Where is social housing heading?

  • Registered providers of social housing (RPs) have undergone significant changes in recent years, largely as a result of financial pressures and austerity measures
  • In order to find out more about the challenges RPs face, we have interviewed several housing association CEOs and published our findings in a new report
  • We discuss the report’s key insights and the challenges facing RPs

In recent years, there has been almost universal acceptance among registered providers of social housing that a commercial mindset is needed to survive in an age of austerity.

However, as we discovered when talking to the CEOs of several housing associations for our ‘Metamorphosis of social housing’ report, there is a range of views on the impact of commercialisation and what the future holds for RPs.

Here, we discuss what our report reveals about the key drivers of change in social housing, and the challenges that lie ahead.

1. The impact of austerity

Welfare reforms and other austerity measures have had a major impact on many.

The CEOs we spoke to said they were still feeling the impact of the Government’s decision to cut social housing rents by 1% a year from 2016 to 2020. One interviewee said the cut had taken £600m out of their organisation.

The roll-out of Universal Credit has also meant housing associations no longer have the guaranteed income stream they used to enjoy when they received tenants’ housing benefit directly. The rent arrears of those on Universal Credit are typically double the amount of those on housing benefit, and one CEO remarked: “Given a choice of paying your rent and feeding your children, you feed your children.”

These financial pressures are exacerbated by the difficulty in borrowing money from banks at manageable rates of interest.
Some housing associations have undergone structural changes – for example mergers or acquisitions – that have allowed their banks to break long-standing covenants and renegotiate loans at higher interest rates.

Our report reveals that some RPs face an ongoing struggle to avoid having to renegotiate loans.

2. Commercialisation and diversification

In PWC’s The Housing Association of 2020: Distinctive by Design report, diversification was identified as one of six key areas that housing associations needed to focus on in order to safeguard their long-term prosperity.

Our Metamorphosis of Social Housing report offers interesting insights into how this process of diversification is being managed. One housing association we spoke to has recently recruited a Director of Transformation to help them manage the transition to becoming a more commercially minded organisation. Others described the significant changes that have been made to the make-up of their boards in order to bring in more business acumen.

As a result of these changes, RPs are also reconsidering their risk appetite. One CEO said: “We cannot be so risk averse – we have to accept that things will go wrong”.

3. An end to a Rolls-Royce service

As well as broadening their horizons to seek out commercial opportunities, RPs are also looking to make savings within their organisation.

Our report sheds light on how some RPs are re-examining their approach to building and refurbishment programmes and ongoing maintenance.

Examples of changes in practice include:

  • RPs building to the lowest specifications allowed by building regulations
  • “Mini-modernisations” of kitchens rather than total refurbishments
  • A lengthening of the timescales in which repairs are carried out

As one CEO put it: “We need to scale back from offering a Rolls-Royce service.”

What does the future hold for social housing?

Another key theme of our interviews was that – while keen to maximise revenue-generating opportunities – RPs are anxious to avoid becoming “bottom-line obsessed” and losing sight of their social purpose.

Our report reveals how some are walking away from potential business opportunities that they do not feel align with their ethical standards.

What remains to be seen is whether, over the next few years, RPs will continue to become even more commercially-oriented, or whether they will scale back their entrepreneurial activity.

“Commercialisation is an overarching theme across social infrastructure. In a sense, all organisations are becoming social enterprises. This opens up new areas of risk and opportunity, and Registered Providers are embracing this new future” David Forster, Head of Risk Proposition, Zurich Municipal.