Autumn Statement 2022 and Social Housing

On November 17^th the Chancellor of the Exchequer delivered his Autumn Statement, a budget by any other name, eagerly awaited by us all. Some of the announcements will have almost immediate effect and relevance, but others relate to a period after the current parliament and may or may not happen in practice. Housing providers will need to rapidly work through the detail of the announcement to understand how it will affect them, and their business strategies and models.

Context

The statement was made in the context of high and enduring inflation, estimated by the Office for Budget Responsibility to peak at 11%, ending next year at around 7%. Unemployment is forecast to increase from 3.6% to 4.9% in 2024, and there will be an increase in funding costs for providers and mortgage costs for home owners. The government also expects a slowdown in “housing activity” (i.e. sales).

Buried in the small print of the statement are significant reductions in both the revenue and capital budgets of the DLUHC Levelling Up, Housing and Communities. At the time of writing, we wait to hear what the impact of this might be for the sector.

The statement was made on the same day as the Regulator of Social Housing announced 19 providers had been downgraded to V2. This represents 8% of providers with over 1,000 homes and reflects the tangible impact of the economic environment on providers’ viability.

Provider Issues

Perhaps the most significant headline for the sector was the announcement that social housing rent increases were to be capped at 7%, significantly higher than 5% suggested as the baseline in the consultation. For many providers this relief may be short-lived, as they consider the impact on tenants of such an increase alongside other cost pressures they face. For providers that do opt for the maximum increase, some of the valuation firms have suggested that this level of increase will sustain the (EUV) valuation of properties held as security for loans, leading to another sigh of relief from treasury teams.

However, supported housing providers’ rents can still increase by CPI+1% and shared ownership rents by RPI+0.5%. The National Housing Federation announced that its members will hold to the 7% cap for shared ownership tenants, representing a massive saving on the 14.7% maximum permitted increase.

Those providers with business models based partly on surpluses generated by market sales of properties will not be surprised by the Chancellor’s announcement that the housing market will slow down in the near future. For some this may have significant consequences, especially as providers are reporting construction and repairs costs are increasing above inflation.

Also announced was a target of a 15% reduction in energy emissions from buildings by 2030, backed by additional £6bn investment (from 2025), with an expectation that the sector will have an important role to play in helping meet this target (and fund it too).

For those providers who have Corporation Tax (CT) paying entities in their group structure, the CT rate will increase from 19% to 25% next year.

The Chancellor also announced plans for further devolution to new mayors. Providers may see this resulting in the further development of regional or metropolitan housing policies, and will need to plan how to engage with new mayoral agencies.

All of this comes alongside additional costs and strategic thinking required by the quickening move to the introduction of the new Consumer Regulation regime, these include:

• the harrowing inquest verdict into the tragic death of Awaab Ishak, showing significant challenges remain for providers, in adequately responding to property condition issues;
• a clear message from the Housing Ombudsman that blaming “lifestyle issues” for condensation, damp and mould is no longer good enough; and
• the continued commitment of the Government to significant improvements in energy efficiency, noted above.

Tenant Issues

The Chancellor ended the doubts of recent months by confirming that benefits would increase by inflation (from April next year) and that the pensions triple lock would be maintained. Additionally, the National Living Wage (NLW) would increase by 92p to £10.42.

For tenants currently out of work, there will be renewed pressure to find work, with a plan for 600,000 interviews with work coaches for the currently unemployed. The government’s figures suggest an increase in the number of people unemployed of around half a million.

Set against the increase in benefits and NLW was the announcement that the energy cap was set to rise to £3,000 in April 2023. In February 2021, this was £1,138, reflecting a 263% rise in just over two years and a significant challenge for many tenants.

The Chancellor set back the deadline for transition from Employment Support Allowance to Universal Credit to 2028.

Supply Chain Issues

The government announced significant Infrastructure investment, which may result in housing providers facing competition for contractors, along with labour on construction and repairs. This may be offset by the anticipated short term reduction in housing construction, and the Governments’ very mixed track record in actually delivering the infrastructure investments which they announce.

What Providers Can Do

The operating environment has changed dramatically since winter 2021 when most providers worked on their 2022 Business Plans, but the Autumn Statement offers some very welcome certainty, around which providers can plan. The actions providers can take include the following…

1. Value for money and strategic reviews

Value for money has never been more important and goes so much broader than trimming percentages off budgets. Providers should look at their strategies (the “value” they are seeking to generate) and review if they remain fit for purpose, and if the volumes (e.g. of development) they have set as targets remain appropriate in these fast changing circumstances, as well as seeking opportunities to do more with less.

2. Business plan review

Business plans need to be updated in the light of new information about inflation, future borrowing costs and the confirmation of the rent caps, alongside the expected slowdown in the housing market and rising costs to meet the expectations of the new Consumer Regulation regime and decarbonisation imperatives.

3. Stock condition and compliance insight

Providers need to understand the costs of property compliance and of maintaining their homes into the future. Increasingly in an environment where every penny counts, the accuracy of this data becomes paramount and should be reviewed.