S&P report highlights sector risks of asset quality and consumer standards

The report said: “While positive for the sector, the grant funding remains limited to less than 15 per cent of the SHPs’ development costs, such that we continue to expect debt build-up.”

 

S&P also warned of higher inflation costs resulting in providers increasing rent for tenants in the sector’s annual settlement, which allows for an increase of consumer price index plus one per cent, which is a maximum of 4.1 per cent.

 

The report said the agency considers it “likely that many SHPs would apply the full rent increase” from 1 April 2022.

 

The agency said that while those who receive government support, such as Universal Credit, would probably be able to cover the rent increases, those who pay full rent could end up in arrears as a result of the furlough scheme ending in September this year.

 

Despite these warnings and increasing debt in the sector, S&P said low interest rates, combined with a significant proportion of long-term debt with fixed coupons, should shield the sector from a rate increase. The forecast is that interest rates are likely to remain low until December 2023.

 

The report also came with international comparisons and said that social housing providers in France, Germany and Sweden, are borrowing at lower costs than those in the UK.

The agency warned that an added risk in the UK is the “dependence on floating rate bank facilities used for shorter-term funding requirements” and the need to develop homes at potentially higher rates than currently assumed in business plans, as well as raising more debt.

 

Overall, the agency warned that providers should seek to balance the need to invest in existing stock against the provision of affordable housing, to contain the increase in debt. It expected liquidity to remain strong in the sector over the next year.

 

There have been at least six 15-year and 30-year bonds since the beginning of 2021, suggesting the sector has “solid access to the capital market”, S&P said.

The report also provided a summary of the international picture of social housing.

 

USA

 

The rating agency predicted the US social housing sector will remain stable through 2022. During the pandemic, two legislative initiatives provided a collective $46.55bn (£35bn) in emergency rental assistance for households in need. The agency also noted public housing authorities’ “significant reliance” on the Department of Housing and Urban Development to be a credit positive.

 

Sweden

 

The public housing sector in Sweden remains stable, according to S&P, where the social security system has supported the tenants of public housing providers and housing companies’ revenue streams. The long-term practice of municipally owned public housing providers integrating financial activities with those of their owners means they can pool and share the financing of new projects.

 

France

 

Debt accumulation is expected to grow moderately, as providers use internal sources of funding and government subsidies. A new investment deal signed between the government, social housing providers and public financing bodies will address the backlog of building new homes and refurbishing existing ones. The plan allows for 250,000 additional homes to be built during 2021 and 2022, including 90,000 highly affordable units, at a cost of roughly €38bn (£32.2bn).

 

Germany

 

S&P does not expect any “material changes” in the credit quality of providers in Germany. It is expected that the municipal social housing providers will increase their balance sheets over the next year to invest in new and existing homes, as well as source significant amounts of new debt to support expansion. There has been increasing political focus on social housing, following a referendum to expropriate 240,000 units from private landlords in Berlin.

 

Australia

 

Australia’s social housing sector is expected to expand, according to S&P. The government’s community housing provider bond aggregator offers community housing providers “attractive financing options in 2022”. It has passed on about A$2bn (£1.07bn) to community housing providers since inception. It also provides small grants to housing providers for financial advice, planning, property development and risk management.

 

The Netherlands

 

The Dutch government is set to reduce the landlord levy in 2022 – a property tax imposed on social housing assets – to partly compensate the social housing sector for a rent freeze initiated in response to the pandemic. S&P said this move, combined with continuously strong demand for social housing in Amsterdam, will support stronger performance in 2022.

 

New Zealand

 

The number of applicants on the public housing register waiting list has quadrupled in the past four years, S&P said. Median residential property prices have also soared by 28.7 per cent in the year to June, which could place further pressure on demand for public housing. In March, the government allocated NZ$3.8bn (£1.9bn) for two home-building funds.

 

Israel

 

Amidar manages social housing assets in Israel, most of which are state owned, and is the country’s only entity rated by S&P. The agency said Amidar’s stable relationship with the state, strong oversight and financial support would continue to benefit is creditworthiness.

 

Canada

 

S&P expects the Canadian housing policy framework to remain stable in 2022. Social housing is delivered by provinces and the agency said that demand for social housing, largely driven by the level of immigration, is expected to remain strong. The federal government has a commitment to reach annual immigration targets. The rating agency added that rising inflation, spiking rents and increasing housing and construction prices are expected to continue in 2022.