There is no doubt that Housing Associations (HAs) are currently facing challenges from all sides, whether it’s high levels of inflation, a mandatory cap on rent increases, requirements to invest in existing stock or the slowdown in the private development market. Overall sector financial capacity is increasingly under strain. As a result, many HAs are reviewing the distribution of investment between existing stock and the development of new homes.

But it’s not a case of choosing existing stock over new development. HAs are tasked with balancing these competing priorities. On the one hand, HAs face significant challenges on their existing stock driven by building safety and fire safety standards, decarbonisation targets and recent high profile issues around damp and mould, all requiring significant levels of investment. HAs spent £6.9 billion on existing stock in the year to March 2023 and forecast a further £7.9 billion spend over the next 12 months, reflecting the increasing priorities around damp and mould works according to the Regulator of Social Housing’s quarterly survey.

Yet HAs have a key role to play in supporting housing delivery in the wider market downturn. Based on previous downturns, HAs are the group that have typically stepped in to mop up excess capacity in the development market through buying completed market sale stock. In 2010/11 following the Global Financial Crisis, 43 per cent of all new homes delivered were affordable homes.

In recent years, there has been a renewed emphasis towards the quality of service and customer satisfaction through management and investment in existing stock. Back in our 2018 Housing Sector Survey, 34 per cent of HAs surveyed prioritised investment in existing stock over development, reflecting the main focus of the sector at the time centred around additionality of affordable housing supply. If we fast forward to this year, 95 per cent of HAs surveyed prioritised investment in existing homes over development marking a significant shift in attitudes in the sector. 

Many HAs have reported that their ability to invest in new homes is constrained as a result. 49 per cent of HAs surveyed are planning to cut back on their development programme in order to pay for building safety and decarbonisation works associated with existing stock.

But of those HAs who plan to reduce their development programmes, 65 per cent only plan to scale back by less than 25 per cent. There still remains appetite for development despite the significant pressures on sector capacity and resources. Many HAs with previously secured debt arrangements and other providers supported by grant funding continue to be active in the land market for both grant funded and Section 106 opportunities, looking to build up their pipeline with less competition. The Regulator of Social Housing quarterly survey highlights that providers are continuing to invest in new home development. Overall forecast development payments for the next 12 months at £16.8 billion in the year to Q1 2023, have increased marginally by 1 per cent in comparison to the previous quarter across the sector. Although this is driven by a collective increase in development spend by For Profit Providers, breaking down the overall development forecast expenditure reveals a broadly equal split between providers increasing investment in development and those forecasting to reduce investment.

Looking ahead, the weaker outlook for the new build sales market coupled with increasing stock investment requirements means that overall sector capacity to develop new homes is constrained. The availability of grant funding and flexibility in how this grant can be deployed will be key to maintaining levels of affordable housing delivery. Our latest Private Capital and Affordable Housing research paper revealed that there is growing appetite for partnerships and collaboration with For Profit Registered Providers. Private capital has an important role to play in unlocking financial capacity in the sector.

In the current challenging market environment as HAs rebalance their priorities and redistribute investment between existing stock and new development, there are wider questions around whether these increasing asks of the sector are realistic and achievable.

Further information

Contact Lydia McLaren