Special report: housing associations’ impairments rise almost 40% in a year

Plus Dane Housing had a £3m impairment, which resulted in a 23 per cent decrease in its operating surplus. The group said this charge was in relation to one of its apartment blocks called Carriage Grove, which is based in Liverpool.

It was applied after carrying out an “extensive investigation” into fire safety concerns to “understand the scale of the problem” in the building. Remediation, demolition and disposal options were all explored as part of the investigation.

Peter Fahy, chair of Plus Dane, said the group had borne the cost of the investigatory works and the sale resulting in the impairment.

The largest drop in operating surplus in this group was at Lincolnshire Housing Partnership, which saw a 47 per cent decrease to £8.8m, following £4.2m of impairments relating to “losses of housing properties”, according to its accounts. The association has been contacted for comment.

Lower than previous year

Net impairments for HAs that had a lower impairment in 2019 than in 2018 added up to £14m, compared with 2017/18 when the same organisations reported £43.4m of impairments, the latter of which was the highest total seen among these HAs over the past 10 years.

The biggest drops on 2017/18 were at L&Q (£5m decrease), Together (£4.8m decrease) and Thirteen (£4.7m decrease).

This was in contrast to 2018, when all three appeared in the list of HAs whose impairments were higher than in the previous year. L&Q, for example, had the second-largest impairment at £9m in 2017/18, after finding a £2m impairment was required to a number of high-rise blocks that had aluminium composite material cladding.

It also recognised a £4m impairment on social housing properties held for letting and £3m on social housing units under construction. The impairment lowered its operating surplus by nearly three per cent.

This year (2019), however, its impairment charge decreased to £4m, reducing its operating surplus by two per cent. In its 2019 financial accounts, L&Q said the group had recognised a £4m impairment on 21 low-cost homeownership properties under construction (2018: £4m social housing properties held for letting, £3m social housing homes under construction).

Thirteen this year recorded a £0.42m impairment in relation to its general needs stock. It reported a £5.1m impairment last year in relation to five of its high-rise blocks judged to be obsolete or in areas of low demand.

Together, meanwhile, reported a £0.18m charge for 93 of its general needs homes, compared with £5.1m the year before for 474 properties the association decided to demolish, remodel or sell.

Individual HAs: reversals

This report also looks at impairment reversals and write-backs, which are credits rather than charges to the operating surplus.

Some impairments are partially reversed the following year. For example, the value of shared ownership, open market sale, market rent and student rent properties might be higher than expected in a buoyant market.

Similarly, land values that were above expectations or build costs that were lower than forecast can also result in a write-back.

As was seen last year, there were seven HAs that reported reversals. These reversals totalled £7.3m. The organisations were The Guinness Partnership, Metropolitan Thames Valley Housing, Home Group, Optivo, Orbit, Moat and Magenta.

Of these, Home Group had the largest reversal at £2.3m, which followed a £4.1m impairment the year before – the bulk of which was relating to housing properties under construction, according to its financial accounts.

This report provides an insight into which associations saw impairment increases year-on-year and by how much. It also shows where impairment has reduced compared with the previous year. The data comes from organisations’ notes on the operating surplus in their audited accounts. It includes impairments to housing and non-housing assets.

The impairments as stated in the operating surplus – rather than the impairments stated in the note on fixed assets – were used because Social Housing is interested in the effect of impairment on surplus. Impairment reviews are carried out annually by associations.

Where there is evidence of impairment, assets are written down to the recoverable amount. Any write-down is charged to the operating surplus, and reversals of impairments are stated there, too.

The report looks at the 130 biggest associations by stock. Data before 2014 was put together under the UK GAAP accounting standard and later figures were done under FRS 102 – apart from those for Sanctuary, which uses the EU IFRS standard. Impairment was one of the aspects of accounting that changed under FRS 102 compared with UK GAAP.

Data before 2016/17 for LiveWest is combined figures for Knightstone and DCH where available, data before 2013/14 for Stonewater is combined Jephson and Raglan figures, data before 2016/17 for Optivo is combined Amicus Horizon and Viridian figures, data before 2014/15 for Clarion is combined figures for Affinity Sutton and Circle, and data before 2015/16 is combined figures for Asra and Paragon.

Figures for Torus before 2016 are combined figures for Torus and Liverpool Mutual. Numbers for Karbon are for Isos up to 2016. For Lincolnshire Housing Partnership numbers are for Shoreline up to 2017. Data for Castles & Coasts is for Two Castles up to 2017.

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)

Click here to find more special reports