton and Chelsea,” he said. “Certainly, Merton and Chelsea alone account for about £1.3bn of that increase and the rest is across our whole development programme, whether it’s joint ventures, our standard market sale programme or our affordable programme because we’re ramping up and trying to get to 5,000 units.”

As such, authorised commitments made up 81 per cent of its total commitments, compared with 41 per cent the year before.

L&Q had the second-largest increase in authorised commitments, with a rise of £360m to £1.1bn. This represented 56 per cent of the group’s total commitments.

Addressing capital commitments in its 2018 company accounts, the group said that its development as of 31 March 2018 had an estimated cost of £5bn and currently spans 14 years. This included fixed and current assets relating to ongoing construction as well as developments not yet on site which, it said, will be funded mainly through accumulated reserves and borrowings.

It added that there was £5m of committed capital expenditure in relation to maintenance works already approved, and a further £16m that was recognised as a capital commitment in relation to the replacement of aluminium composite material cladding.

One Housing – which came 17th in the HAs with the largest overall capital commitments – saw a rise of £222m in authorised commitments to £323m, accounting for 77 per cent of its total commitments.

Top 30 decreased capital commitments

Peabody was the HA with the largest decrease in authorised commitments compared with last year, showing a £278m drop to £621m.

However, a spokesperson for the group explained that approved commitments had come down at the same time as contracted commitments and overall capital commitments had increased, which was in line with Peabody’s “growing development pipeline”.

In its company accounts for the period, the HA laid out its development strategy, with an aim to deliver 2,500 homes per year from 2021.

“We aim to build a third of our homes for market sale, a third for shared ownership and intermediate rent, and a third for low rent. That means we will be delivering an additional 6,000 new affordable homes by 2021,” it said.

Overall the group’s total capital commitments increased by 21 per cent to £1.5bn.

Hyde Housing, which was second in this list, saw a notable decrease in authorised commitments of £257m to £349m. However, again, its company accounts show that contracted commitments rose over this time from £270m in 2017 to £302m in 2018.

The group stated in its company accounts for the period that it aims to consistently deliver 1,500 homes a year. For the period, Hyde completed 1,285 homes, with a further 4,643 under way.

Notting Hill Housing saw a decrease in authorised commitments of £145m to £116m.

On this, a Notting Hill Genesis spokesperson said: “The figure for 2017 was higher because our board approved the acquisition of 513 homes towards the end of 2016/17, which meant an additional commitment of £167m. The following financial year saw the figure return to a more typical level.”

According to its accounts, over the period the group’s development programme delivered 752 properties, started 1,037 homes and had 10,114 properties in the development pipeline.

England

Unlike past years, traditional HAs had the largest capital commitments out of the three types of association in England, with £14.8bn – a five per cent increase on last year.

Previously, mixed HAs had taken this spot, but this year total commitments for the group stood at £8.8bn. However, it is worth noting that this year’s report was with a slightly different cohort of HAs (with slightly fewer mixed, slightly more traditional).

LSVTs had a total of £3.7bn. They also had the largest rise in spending plans of 36 per cent, although this was followed closely by mixed HAs, which had a rise in planned spending of 33 per cent.

This contrasted somewhat with last year’s report, which showed both LSVT and traditional spending plans increasing by just seven per cent between 2015/16 and 2016/17.

Authorised planned spending as a share of total commitments for traditional groups increased to 56 per cent, compared with 49 per cent the year before.

“While we continue to build thousands of new homes, adding to the 1,900 we have completed in the past three years, we are also investing in our existing homes with £69.5m of improvements over the past year” – Martin Armstrong, chief executive, Wheatley Group

Scotland

Glasgow-based Wheatley Group was the only mixed Scottish HA, with a total spending plan of £231m. This compared with £176m from five LSVTs and £741m from 20 traditional HAs. It was also the only Scottish HA in the top 30 HAs with the largest total capital commitment.

The group’s total commitment was up 44 per cent on last year, as were its authorised commitments, which rose a considerable 87 per cent to £152m.

This saw its authorised commitments as a share of overall spending plans increase to 66 per cent from 51 per cent.

Commenting on its delivery and investment in its latest accounts, Martin Armstrong, the group’s chief executive, said: “While we continue to build thousands of new homes, adding to the 1,900 we have completed in the past three years, we are also investing in our existing homes with £69.5m of improvements over the past year.”

Sanctuary Scotland also featured in the top 60, with a total commitment of £119m. This was down by a quarter on last year.

Authorised commitments as a share of total planned spending were also down to 61 per cent, from 77 per cent the year before.

Wales

Welsh HAs covered in this report were five LSVT HAs and 20 traditional HAs. Of the 20 traditional, notable increases in both contracted and authorised spending could be seen.

