Accounts digest 2024: surplus falls 39% as pressures weigh down on housing providers

Surpluses

Pre-tax surplus for the UK fell nearly 40 per cent. Rises in interest payments and repairs costs, and decreased sales surpluses, both contributed, as well as movements in valuations for organisations holding stock at market value.

Notting Hill Genesis had the largest pre-tax loss at £90.2m, largely because of £101.5m of exceptional items, which included £83m of provisions for fire safety works and impairments. It also had a fall in staircasing proceeds on shared ownership.

Abri had the largest pre-tax rise to £520.2m from £43.9m, but this was because of its merger with Silva. The 2023-24 figure would have been £55.8m without the gift on combination.

Turnover

Revenue was slightly up across the UK, rising 3.7 per cent to £25bn.

L&Q had the highest overall turnover at £1.1bn, but this was still a decrease of £54m because of a reduction in open market and land sales as a result of the decision to reduce exposure to a volatile housing market.

In contrast, for-profit registered provider M&G had the smallest turnover but the highest percentage growth, reflecting its position as a new but expanding entrant. Its revenue rose from £2.5m to £3.9m mostly due to rises in rent and management fee income. Its units rose from 382 to 1,571.

Sales

The surplus on fixed-asset sales across the providers in this report fell by 14 per cent to £944m.

Of the 165 associations we looked at, 108 made less money on fixed-asset sales in 2023-24 than the previous year, but 20 more than doubled their surplus on sales of fixed assets.

Surplus on sales of fixed assets made up at least half of the pre-tax surplus for a third of the associations we looked at.

Looking at associations’ forecasts, the Regulator of Social Housing warned in its Sector Risk Profile in October 2024 that such sales should not be used to “plug gaps in cash flows as a result of non-discretionary expenditure”. It said that while there were good reasons to sell, such as withdrawing from an area or a tenure, landlords planned to materially increase sales to £19.1bn from the sale or transfer of 107,000 social homes over the next five years.

Mr Cartwright describes the statement as “a good warning shot across the bows to the sector”.

Surpluses from sales of open market and first tranche shared ownership were both down in 2023-24 compared to the previous year. Surpluses from market sales were down 98 per cent and first tranche sales nearly four per cent across the 165 associations we looked at.

Mr Tourville says: “Private sale is really low. It really scaled back from pre-pandemic and just hasn’t recovered. Conversions to shared ownership or rented are also still happening.”

The move away from private sale reflects both the fragile housing market and the trend for landlords to reduce their income from non-social housing activities.

Fraud 

Fraud, which was emerging as a trend in 2022-23, continues to be a problem. Mr Tourville says it is getting more complicated, often involving inflated costs. Poor monitoring means opportunities to nip fraudulent activities in the bud are missed.

Mr Cartwright says: “I think compared to other sectors like the NHS, this sector has never been very proactive in using the data it has to look for suspicious activity in the business.”

However, he says that is beginning to change, with some clients embarking on fraud risk assessments.

Repairs and impairments

Rising repairs spend continued to be a theme in 2023-24. It went up by about 13 per cent across the organisations we looked at, with 117 of 165 spending more in 2023-24 than a year earlier, and 25 of those spending 50 per cent more than last year. 

Impairments also continued in 2023-24. Common reasons included contractors going out of business, schemes where costs had risen affecting viability, but also more positively instances of writing off a scheme when it was demolished for regeneration, Mr Tourville says.

Pensions

Pension surpluses continued to be a hot topic in 2023-24. Once again, associations opted to leave the Local Government Pension Scheme while it is in surplus, with some receiving an exit payment.

Wales

In Wales, the 20 traditional organisations and five LSVTs we looked at saw collective rises in turnover. The LSVTs had a rise in pre-tax surplus, whereas the traditional HAs saw a fall. 

Bron Afon, which had the highest percentage rise in pre-tax surplus, benefited from a rise in income after rent rises were permitted at up to 6.5 per cent by the Welsh government, as well as an improvement in the position of the Local Government Pension Scheme.

Linc Cymru, which merged with Pobl on 1 April 2024, just after the accounting period covered in this report, had the largest percentage fall in surplus.

In a reflection of two of this year’s trends, it saw an unrealised valuation drop on its market rented properties, which are held as investment properties at market value under FRS 102, and an impairment in carrying value of one of its nursing homes following an offer to buy it.

However, it also benefited from increased interest rates on its cash balances, making £1.1m in interest receivable.

