Special report: trend of increasing stock consolidation continues

10,000+ general needs stock

In the largest size band, Clarion once again tops the list as the biggest RP with 90,682 general needs units. For this reason, Social Housing has taken a close look at the provider’s stock dispersal to see how it has changed over the past year.

Its average number of general needs units per local authority area has decreased to 563, from 570 the year before. Meanwhile, the number of local authority areas Clarion currently holds general needs stock in has increased from 159 to 161, which suggests that its geographical spread is widening while its stock is becoming less concentrated.

At the same time, its average number of general needs units per local authority area as a percentage of its total general needs stock was 0.6 per cent – remaining unchanged from last year.

That said, these figures do not take into account a stock deal by Clarion in June this year, which included the sale of 154 homes in Stafford to Stafford and Rural Homes, which has more than 6,000 homes in the town and surrounding area. The sale included 152 general needs homes – all the general needs stock Clarion had in the area in March when these figures were compiled – and two sheltered housing properties that would not be included in the figures in this report.

Mr Cleal, whose company JLL was involved in the deal, also pointed to Clarion’s 10-year plan to sell 10,000 homes as part of a stock rationalisation programme. He said that the provider is “better than most” when it comes to assessing its stock.

The plan was announced in 2017, in a bid to narrow its geographical footprint following the merger of Circle and Affinity Sutton (which joined forces in 2016 to form the RP). At the time, the RP had stock in 159 local authority areas.

Today it has fewer than 50 units in 47 local authority areas and fewer than 10 units in 11 local authority areas, including South Holland (1), Bromsgrove (1), Worcester (2) and Wolverhampton (3). However, these areas are in the same West Midlands region (except South Holland, which is in the neighbouring East Midlands region) – which would still enable the provider to drive efficiency.

A Clarion spokesperson said: “As the largest provider of affordable housing in the country, our long-term approach is to build and manage homes where the need is greatest.

“We will focus on building and maintaining communities in urban growth hubs, where there is a high demand for affordable housing and Clarion already has a presence in the community. When looking to rationalise our geographical footprint, each decision will be informed by our existing presence in the community and plans
for growth, not the number of local authorities in which we operate.”

Commenting on the desire for RPs to tighten their geographical footprint, Ms Collins said: “We are definitely seeing that consolidation towards heartlands. We trade between 2,000 and 4,000 homes a year generally and geography has always played a big part in that, particularly post-merger, but also some of the larger organisations like Home Group and Places for People, any of the national footprint organisations, have looked at footprint rationalisation for a long time.”

Major deals driven by this geographical focus include a significant sale in May 2018 between The Guinness Partnership and Karbon Homes. Under the deal Guinness sold 1,300 homes in the North East of England to Karbon in a multimillion-pound deal, in what it described at the time as a “strategy of rationalisation” in the region.

“Some of that [589 figure] will be mergers, some will be growth and then a very small portion will be through transactions”

A Guinness spokesperson added: “In the North East we have some homes but they are split over several councils and we only have a few in each. We felt it would be better if they were managed by someone with a local focus.”

The deal included a mixture of general needs housing, older people’s accommodation, supported housing, shared ownership units and commercial property. It also saw 20 Guinness staff transfer to Karbon. The deal was part of a five-year strategy by Guinness to reconfigure its footprint and concentrate its areas of investment, according to group finance director Phil Day, who revealed the association’s new strategy to Social Housing last December.

This overall direction of travel for the RP chimes with this year’s research, which shows Guinness reducing its local authority area count by 10 to 127. Its overall general needs units total decreased to 45,094, from 46,529, while its stock concentration has increased from an average of 340 units to 355.

And this is a trend that looks set to continue for Guinness, which is also in the process of completing a major 3,000-home stock swap with Paradigm Housing Group.

Under the deal, Guinness will take 1,290 London-based homes from Paradigm, with the latter then taking ownership of 1,608 Guinness units largely in the areas of Wycombe, Welwyn Hatfield and Milton Keynes.

“The advantage of a swap is that there’s no loss in revenue for the seller, so you’ve got continuity of revenue stream at the same time as getting the benefit of the operational efficiency, so we expect to see a few more swaps,” explained Ms Collins, whose company is involved in the Guinness deal.

However, she noted that “swaps are difficult to pull off because getting portfolios that are reasonably comparable and achieve the aims of the landlords at scale isn’t always as straightforward as you think”.

