Special report: housing associations’ net impairments rise to highest level yet

Notting Hill Genesis (NHG) came third in this list, with an impairment of £10.4m. This resulted in a 5.2 per cent reduction in its operating surplus, to £201.1m. The impairment was marginally up on last year, when it reported an impairment of £10m.

In its accounts, the HA said the charge was a result of reassessing the net realisable value of its “work in progress” regarding its homes for sale, which it reduced by 15 per cent, following indications in 2020 that sales values in London could decrease by up to 10 per cent and that additional holding costs of five per cent of selling value could be incurred. 

“The estimate of future changes in sales values has changed, with key commentators expecting London values to hold steady in 2021-22,” NHG said. “We have, therefore, reduced the reassessment on our sales programme to five per cent in 2021 to reflect holding costs, but not value reductions.”

It added: “After taking account of the impairment of unsold homes and the potential costs at Paragon but offset by release of a provision against an onerous contract settled during the year and the release of the 2020 impairment, the net cost of impairment in 2020-21 was £10.4m with £3.6m shown as an operating cost and £6.8m as a cost of sales.”

NHG’s Paragon development was impaired as a result of fire safety issues leading to the evacuation of its residents.

The Guinness Partnership had one of the largest changes on the previous year. It posted a reversal of £7.4m in 2019-20, compared with an impairment of £4.1m in 2020-21.

A spokesperson for the group said: “Our 2019-20 impairment review identified a number of historic provisions against existing homes that were no longer required, and this review resulted in a release of impairment charges made in prior years. In 2020-21 a small number of impairment provisions were made against current development schemes due to a combination of cost increases and anticipated sales value reductions on those specific schemes.”

Lower than previous year

Longhurst had the largest impairment in this list, of £1.5m. However, this had decreased from £2.7m the year before. It resulted in a 4.2 per cent drop in its operating surplus to £35.9m. 

In its company accounts for the year, the group said the impairment charge related to office premises that the group was disposing of, for which the market valuation was lower than the net book value. The group also cited increased costs and reduced revenues linked to COVID-19 as reasons for its drop in operating surplus, with the impairment contributing to a lower operating margin, which was down to 23.5 per cent from 25.1 per cent in 2019-20.

A2Dominion had an impairment of £1m, resulting in a near-two per cent decrease in its operating surplus, to £52m. Last year, its impairments totalled £1.9m. A2Dominion was unable to comment.

Paradigm had one of the largest drops in impairment for the year, with a charge of £587,000. That was down from £8.1m in 2019-20. In its financial accounts, the provider said the 2020-21 charge was recognised after a review of its assets.

“This is comprised of a write-back of last year’s impairment cost in respect of one scheme of £4.1m and impairment on three current schemes of £4.7m,” it said.

Reversal

Four HAs – Midland Heart, Southern Housing, Silva Homes and Acis – had impairment reversals or 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. 

Silva Homes had the largest reversal, with £610,000. The group said in its accounts: “During the year the impairment loss incurred on one of our flatted schemes in prior years was reviewed and found to have changed such that there was a partial reversal of the prior year loss. This was partially offset by impairment losses incurred on two of our other flatted schemes in the year.”

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 128 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. 

Where available, data up to 2017 for Vivid is the combined total of Sentinel and First Wessex, and prior to 2016 Platform’s impairments are for Waterloo. Before 2018 Beyond’s impairments are for Yorkshire Coast Homes and Coast & Country.  Dumfries and Galloway Housing Partnership joined Wheatley in 2019-20.

Data before 2013-14 for Stonewater is combined Jephson and Raglan figures, and data before 2016-17 for Optivo is combined Amicus Horizon and Viridian figures.

Figures for Torus before 2016 are combined figures for Torus and Liverpool Mutual Homes. Numbers for Karbon are for Isos up to 2016. For Lincolnshire Housing Partnership, numbers are for Shoreline up to 2017.