Special report: planned capital spending rises 7% in past year

According to Mr Malone’s analysis, the cost pressure of recent months has seen some projects shelved, which could push capital commitments on them into the coming years. However, he adds that this is more likely something that will be seen in the near future, rather than a factor that has influenced this year’s numbers.

“These inflationary conditions have led to many projects being repriced and this is seen through increases in the tender price indices. Often this will lead to certain projects being stalled as their financial viability is no longer achievable. Again I think we will begin to see this more in the coming periods,” he explains. “Essentially this creates the reverse picture of ‘less for more’ within the sector.”

Mr Malone also said that supply-side pressure could account for the increase in the proportion of future capital works that remain uncontracted. “In general, across all nations the proportion of spend that is already contracted has decreased. This may be a sign of some tightening in the supply market and the difficulty in attracting suppliers and contractors,” he said. “But as the private sector work begins to slow we would expect some improvement in this for HAs and see the subsequent increase in contracted work over future periods.”

The complexity of the picture when it comes to HAs’ future spending commitments is highlighted by the picture painted in the Regulator of Social Housing’s (RSH) quarterly survey. 

The latest survey of 205 social landlords in England, which covers the period from July to September 2022, shows a marked drop-off in market sale completions which were 35 per cent down on the previous quarter, suggesting uncertainty in the market. 

That uncertainty was exacerbated in the period covered by the survey, which included a change of prime minister and chancellor, and subsequent reversal of fiscal policy. A lack of clarity over the 2023 rent settlement for social housing landlords has also “led to some providers pausing or reviewing uncommitted development”, according to the regulator.

The RSH’s figures show that development expenditure alone in England is forecast to reach £17.3bn over the 12 months to the end of September 2023, of which £11.4bn (66 per cent) is committed. Capitalised spending on repairs and maintenance, meanwhile, is forecast to reach £3.4bn over the same timescale.

Individual HAs: top 60 capital commitments

For the fifth consecutive year, Clarion topped the table when it came to total capital commitments. The UK’s largest HA by number of homes owned has planned spending of some £4.1bn on its books, although this is seven per cent down on last year’s figure.

The proportion of Clarion’s future spend that is committed but not contracted grew year-on-year, from 76.7 per cent in 2020-21 to 82.3 per cent in 2021-22. This is the second year in a row that this proportion has grown, suggesting a burgeoning pipeline of work waiting to be contracted.

A Clarion spokesperson cited “uncertainty and volatility in the construction market” as one of the underlying causes of a fall in capital commitments.

In a statement, they said: “We are committed to continuing to build at scale and the vast majority of homes we deliver will continue to be for affordable tenures. At the same time, we will be more cautious and have dialled back some of our plans for further expansion. 

“Our committed spend is circa seven per cent down on last year and this is primarily driven by sector-wide planning delays and a strategic decision to delay a number of new start commitments until uncertainty and volatility in the construction market abates. We continue to make many of our commitments via joint venture partnerships in order to de-risk Clarion’s exposure further.”

L&Q was once again second on the list of biggest planned spenders, although the 100,000-home landlord’s figure of £2.2bn in capital commitments was 24 per cent down on 2020-21. Unlike Clarion, the majority of L&Q’s commitments are contracted, with just 26.6 per cent authorised but uncontracted. However, that is significantly up on 2020-21 when just 15.7 per cent of future work was uncontracted.

Ed Farnsworth, deputy group finance director at L&Q, said that the drop in total capital commitments at the association is a result of a shift in focus, whereby new developments are increasingly delivered through partnerships.

“Our year-on-year reduction in capital commitments reflects a change in our development growth strategy,” he said. “We are focusing more of our resources on investing in the quality and safety of our existing residents’ homes, whilst delivering more of our new homes through a range of strategic partnerships which have more efficient capital structures.

“This can be seen in the increased investment we’ve made in our residents’ homes – £262m [in] 2021-22, compared with £190m the previous year. Despite this reduction in capital commitments, we completed 4,157 new homes in 2021-22, the largest amount in our history. With 2,151 completions this year so far, we have already exceeded last year’s figures and are on track for another strong year of new home delivery.”

Five other HAs had capital commitments of at least £1bn. Peabody was third on the list, with its £1.9bn representing an 8.8 per cent drop on last year. 

Places for People climbed to fourth place after recording a 54.7 per cent increase on 2020-21, with £1.8bn in capital commitments. Sovereign placed fifth, with £1.3bn of planned spend, up 38.9 per cent.

Tom Titherington, chief investment and development officer at Sovereign, said that the 60,000-home landlord’s increase in commitments was largely down to a decision to focus on development on land it has bought itself.

