Development spend below forecasts as pandemic and materials shortages delay projects

News03 Sep 2021James Wilmore

Housing associations’ spending on property development is down by nearly a third on forecasts as the pandemic, shortages of material and labour, and prices are continuing to hamper projects.

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Housing associations’ spending on property development is down by nearly a third on forecasts as a result of the pandemic and shortages of material and labour, and prices are continuing to hamper projects #UKhousing #SocialHousingFinance

Registered providers spent £3.1bn on development in the three months to the end of June, which was 30 per cent below their forecasts, according to the Regulator of Social Housing’s (RSH) latest quarterly survey.

Around a quarter of the shortfall was from seven providers based in London and the South East.

“Many providers are still reporting ongoing delays from the pandemic; shortages of materials and labour in the construction sector, as well as escalating prices affecting lead times,” the survey said.

Will Perry, director of strategy at the RSH, told Social Housing: “Development delivery is more unpredictable than usual, particularly due to labour and materials shortages.”

Brexit has led to a shortage of materials such as cement, timber and steel, which has driven up prices and caused delays on sites, the survey said.

Mr Perry said that providers are also faced with the challenge of not knowing when they can acquire Section 106 properties as developers change their timetables.

Housing associations are trying to make up for lost time after last year’s first lockdown saw sites shut down. As a result the £3.1bn spend was 68 per cent up on the same period last year and 11 per cent up on the previous quarter, despite being down on forecasts.

Market sale completions fell by 25 per cent to 1,178, compared to the previous quarter. However, the survey said that providers are “still forecasting full budget spend in the year”. The number of market sale properties sold fell 16 per cent to 1,414, but the survey noted that this was above a three-year average of 1,230 units.

The number of unsold market sale units fell 13 per cent to 1,655.

The overall surplus on market sales was £102.9m in the quarter, giving a margin on sales of 16.6 per cent, up from 16 per cent the previous quarter, the survey found.

Capital markets dominate

The survey, based on returns from 209 registered providers, also found that bank lending to the sector in the quarter was at its lowest for four years at £0.4bn. Landlords are increasingly turning to the capital markets for funding, which accounted for 78 per cent of facilities agreed in the quarter – a total of £1.8bn.

Mr Perry said: “There’s more choice for cheap money. Capital markets are very, very attractive and more providers can access them. Private placements are also taking off again.”

He also suggested that providers had previously “built up” available facilities in preparation for the impact of Brexit and the pandemic, but that some of that contingency planning is now being unwound.

The survey also found that £1.7bn of loan repayments were made during the quarter, which was the highest amount since December 2016. The figure included £0.5bn of repayments to the Bank of England’s Covid Corporate Financing Facility.

A string of housing associations used the facility during the height of the pandemic, with the Treasury forced into a rethink after originally blocking associations with a V2 rating or lower from accessing it.

A total of £1.1bn is still due to be paid back by the sector, which must be done by next March.

Repairs and maintenance

Capitalised expenditure on repairs and maintenance was down 21 per cent on the previous quarter, but hit a first-quarter high of £459m. The survey said it was normal for capital expenditure to fall in the first quarter of a new financial year as contracts are tendered and initial survey work is carried out.

But it added that while “the majority (78 per cent) of providers reported an underspend against previous forecasts, several providers incurred additional expenditure as a result of completing works delayed from the previous quarter”.

The survey added: “In addition to the usual seasonal delays in starting programmes, providers have also reported ongoing delays resulting from the coronavirus pandemic, including restricted access to properties, and staffing and material shortages.”

Meanwhile, spending is forecast to increase by an average of £256m (56 per cent) per quarter over the 12 months to June 2022, to reach £2.9bn – compared with £1.8bn over the past year.

COVID-19 also continues to impact property voids. The survey found that 54 providers said income collection levels are “outside of business plan assumptions”, while 85 per cent of these said voids is one of the areas that has missed targets.

Across all providers, 15 recorded void losses of five per cent or more. “Providers have reported high backlogs of void properties from the latest national lockdown, and social distancing requirements lengthening the repair and re-let time of properties,” the survey said. “Staffing shortages in repairs and lettings teams are also reported to be contributing to delays.”

Arrears, on a mean basis, stood at 3.5 per cent at the end of the quarter, compared to 3.4 per cent the previous quarter. This was also down on the four per cent figure in the same quarter last year as the impact of the pandemic began to emerge.

London-based associations continued to see the highest arrears, where the mean average for the latest quarter stood at 5.3 per cent, the survey found.