Sector surplus reaches £3bn
England’s largest housing associations recorded a landmark £3bn combined surplus last year as the sector became more reliant on property sales to fund new homes.
The Homes and Communities Agency’s (HCA) global accounts for 2014/15, published today, show that the combined surplus of the 332 largest providers increased to £3bn for the first time - a 25% increase on the previous year’s £2.4bn. A third of the surplus - £1bn - came from the largest 20 landlords by numbers of homes managed.
At the same time, the sector saw a substantial growth in its surplus from for-sale activity, which increased from £324m in 2014 to £501m in 2015.
The results, which combine figures from associations representing 95% of the sector’s stock, show providers invested £1.9bn in existing stock and built more than 46,000 social housing units in 2015, a 35% increase on the year before.
Favourable economic conditions, including low interest rates, increases in inflation-linked rents, and the strength of the housing market were highlighted by the HCA as key drivers for the improved financial performance.
However, the HCA warned in the global accounts “increased dependence on sales” changed “the sector’s risk profile”. It said associations should have “mitigation strategies” in place to cope with a housing market downturn.
The surplus made from shared ownership staircasing sales alone soared by 63.8% to £239m.
Cash generated from activities such as sales shows up in surpluses immediately, but development spending is long-term and cannot be easily pinpointed in financial accounts. Therefore surpluses, which represent the difference between revenues and operating costs, do not necessarily represent how much money associations have in the bank.
David Montague, chair of the G15, said: “Every penny of this year’s surplus will be ploughed back into building homes and work in communities.”
A total of 50% of the £661m annual rise in the sector’s surplus was attributable to increases in social housing letting margins and revenues. This is down on the previous year, when 65% of the sector’s surplus increase was attributable to social housing.
Gearing - the ratio of debts to assets - increased from 96.2% to 98.1% (77% for non-stock transfer landlords) while average debt per social housing unit increased by 5.9% to £23,931.
Jonathan Walters, deputy director of strategy and performance at the HCA, said associations were taking on more debt to build more homes as grant rates remain low.
“That is what government wants [housing associations] to do to address housing supply issues so I think that is probably a positive thing,” he added.
David Orr, chief executive of the National Housing Federation, said: “Because they have made efficiency improvements, associations are better equipped to deal with the challenging financial years ahead.”
The accounting period for the global accounts finished last March, before the government’s announcement in July of a 1% annual social housing rent cut, which takes effect from April.
IN NUMBERS: HCA GLOBAL ACCOUNTS 2014/15
Surplus increase compared to 2014: 25%
Surplus generated through for-sale activity: £501m
Number of homes built in the year: 46,000
Gearing: 98.1% (77% excluding LSVTs)
Number of associations included: 332
Debt increase: £4.1bn
Debt per social housing unit: £23,931
Total financing and reserves: £93.9bn