Stock height an ‘important factor’ for costs per unit, value for money data shows

The regulator said that eight out of the 10 providers with the largest proportions of homes in blocks of at least seven storeys are based in London. It added that all 10 landlords have a headline cost “significantly above the upper quartile”.

 

The weighted average cost related to providers with more than 10 per cent of their homes in blocks of at least seven storeys increased by 12 per cent, to £7,978, in 2023-24. Maintenance and major repairs accounted for 59 per cent of the increase.

 

Meanwhile, the data also showed that providers with higher proportions of homes in blocks less than seven storeys were associated with higher headline costs.

 

“These providers are associated with higher maintenance and major repair costs as well as increased service charge costs per unit,” the RSH said.

 

The data on stock height was part of a new analysis on stock characteristics in the VFM report this year.

 

Will Perry, directory of strategy at the RSH, said: “This year, we have also carried out new and expanded analysis which allows us to understand in greater detail some of the structural factors that can impact on value for money.

 

“This supports our ongoing scrutiny and regulation of the sector, especially as pressures intensify, and provides important insight for landlords as they consider what drives their businesses.”

 

The median headline cost per unit rose by 12 per cent to £5,136, the highest level recorded and above the Consumer Price Index rate of inflation of 3.2 per cent in March 2024.

 

The RSH said this was “largely driven” by increased expenditure on the existing housing stock. However, the sector projects cost increases to fall below the rate of inflation over the next five years, according to the data. 

 

The weighted average maintenance and major repairs costs, including capitalised major repairs, increased by 12 per cent to £3,046 per unit. This compares to an 18 per cent increase in 2022-23.

EBITDA interest cover

 

Elsewhere, the VFM data showed that at a sector level, EBITDA MRI interest cover continued to fall in 2023-24.

 

The median EBITDA MRI interest cover dropped by six percentage points to 122 per cent in the year – its lowest level since the peak of the financial crisis in 2008.

 

“A key explanation for this is related to the total value of interest capitalised, interest payable and financing costs which increased by 15 per cent in the year,” the regulator said.

 

However, there was a wide gap between providers in the upper quartile (153 per cent) and those in the lower quartile (76 per cent).

 

The RSH said that reported performance in the upper quartile fell by a greater level, “reflecting the continued pressure on providers’ ability to service debt”.

 

This comes after the regulator’s Global Accounts, which were published in January, showed that the sector’s EBITDA MRI interest cover dropped below 100 per cent in 2023-24 for the first time since the 2007-08 financial crisis.

  

New and existing homes

 

The regulator said reinvestment in new and existing homes reached record levels as housing associations continued to focus on development, building safety, energy efficiency and stock decency.

 

Reinvestment in existing stock and acquisition or development of new homes rose from £12.5bn in 2022-23 to £14.6bn in 2023-24. This is the highest level recorded since the VFM metrics were introduced in 2018. 

 

This comprises £11.4bn on new development, a 17 per cent rise from £9.7bn in the previous year, and £3.3bn on existing homes, an 18 per cent increase from £2.8bn in the previous year.

 

Reinvestment in new and existing homes as a proportion of total housing assets climbed 18 per cent since 2021-22 to reach 7.7 per cent last year.

 

London has the highest capital spend per unit on existing homes, which increased by 13 per cent to £1,680 in 2023-24, almost 50 per cent above the England average. However, this reduced London’s capital reinvestment per unit on new development by eight per cent.

 

The RSH said that the sector continued to sustain the high levels of new development seen in recent years, “even as financial pressures intensify”.

 

Despite a number of providers scaling back development ambitions, 49,287 new social homes were delivered in 2023-24, the highest level since 2020-21. 

 

Around 10 per cent of providers, excluding for-profit providers, developed almost half (45 per cent) of new social homes during the year.

 

Mr Perry said: “The sector as a whole is proving resilient at grappling with competing demands on their resources, investing record amounts on new and existing homes, though inflation and high levels of repairs works are driving up unit costs. 

 

“It is crucial that landlords challenge themselves on their efficiency so they can continue to build more homes and deliver better services for people who need them.”