Featured Sector: Social Housing

The social housing sector has been hit by renewed challenges since the advent of the majority Conservative Government in May. The extension of Right to Buy discounts to Housing Association tenants is likely to impact on their balance sheets and their ability to progress new developments. Indeed the latest changes have seen the ONS reclassify housing associations as public sector bodies, bringing their debt onto the public sector balance sheet.

Moreover the Chancellor’s emergency budget was used to announce that social rents will be cut by 1% in real terms for each of the next three years, hitting associations’ funding streams.

An estimated 31,000 social housing units across the UK were started during 2014. We anticipate that the squeeze from reduced government funding will hold back volumes during 2015 and 2016, with the number of unit starts falling below 27,000 per annum. In contrast completions are forecast to edge higher this year, supported by the earlier rise in unit starts before slipping back in 2016. 

The positive trend in detailed planning approvals during 2012 and 2013 appears to have petered during 2014. Whilst the number of units approved rose sharply in Scotland and Wales, these rises were overshadowed by the decline in English unit approvals. 

The first quarter of 2015 saw some respite, however the number of social housing projects approved during 2015 Q2 then fell sharply from the previous quarter, down 44%. Units approved were, more positively, just 1% lower than a year earlier. The number of units approved also declined compared to 2015 Q1, down 25%, but unit approvals were 34% up against a weak second quarter last year.

The reduction in government capital funding is a constraint on sector activity. The value of project starts slipped back by 1% during 2014, and we expect an equal decline during 2015. In part due to the latest policy changes, we expect a sharper drop of 17% in the underlying value of social housing starts next year.