Time of reckoning?
Kate Davies CBE FRICS
Consultancy to help the property, technology, investor and maintenance sector understand social housing better.
Social landlords, during the past decades, engaged in sensible commercial activities such as building homes for sale or market rent, to make profits or surpluses. This meant they had substantial reserves which enabled them to borrow money comparatively cheaply, and as a buffer to deal with unforeseen circumstances.?
Today the reserves are being used up to deal with safety issues, energy efficiency and a backlog of repairs. The costs of these improvements run to billions of pounds, barely unsupported by grants or help from government. In fact, unbelievably, the private sector has been offered millions for building safety, whereas the social sector has had to use their own depleted resources or borrow at increasingly higher rates.?
For the first time since 2009, the cost of servicing debt has exceeded net earnings. With an aggregate average interest cost ratio of just over 110 per cent, this will be a huge concern in even the strongest associations. So much is going out in interest that associations cannot reliably earn enough money each year to cover their debts and run the show. It's dangerous territory that would potentially breach covenants and threaten bankruptcy.??
This sorry state has been revealed in the RSH′s annual?Sector Risk Profile 2024. While advice is correctly given that boards need to manage their resources and risks with great care, we have created a dangerous situation for social landlords. More demands are being made by government, regulators and residents, that cannot be met within existing resources. Boards will not spend what they don’t have, but then this leaves them open to regulatory action and criticism that they don't care!
The need to sweat the assets and borrow more to meet shortfalls has been a government mantra since the 1980s. The significant reserves that associations ably accumulated through legitimate commercial activities were challenged and criticised as being unnecessary.
The chickens have come home to roost.?
Deputy CEO, Managing Director, Finance Director (CFO), Board Member
1 个月When will the penny drop that, “but they’ve got strong liquidity” means adding to the unsustainable debt pile? This is why HAs keep missing those hitherto forecast recoveries in interest cover and C-suite members then decide to spend more time with their family. More Govt borrowing following the fiscal rule change will keep gilt yields up for the foreseeable.
CEO at 3C . Social Housing Technology Consultants
1 个月Fascinating and concerning insight Kate Davies CBE FRICS. Thanks also for being the first to alert me that the new risk profile has been released. This statement in the profile only reinforces the value of the great work that you doing with ODX "Furthermore, the government is consulting on new rights for tenants to access information about their homes, supplying tenants with data that is accurate, consistent and reliable is fundamental to this process if implemented."
Blue Muffin Ltd
1 个月So on the money. In the same way that Ofwat as a regulator has massively failed the consumer. This was always going to happen. Boards have an opportunity now to step more deeply into ensuring that social housing actually serves the Customer above everything else. This is about culture.