Authorised commitments increased by 12 per cent to £871m, while contracted jumped by just over a fifth to £310m.

Trivallis was the only Welsh association in the top 15 HAs with the largest total capital commitment of £490m, despite seeing a seven per cent decrease. These were almost entirely made up of authorised commitments (99 per cent). The group also featured in the top 30 decreases in authorised commitments, with a 34 per cent drop to £487m.

In contrast, Pennaf was in the top 30 increases after upping its authorised commitments by nearly 50 per cent to £59m.

Northern Ireland

As with past reports, capital commitments for the five Northern Ireland associations listed had all been allocated to contractors.

They totalled £215m and were up 15 per cent on last year.

Future prospects

A possible trend for 2019 could be increased spending on capital works to improve health and safety in response to the Grenfell Tower fire two years ago.

Some associations – such as L&Q, which listed £16m in relation to aluminium composite material cladding replacement – included some of this spending in their 2018 capital commitments.

But others are likely to do so in 2019. Broadacres Housing Association, a rural association with no multi-storey housing and therefore no cladding to replace, reviewed health and safety measures.

Gail Teasdale, chief executive of Broadacres, said that in 2018/19 the group spent around £420,000 on health and safety features such as fire doors, fire risk assessments and compartmentation, which is expected to increase to around £500,000 in 2019/2020. After this, Ms Teasdale said that spend here will return to “normal routine maintenance”.

She said it was likely that other associations across the sector would be carrying out similar reviews of health and safety spending.

Each month Social Housing focuses on a specific aspect of housing finance and collates and scrutinises the data for hundreds of housing organisations.

The reports below contain unparalleled commentary and analysis along with detailed sortable and searchable data tables.

Unit costs 2019 Our analysis of data from the English regulator has found that unit costs have risen among all types of housing association, with overall maintenance costs seeing the highest weighted average increase of nearly seven per cent

Impairment 2019 Housing associations’ impairments rise almost 40% in a year, driven by fire safety costs, contractor insolvencies and reduced land values

Global accounts 2018/19 Housing associations’ surplus for the year before tax decreased by five per cent to £3.76bn, driven by a 6.6 per cent drop in England

Affordable rent profile 2018/19 The level of affordable lettings dropped for the third year in a row

Staff pay Data from audited accounts of 206 housing associations shows that average staff pay in 2018/19 was £31,787 – a rise of 3.2 per cent over a 12-month period

Professionals’ league Our exclusive professionals’ league finds that activity continued apace in 2019, when housing associations increasingly looked to private placements

Sales proceeds Despite a 10 per cent rise in housing associations’ income from development sales in the last financial year, sales revenue is likely to remain flat over the coming years as a result of the property market downturn

Capital commitments The total capital commitments of 200 housing associations rose by 15 per cent in the past year, analysis by Social Housing has found

Reliance on sales surplus Social Housing finds that the total sales surplus of 150 English registered providers has dropped by nearly 10 per cent, as a result of lower market sales surplus

Stock dispersal How many council areas does your housing association operate in? How concentrated is its stock?

Accounts digest 2018/19 How does your housing association’s finances compare to others?

Housing Revenue Account part two How do councils compare in their 2018/19 Housing Revenue Account positions? Steve Partridge of Savills takes an in-depth look

Diversification of income We look at how housing associations are diversifying their income, and finds that they made 10.3 per cent more revenue from shared ownership and non-social housing activity

Impairment 2017/18 Social Housing takes a close look at the accounts of the 130 largest housing associations, and finds that impairments rose by nearly a third to £78.4m in 2018

Global accounts Social Housing’s analysis of the sector’s global accounts finds that housing associations’ pre-tax surplus fell last year – driven by drops in England, Scotland and Wales (August 2019)

Affordable rent profile We find that the number of affordable rent lettings recorded last year by housing associations in England has dropped for the second year in a row, suggesting that the sector is shifting away from the tenure

Capital commitments We scrutinise the capital commitments of the 208 largest housing associations in the UK (June 2019)

Housing Revenue Account part one Steve Partridge of Savills takes a look at the financial factors councils should consider in their Housing Revenue Account business planning (May 2019)

Reliance on sales surplus Our analysis reveals that profits form 42 per cent of 150 English housing associations’ total surplus (April 2019)

Sales proceeds We look at housing associations’ build-for-sale income and find a two per cent increase in 2017/18 (March 2019)

Shared ownership sales England, excluding London, has seen a four per cent rise in shared ownership sales – much lower than last year’s 16 per cent increase (February 2019)

Stock dispersal We show that housing associations’ general needs stock is becoming more concentrated within their local authority areas (January 2019)

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