He told Social Housing: “We have deliberately moved from a position where our programme was largely Section 106 and additional purchase to something that we describe as ‘Sovereign-led’, that is where we invest in land – directly or through joint ventures. That means we have built a forward programme of around 9,000 homes where we have bought land, entered joint ventures and where we have begun a process of infill and regeneration on older estates.”

Mr Titherington gave the example of Lotmead in Swindon – a joint venture (JV) for 2,000 homes with Countryside, as well as a similar JV with Crest Nicholson for 1,000 homes on the outskirts of Bristol and the purchase of Clifton Down and Princes Mead shopping centres in Bristol and Farnham respectively.

Platform dropped from fourth to sixth on the table, having committed £1.1bn, which is a 7.5 per cent fall on 2020-21. Riverside rounds out the list of the £1bn-plus spenders, although its 457.3 per cent rise was partly down to its December 2021 merger with One Housing Group, with the legacy HA dropping off the list.

Risers and fallers

Social Housing also analysed the top 30 increases and decreases in authorised capital commitments – the metric that demonstrates the size of the uncontracted pipeline available.

Two Welsh HAs topped the list when it came to the biggest increases. Family Housing Association and Linc-Cymru both recorded huge increases (15,320.2 per cent and 3,216.7 per cent respectively), although this is as much a function of the size of the two landlords and the relatively small commitments recorded in their 2020-21 accounts.

Among landlords that own or manage at least 10,000 homes, LHP topped the pile, with its authorised commitment of £11m representing an increase of 1,581.6 per cent. Regenda (715.9 per cent), Optivo (547 per cent) and Karbon Homes (306.2 per cent) also notched rises of several times their previously recorded non-contracted commitments.

The biggest falls in authorised commitments were recorded by Saffron Housing Trust (97.7 per cent), River Clyde Homes (95.4 per cent), Acis (83.4 per cent), Magenta Living (81.2 per cent) and Connexus (80.5 per cent).

Several members of the G15 group of leading London HAs also recorded significant reductions in this category. They included Notting Hill Genesis, which posted a 71.9 per cent fall, reflecting the fact that a much greater proportion of its future work is now contracted. Similarly, Network Homes saw a 68.8 per cent drop in its authorised commitment despite an overall 2.3 per cent rise in total commitments.

A2Dominion reported a 40.1 per cent decline in authorised commitments, with £223.9m of spending on its books but not yet contracted. However, unlike its G15 peers, this fall was broadly in line with an overall drop in capital spending plans, with the 39,000-home landlord showing an overall downturn of 26.8 per cent to £523.9m.

Dean Tufts, executive director of finance and strategy at A2Dominion, said: “The reduction in commitments is largely due to a decision not to pursue two major developments in 2022 that had previously authorised expenditure of £150m in 2021, whilst there were also no significant new schemes added to our commitments during 2021-22.”

England

Of England’s total commitments, £19.4bn had been contracted, up 5.1 per cent on 2020-21, with £17.9bn authorised by boards – a figure that was almost 10 per cent higher than the previous year.

England’s LSVTs and traditional HAs performed broadly similarly, with the former 9.1 per cent up on the previous year and the latter 6.7 per cent ahead. The G15 once again made up the lion’s share of total commitments, but their £13.3bn of planned capital spend was some way down on 2020-21’s £14.9bn, and accounted for 36 per cent of England’s total (vs 42 per cent a year ago).

Scotland

Contracted commitments at Scotland’s 25 largest HAs were down 44.8 per cent year-on-year, while authorised but not contracted commitments grew 82.8 per cent. Overall, this meant that authorised commitments made up 54 .2per cent of the total compared to just 26.3 per cent in 2020-21.

There was a major divergence between LSVTs and traditional landlords in Scotland. While LSVTs recorded a similar drop in both authorised and contracted commitments, which were down 32.5 and 38 per cent respectively, traditional HAs saw a 124.6 per cent increase in uncontracted spending plans but a 46.7 per cent drop in contracted commitments.

Scotland’s largest landlord, Wheatley, saw a 31.9 per cent drop in total commitments to £151m, with contracted commitments down 36.5 per cent and authorised down 17.6 per cent.

Wales and Northern Ireland

In Wales, the proportion of authorised commitments also grew, if not at the same rate as in Scotland. The 25 HAs featured recorded £674.4m of authorised commitments, up 52.2 per cent on the previous year, while the £529.1m of contracted commitments were up 9.3 per cent.

The four Northern Irish HAs featured in the report recorded no uncontracted commitments, while contracted spending plans totalled £176.1m – a 24.3 per cent year-on-year increase.

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