Scotland

In Scotland, overall turnover was up and pre-tax surplus down, although the four LSVTs saw a rise in surplus collectively.

The biggest movements in the surplus of Scottish associations were generally for exceptional reasons. For example, Cairn and West of Scotland had two of the largest falls in pre-tax surplus in 2023-24 compared to the exceptional gains they had in 2022-23, due to taking on the assets of Pentland and Charing Cross respectively.

Hebridean, which had the largest increase, benefited from a valuation gain on properties following a loss last year.

The fall in Wheatley’s surplus was down to a lower level of new build grant income recognised after the completion of properties partly offset by increased income from social housing. It said the amount of grant recognised varies from year to year with the size of the development programme.

Northern Ireland

The five largest Northern Irish associations by stock saw their turnover stay almost static and their pre-tax surplus rise by 22 per cent. Clanmil saw a rise in turnover of 11 per cent and Choice a fall of 13 per cent.

Clanmil’s turnover rose due to rent increases and an increase in amortised grant and rates recharges, and the increase outstripped its rise in operating costs. 

Choice deconsolidated its subsidiaries Oaklee and Acorn in 2022-23, which had an impact on its turnover in 2023-24, although a comparison with those units removed from 2022-23 showed an increase in turnover of seven per cent, reflecting an increase in units and rents.

For-profits

For the first time this year, we have included data from the five for-profit providers with the most stock. Four of them were set up by institutional investors (Sage Housing, Sage Rented, Legal & General Affordable Homes and M&G UK Shared Ownership), and all work on a direct-let model rather than leasing it to another provider. Some offer shared ownership, some rented housing and others a mix.

All made operating margins of between 18 and 61 per cent. Two were affected by unrealised revaluation losses. M&G UK Shared Ownership had a revaluation loss of £559,250 and L&G Affordable Homes had one of £36m, without which it would have made an operating profit of £8.9m.

Simon Century, managing director of housing at Legal & General Capital, says: “Long term, we expect markets to normalise again. We expect to see ongoing, gradual valuation increases across portfolio.”

He says he was seeing an increasing number of sales of shared ownership properties and non-social housing stock, such as private rented and student accommodation, from housing associations to institutional investors.

Mr Century thinks that the sale of social housing stock to for-profit providers could happen in the future, too. “The assets remain clearly in the sector, but just not on the current housing association balance sheet. If they do that, they clearly have more capacity to look after the rest of their existing stock, or more capital to do new development themselves,” he says.

The funding structures of some of the for-profits had an impact on their interest cover and gearing figures. Some are primarily funded by investment from a parent and some, like M&G, have no debt. Heylo gave its group, rather than RP, figures for gearing and interest cover because it has no debt or funding costs.

Heylo’s RP has lease arrangements with other companies in the group. Its operating costs are the costs of the leases it has with those companies, so it does not make a profit in its accounts.

The first sales of for-profit providers took place in 2024-25 with Sage Homes selling its original registered provider to a major university pension fund, the Universities Superannuation Scheme, in August 2024. The RP, Sage Housing Limited, was renamed Sparrow Shared Ownership, although this happened after the accounting period in the data for this report. In October, Residential Secure Income’s board proposed to shareholders that it would sell ReSI Housing.

The sales would give indications of how the organisations are valued, what the returns were and whether there is more appetite to establish or invest in for-profit organisations, Mr Tourville says. “Some people have said to me, the margins were just not as good as they thought they would be, particularly through expected staircasing,” he added.

Mr Cartwright says he thinks the Sage deal represents a natural trajectory for institutionally owned for-profits: to build, sell the first tranche of shared ownership and have a housing association manage the homes initially and then sell the portfolio to a pension fund that would get a long-term, steady income. The institution would then use the proceeds to build more homes and repeat the process.

“I think it's almost like the for-profit 2.0,” he says. “I think that the residual element of shared ownership is a perfect product for a pension fund to buy, and a perfect product for a for-profit to sell. I think there’ll be more of those.”

There is also a question about what happens if a for-profit cannot sell at the price it wants and starts to face repairs liabilities as time goes on. “If you’re going to not get your return, do you try and exit sooner rather than later?” Mr Tourville says.

Care

This year we have included a table of the five largest older people’s or supported housing associations for the first time. We use the RSH’s definition, which is that 30 per cent or more of the organisation’s stock must be older people’s housing or supported housing. The top five includes two organisations that provide entirely older people’s housing and three that also have general needs stock. The largest, Anchor, saw its pre-tax surplus reduced by a £9.6m impairment after a contractor went into administration. 

