Reinvestment in social housing at highest level, VfM reporting shows

Increasing costs

Works to existing social properties increased in nominal terms from £1.91bn in 2019 to £1.93bn in 2020, the regulator noted.

Following on from this, the median headline social housing cost metric has increased by 3.8 per cent to £3,830 per unit.

Over the past three years, capitalised major repairs, total repairs and maintenance costs increased by 15 per cent to £5.7bn. Overall, more than half of the sector reported an increase in repairs and maintenance spend of greater than five per cent.

This, the regulator said, is in part due to building safety spend and health and safety compliance costs.

Debt

As recorded in the RSH’s Global Accounts publication in March, EBITDA MRI interest cover continued to decline during the year, with a weighted average of 138 per cent, compared with 153 per cent in 2019 and 174 per cent in 2018.

For the lower quartile, the figure is 126 per cent, while for the upper it stands at 227 per cent.

Over the 2020 year, gross debt increased by eight per cent to £83.1bn compared with £76.9bn in 2019.

Gearing (net debt as a percentage of total assets), increased in the upper quartile over the past three years, to 54.7 per cent, up from 53.1 per cent in 2018. The regulator said this reflects the “increasing levels of debt taken on for development”.

However the lower quartile of providers has seen gearing remain “relatively constant” over the same period, hovering at around 33 per cent, “indicating that some of these providers may be restricted by lending covenants or the capacity to service new loans limiting them from taking on new debt”, the regulator said.

Elsewhere, the regulator noted that the one per cent rent reduction – which ended last year – continues to have an impact on the sector’s operating margin from social lettings. Over the past five years, the margin has fallen from 32.1 per cent in 2016 to 27.8 per cent in 2020.

Meanwhile, expenditure on operating costs for social housing lettings has increased from £10.2bn to £11.3bn, compared to an increase in turnover of just £0.7bn.

Overall operating margin for the sector is 22.1 per cent as a weighted average, compared with 25 per cent in 2019 and 27.6 per cent in 2018, with declines across the period in all three quartiles.

Commenting on the report, Fiona MacGregor, chief executive of the RSH, said: “At a time when registered providers face a growing range of competing pressures and will be forced to make difficult choices, the importance of focusing on value for money has never been more important.

“These hard choices and trade-offs will demand informed strategic decision-making and will benefit from transparent and open conversations with key stakeholders.

“It is more important than ever that boards maintain a clear focus on delivering value for money as an integral part of running their businesses so that they can deliver effectively for current and future tenants, local communities and other stakeholders.”