5,000-9,999 general needs units

One Housing Group, with 9,998 units, topped the list as the largest RP within the next size band down, displacing Moat, which had previously occupied this spot since 2015.

As the figures would suggest, it has been a busy year for One Housing, which has increased its total general needs units by 1,228 since last year’s report. The group has also expanded into two local authority areas, taking its count up to 33, at the same time as increasing its stock concentration per local authority area to an average of 303, up from 297.

The RP has also joined the G15 group of large London-based housing associations and has revealed plans to build more than 5,000 homes over the next decade.

It also completed £235m of new financing with Irish, Japanese and UK banks, including the first direct loan to the UK social housing sector from Japanese bank SMBC.

At the time, Paul Rickard, then group director of finance and resources, said: “[The deal] further strengthens the liquidity of One Housing to help us deliver 5,000 new homes over the next 10 years, as well as protecting us against the current uncertain operating environment. We expect to build on this with additional fundraising in the near term.”

More than 65 per cent of its stock was in just three London boroughs: Tower Hamlets (3,018), Camden (2,350) and Newham (1,200). The rest was in relatively close proximity within the Greater London area, spreading from St Albans (30) to Reigate and Banstead (1).

Moat Homes, which had the largest number of units in the 5,000-9,999 category in 2018, has seen comparatively marginal movement in its figures since last year. The RP’s local authority area count remains at 41, while its overall general needs unit figure has increased to 9,876, from 9,764. Its average units per local authority area also increased from 238 to 241.

Similarly to One Housing, and many other RPs in the sector, Moat has been ramping up its financing activities. In August, it secured a forward purchase agreement to tap an existing bond, which is due to be repaid in 2041, for an extra £100m. Under the terms, Moat was able to borrow the money on 8 November 2019, eight days after the date on which prime minister Boris Johnson had then promised to take the UK out of the EU.

Greg Taylor, the group’s executive director of finance and corporate services, described the transaction at the time as “very security efficient” for Moat, with the funds able to support the organisation’s development programme “over the coming years”.

In May 2019, Moat returned to a top governance rating after a previous judgement by the RSH said it had exercised insufficient oversight when it disposed of 26 homes for older people to a for-profit registered provider (RP).

2,500-4,999 general needs units

Progress Housing Group is now the largest RP within the smallest size band, after Victory (which topped the list last year) merged with Flagship Housing in January.

The total number of general needs units for Progress increased to 4,825 from 4,716, while its local authority area count stayed at 11. This saw its average number of units per local authority area increase by 10 to 439, while its general needs units per local authority area as a percentage of total stock stood at 9.1 per cent.

In its latest accounts, the group laid out its ambition to “more than double” its current development output with plans to build 250 new homes a year. As part of its continued asset management strategy throughout the year, the group also said it had found “no significant schemes” that were poor performing.

That said, in April 2018, Progress assessed its supported living activity (the numbers for which are not included in this data, but are nonetheless noteworthy as a wider demonstration of the RP’s asset management strategy) and in June it commissioned a report from the Housing Quality Network to analyse the cost of providing maintenance services to dispersed supported living stock.

The findings showed that the smaller the operational footprint in the area, the higher the cost, regardless of geography, and low volume cancels out the benefits of cheaper labour costs.

As for its general needs stock, this year’s research shows that the bulk of its units are within South Ribble (2,727), Fylde (1,599) and Chorley (235). Its remaining eight local authority areas had 56 fewer units but these were all in geographically neighbouring areas.

Wider market trends

As seen elsewhere in the housing sector, increased focused on fire safety standards and compliance post-Grenfell are also having an impact on this part of the market. Mr Cleal noted how due diligence is taking longer, with some transactions slowing.

“There’s, rightly, a greater focus on integrating compliance information when purchasing stock, which does slow transactions down,” he said. “When we’re acting for purchasers, [we are ensuring] the stock is compliant and the fire risk assessments are up to date and the fire risk assessment action that’s recommended by a certain date is being completed.

“But fire risk assessments are a big moving beast and they are constantly changing. In terms of purchases, you don’t take a view about fire safety any more and look to improve it later. You want a plan in place for when you take the stock on that says it’s either compliant on day one, which it really should be, or you are going to sort that very early to make sure it’s compliant.”

While Mr Cleal does not see this as a major issue, he said: “The due diligence process takes longer but the way to mitigate that if you’re selling is make sure you have all the information up front and your stock is totally compliant.

“Lots of these portfolios comprise a large amount of properties in different locations and different buildings, so it’s not like we’re dealing with one building.”

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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