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Notes from the National Housing Federation Finance Conference

Last month the housing finance community gathered in Liverpool to discuss the challenges faced by the social housing sector.  Housing associations are now arguably under the most intense financial pressure they have experienced in recent memory so the chance to share knowledge and learn from others was invaluable.

The event sparked some important debates around the ways the sector can meet the financial challenges brought by the likes of building safety and meeting net zero ambitions. Indeed, these emerged consistently as the sector’s top two priorities, though in which order depended on who you heard from or spoke to, with an agreement that, as a result, development programmes were potentially at risk. Below are some key takeaways from the conference:

Net zero and retrofit

Delegates were in agreement that retrofit will play a key role in achieving net zero targets. We know that housing associations have been building new, greener homes but landlords must also deal with the mountain of work needed to improve existing stock.  

In fact, Savills has increased its estimated cost of retrofit from £19,000 per unit to £24,000.  On top of that, the consultancy has also said that more than one in six social homes would be “uneconomical” to upgrade.

Questions were raised about the level of grant and whether it is enough to meet the retrofit challenge.  Others mooted the idea of diverting grant from other areas in order to fund retrofit. Looking again at the Savills research, polling showed that 85% of social housing providers now view stock investment as a top priority.  This is set to have a knock-on effect for development pipelines.

ESG issuance

Discussions also analysed the recent emergence of Environmental, Social and Governance (ESG) linked debt finance.  This type of issuance has fast become the dominant option for housing associations entering the debt capital markets and seeking loans.

However, there was also concern that smaller housing associations do not stand to benefit as much from these transactions.  It can be argued that with less resource, the cost of additional administration and reporting can be onerous compared to larger landlords who have the capacity to do this.  As a result, there may be a case for more collaborative working and cost-sharing between HAs – similarly to what we see regularly in the local government sector.

A further point for reflection is whether, given the additional burdens on associations and the penalty clauses in play for not meeting targets, there ought to be a greater differential between ESG and non ESG linked debt.  Are the financial institutions really putting their money where their mouth is when it comes to pricing these bonds?

Cost of living crisis

Another factor for housing associations to consider is the growing cost of living crisis. Soaring energy bills will have an enormous impact on the financial welfare of tenants, and landlords must be prepared to help with this. Consensus was that the Chancellor Rishi Sunak is unlikely to announce new welfare support for those on the lowest incomes, meaning the sector will have to do a lot of heavy lifting in this area.

One of the suggestions propounded for the funding of the required retrofit spend was ‘warm rents’, i.e. looking to increase the income from homes where investment has enabled lower energy costs.  Whilst this may be intellectually satisfying, the focus of such outlay has to be to alleviate current or potential fuel poverty amongst tenants.

Key to navigating this crisis will be communication with tenants, particularly those whom we do not ordinarily hear from, and looking at how they can be supported through this period. There may be practices conducted during the covid-19 pandemic that can be useful here too.

Ethical disposals

We were pleased to hear Kate Henderson, chief executive of the National Housing Federation, echo a key message we at Beehive have been championing for some time regarding stock disposal.

Kate said she supports disposals “being done in an ethical, sustainable way”.

This is a key feature of the Beehive model in which we buy unwanted stock from housing associations and lease them – at affordable rates – to local authorities to help them get families out of expensive and often sub-standard temporary accommodation.  Boards are rightfully nervous about what happens to stock after it is sold and therefore finding the right disposal route is essential given there will be a need to rationalise holdings as part of the strategy for balancing budgets in the short and medium term.

The biggest take home for us from Liverpool was that while this is a period of unprecedented challenge for the social housing sector, there is the ambition, drive and innovation in the sector, and through sector partnerships, to deliver what is needed.

If you’d like to discuss any of the above, or hear more about Beehive Affordable Homes, please contact Jonathan Bunt via