Emergency Budget announces cuts to rents in the social housing sector of 1% for each of the next four years

Robert Grundy, Savills head of housing considers the potential impact on housing associations

This is a significant shift for housing associations which would have been working on the basis of CPI + 1% rent rises and now need to adjust to a -1% nominal rent reduction over each of the next four years.  By 2020/21, this will equate to a nominal reduction in rental income of 12% versus the current rental forecasts.

We have modelled this change and believe that its impact on housing association accounts valuations, based on Existing Use Value Social Housing, could be in excess of 25%.  However, valuations for loan security purposes would be far less significantly affected.

The successive rent reductions will increase the risks of insolvency, particularly for those housing associations that have not been able to take appropriate cost savings actions in a timely manner.  The impact for some could be serious, particularly in terms of their ability to raise funds. 

Self-examination will be key and it will be vital to stress test business models as a matter of urgency.  Housing associations will need to look to take out costs quickly, reducing capital costs including repairs and maintenance and development spending.

This will impact the ability of  housing associations to develop more homes and could result in a shift in emphasis towards the delivery of non regulated sector homes – market rent, intermediate rent and for sale.

However, the impact will not be universal.  The most robust will be those housing associations which have been operating the largest surplus as a percentage of their turnover.