RSH: sector’s median interest cover has fallen to lowest level since 2010

While the median new supply of social homes as a proportion of existing social units owned fell slightly to 1.3 per cent, it has “remained relatively stable” over the past three years, the RSH said.

The weighted average new supply of non-social homes as a proportion of total existing units increased from 0.18 per cent to 0.27 per cent in the year.

The regulator said this was driven by a small number of providers and is likely due to the delayed delivery of new homes post-pandemic. Some providers have revised their short-term development plans because of changes in economic conditions, the RSH added.

The upward pressure on headline costs combined with the higher costs of borrowing led the sector’s EBITDA MRI interest cover – a measure of interest cover that includes all major repairs spend – to fall significantly from 2021 to 2023.

The median of the metric, which is a key indicator of the sector’s ability to cover ongoing finance costs from its operating activities, dropped 54 percentage points to 128 per cent (2021: 183 per cent). This is its lowest level since emerging from the financial recession in 2010.

The RSH said this “reflects the general economic and political backdrop seen over the past couple of years”.

Despite this, the sector’s dependence on debt finance, as measured by gearing, has remained relatively stable, with the average increasing by 1.2 percentage points to 45 per cent in the year.

According to the regulator, the median operating margin dropped by 3.5 percentage points to 19.8 per cent. While the overall operating margin, which includes all business activities at a group level, also fell by 2.3 percentage points to 18.2 per cent.

This “primarily reflects rising costs and lower than expected returns from some non-social housing activities, which affects the operating margin overall”, the RSH said.

The data also showed that turnover derived from social housing lettings increased by £1.1bn (seven per cent) to £17.6bn compared with previous years.

However, the RSH said the net impact of operating costs, which rose by 12 per cent to £13.8bn, had a “significant bearing” on the sector’s social housing lettings operating margin. The weighted average fell by four percentage points to 21.3 per cent in 2022-23.

Will Perry, director of strategy at the RSH, said: “Housing associations are grappling with a range of economic challenges while working to provide more and better social homes for people who need them.

“This creates competing pressures on their finances, and boards need to explain how they are allocating their resources and adding value. Our report allows stakeholders to scrutinise their landlord’s performance and hold them to account across a range of areas.”

“While it is for boards to decide how they run their businesses and assure themselves in the delivery of their outcomes, we will continue to seek assurance that providers make the best use of their resources and have clear plans in place to make on-going improvements,” the regulator said in its value for money report.