Housing 21 bought the extra-care stock of Clarion in 2023-24, and that of Notting Hill Genesis the previous year. Its purchase of extra-care properties from Midland Heart happened after year end. In all cases, the associations had decided to move out of extra care.

“They [the organisations that sold their extra-care stock] will probably retain their general retirement housing services, but their extra care is quite specialist in terms of its nature and its demands and its focus, and they’re seen as being not in the mainstream of activity,” says Bruce Moore, chief executive of Housing 21.

Future

Issues that have arisen since 31 March 2024 include the National Insurance rise in the Autumn Budget and the proposed new rent settlement of a Consumer Price Index plus one per cent increase from 2026-27 to 2030-31. 

While greater certainty on rents was welcomed, the benefit to the sector has been eroded by the 1.2 percentage point rise in employers’ National Insurance contributions from April, a drop in the threshold at which it becomes payable, and a rise in the minimum wage of 6.7 per cent. The older people’s/care and support sector is likely to be particularly hard hit, as the most labour-intensive area of housing with the tightest margins.

As Mr Moore puts it: “The government gives with one hand and takes away with another.”

Notes and definitions for tables

Total turnover = income from all activities, excluding joint ventures

Operating surplus/turnover = operating costs (operating costs plus costs of sales) as a percentage of turnover

Pre-tax surplus/turnover = pre-tax surplus as a percentage of turnover

Total assets = fixed assets plus current assets

Debt per unit = total loans, bonds, finance leases and intercompany debt divided by units

In England, EBITDA MRI interest cover and gearing are taken from the RSH’s value for money metrics in each HA’s accounts. They have been calculated for those in England that did not state a figure and for HAs in Wales, Scotland and Northern Ireland as follows: gearing = debt/net book value of housing

HAs with LSVT-type finance will usually have planned high levels of debt relative to assets, including mixed groups with a significant LSVT presence

EBITDA MRI interest cover = (operating surplus - surplus on sales of fixed assets - amortised government grants - government grants taken to income) + interest receivable + total depreciation charge for period - capitalised major repairs and improvements/capitalised interest + interest payable

Housing associations carrying properties at valuation will not have any amortised grant

*Sanctuary was the only association to adopt EU IFRS rather than FRS 102. In England, its gearing and EBITDA MRI interest cover figures are taken from its accounts. We have not calculated them for Sanctuary Scotland because it uses EU IFRS rather than FRS 102

Source of data: audited accounts for year ended March 2024, except Sage Rented, Sage Housing, West Kent, Wales & West, Legal & General Affordable Homes, and Hendre = December 2023, Heylo 30 September 2023

Click on the button below to download the data tables for ‘Accounts digest 2024’*.

*This feature is only available to Social Housing subscribers

Special report: total development income hits £3.8bn
Total development income hit £3.8bn for the year to 31 March 2023, a rise of 3.2 per cent, Social Housing’s analysis of the accounts of 124 UK housing associations has found. Chloe Stothart and Robyn Wilson report

Special report: capital commitments hit £42bn
Planned capital spend among housing associations rose four per cent in the latest full year – a smaller rise than in the previous year. Chloe Stothart and Robyn Wilson report

Special report: net impairments hit record high
Net impairments at UK housing associations rose to a record high of £287.5m in 2023. Chloe Stothart and Robyn Wilson look at individual housing associations’ data and find out what drove the rise in write-offs

Special report: UK staff pay climbs nearly 7% amid rising costs and recruitment challenges

Average staff pay for the largest housing associations in the UK increased by nearly seven per cent in 2023, driven by the cost of living and a shortage of staff

Accounts digest 2023: operating surplus falls 14%

Social Housing’s analysis of registered providers’ 2023 audited accounts finds a continuation of some of the trends of the previous year, with operating margins falling for most organisations

Special report: data shows major four-year rise in temporary accommodation levels

Exclusive analysis by Social Housing has found that the number of households in temporary accommodation in England has risen by nearly a third over the past four years

New to Social Housing? Click here to register and sign up for our data analysis newsletter

The data analysis newsletter is a twice-monthly round-up of Social Housing’s leading data analysis, keeping you up to speed on key trends and pointing you to all the data you need on financial and operating performance in the sector and beyond.

Already have an account? Click here to manage your newsletters.