Special report: housing associations’ impairments rise by nearly a third

Thirteen’s £5.1m impairment also related to five of its high-rise blocks that were judged to be obsolete or in areas of low demand.

Livin Housing’s impairment was the smallest of the organisations that saw a rise in their impairment between 2017 and 2018. The charge of £82,102 covered 32 properties identified for demolition. The impairment lowered its operating surplus by less than one per cent.

Aster had a net reversal in 2017 but a net impairment in 2018. Its 2018 impairment was made up of a £488,000 impairment on housing properties where a block of flats that was being sold had a higher carrying value than its depreciated replacement cost and a £3.1m impairment of offices.

Together’s impairment of £5m came from 474 properties the association decided to demolish, remodel or sell.

Fortis had a charge of £90,312 that related to 33 homes that are being demolished on a site that is being redeveloped.

Individual HAs: lower impairments

Notting Hill Housing recorded the highest charge of the 13 associations that had a lower impairment than a year ago.

Its impairment fell from £10.9m to £7.1m in 2018. This included a charge of £6.5m on market rent development sites where the value dropped by seven per cent. The impairment reduced its operating surplus by nearly six per cent.

Incommunities saw its impairment charge drop from £7.1m to £4.5m. A review of its stock found that 11 tower blocks needed investment but that demand for this type of home had fallen. Consequently the group thought the blocks might not be sustainable in their current form so decided to impair their value. The impairment resulted in the second-largest reduction in operating surplus of the associations in this report, with a fall of 23 per cent. The association has since announced plans to build a mix of two and three-bedroom homes on the site of three of the towers.

Sanctuary, which is the only association to use EU IFRS rather than FRS 102 from 2015, recorded a £1.6m impairment of a student accommodation scheme with low occupancy, down from £6.7m. Its impairment review found that there was no impairment on social housing assets in either 2017 or 2018. It also had a £100,000 impairment on a care home that required significant reinvestment work, down from £800,000 in 2017.

PA Housing, formed by the merger of Asra and Paragon, had the smallest impairment in 2018 at £2,000, down from £2.6m, and the largest percentage fall in the charge since the previous year.

The 2018 charge related to general needs and shared ownership housing under construction and an extra care scheme where a delay in complying with fire safety measures led to a reappraisal of scheme costs and occupancy dates. It also included a reversal on two schemes based on revised costs and rising sales values.

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.

Seven housing associations saw net reversals totalling nearly £7.5m.

The Guinness Partnership had the largest reversal at £2.9m. The figure included an impairment in the value of care homes it is selling and a write-back on general needs housing. The net write-back increased its operating surplus by nearly three per cent.

A2Dominion’s £1.5m reversal was from a general needs scheme where finances had been better than forecast.

Metropolitan’s operating surplus showed a net reversal of £1.4m. Within this were write-backs on its landbank of £1m.

Your Housing had the smallest net reversal in 2018 at £25,000. This followed a charge of £1.35m in 2017 on a scheme where more investment was required than expected. The write-back improved its operating surplus by 0.05 per cent.

A further 38 organisations had their last net impairment in 2015/16 or earlier. The total operating surplus of that group was £1.3bn. The cumulative impairment of the 38 associations from 2009/10 to 2015/16 was £98.6m.

The G15 group of London’s largest housing associations had a total net impairment of £30.7m. Homes for the North, which has 17 members working in the North of England, had a total of £22.5m. The remaining associations had a total of £25.2m.

Impairments had a greater impact on the total surplus of Homes for the North than the G15. The G15 saw a reduction in surplus of 2.9 per cent as a result of net impairment, whereas Homes for the North had a 5.2 per cent fall as a result of the charges.

The G15 made up a similar proportion of total impairments and total operating surpluses in this report, at 39 per cent and 40 per cent respectively. Homes for the North had 28 per cent of the impairments and 19 per cent of the surpluses.

2019

The 2019 accounts are likely to show a reduction in total impairment in the sector, according to forecasts submitted to the Regulator of Social Housing (RSH).

The RSH’s quarterly survey for January to March 2019 said providers expected to record a total impairment charge of £73m in their 2019 accounts, of which £31m related to social housing assets. This is down from 2018’s figure of a £103m charge, of which £46m was against social housing assets. The RSH’s 2018 figures cover all providers, whereas Social Housing’s cover only the 130 largest by stock.

The RSH’s report said that more than half of impairments were forecast to come from six providers and more than a third from three providers. It added that 37 providers expected their impairment charge to be less than £1m.

It said the providers reported that the impairments would not affect their ability to meet their funding covenants in the next three years.

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.

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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