The unintended consequences of improving existing homes

The discussions about the provision of social housing tends to focus on the number of homes to be built. There are calls from a range of housing charities and bodies for an additional 75,000 to 90,000 social homes per year.

Currently, we are still seeing more social rented homes being sold and demolished, than being built.

The pressure on social landlords, councils, and housing associations to, quite rightly, improve their homes is increasing the pressure to sell properties. Last year housing associations sold 4,504 homes outside of statutory requirements such as right to buy, right to acquire and shared ownership staircasing.

Over recent years, for all the right reasons, there has been increasing regulation around building safety, energy efficiency and dealing with issues such as damp and mould. These are critically important issues and the focus on them is absolutely right. In the latest global accounts published by the Regulator of Social Housing it has noted,

“Projected spend on repairs and maintenance has increased by 11% on last year’s plans and is now equivalent to £10bn per annum over the next five years. Investment in existing stock continues to drive weaker financial performance and has resulted in many providers scaling back their development ambitions. The total number of homes forecast to be completed in the first five years has fallen by 42,000 units (12%) to 292,000.”

Within a regime of capped rents organisations cannot increase charges to cover the increased maintenance cost so has to find cuts either in development or operations to balance the books. The elephant in the room is that the repairs requirement can also be met from pulling another lever, namely selling homes which are expensive to maintain. Selling these homes has a double benefit, it both reduces the liability of investing in poor quality homes, many of which will cost more to improve than they raise in rent, and it raises money which can be invested in the homes retained. It is not just housing associations but also councils which are looking at selling off social housing. In my own city Bristol, the council has announced to a return of selling high cost council homes as they become empty. Across both sectors it is likely that older, Victorian, and Georgian terraced homes in inner city areas which are expensive and difficult to bring to the magic EPC C energy standard, will be sold.

Once these homes would have been picked up by private landlords, however as regulation of that sector also increased it is more likely that first time buyers will be stepping up to buy these homes. This may be fine, but it could also see people who have used all their income to cover mortgages for properties which need significant investment.

The forthcoming Awaab’s law which will put, again rightly, more responsibility on landlords to respond quickly to defects in properties will also result in an acceleration of social housing disposals. We may also see a further rush to sell as the EPC 2030 deadline gets closer. The increase in social homes through new developments could be undermined by the number of homes being sold or demolished.

Can anything be done to reduce this impact. The simple answer is “Yes,” but the honest answer is “Yes, but it will cost”.

The pressure to fund new homes from existing tenants’ rents needs to recede, as that rental money is needed to repair the homes it is raised from, this means more capital investment from government grant and less from private borrowing. There needs to be a reintroduction of area based regeneration programmes supporting the demolition and replacement or upgrading of communities, again backed by grant. It needs to be remembered that most of the poorly built post war council housing stock is now between 60 and 70 years old, a significant proportion of which is beyond its useful life. Rents need to reflect the costs of managing and repairing the homes, in some instances this means increasing them beyond the inflation linked formula, the 2016 rent reduction which took 16% out of social landlord revenues has caused considerable damage. Not only will this be painful for some tenants but will also cost the government more in housing benefit/universal credit which covers over a half of the social rent bill.

It is fantastic to see a government with such a strong commitment to both new housing supply and improving the living conditions of those with homes. However, without a system wide approach to how social housing we could still see a year on year decline in social housing as the economics of both managing the existing homes and building new ones does not stack up.

To discuss this further, contact us today.