Five things we know about One Housing’s financial struggles

Yet these losses were further compounded in 2018 when the group committed to paying the London Living Wage in its care homes. This made a number of the contracts unviable.

In a bid to shelter itself from the losses, it exited seven care and support contracts in 2019/20 and Mr Hill has now left the door open to terminating more contracts this year.

“The group is not expected to exit a lot of contracts [in the coming year] but obviously the assurance that we will need is whether we can provide them at the quality they need to be provided,” he tells Inside Housing.

Overall, between March 2019 and March 2020, One’s care contracts swung from a surplus of £1.3m to a loss of £1.1m.

2. Fire safety spending has taken its toll

The whole social housing sector has been rocked by the fall-out from the Grenfell Tower tragedy and the costs associated with solving the building safety crisis. Many are forking out millions for building checks, interim fire safety measures and remedial works. One Housing is no different, and expects to spend £265m on remediation and other fire safety costs over the next decade.

The housing association is hoping that some of this will be covered by central government’s £1bn Building Safety Fund, to which it has made 28 separate submissions totalling £45m.

“In 2019/20 we had about £13.7m spent on fire safety. That includes a variety of things including waking watch, so there’s an impact there,” Mr Hill says.

Mr Hill vows to “work really hard” to recoup remediation bills from construction firms and the government funding but admits that “we might have to charge leaseholders for those works if we don’t get funding from those two sources”.

3. Overpaying on contracts and moving away from market sale

“We thought in 2017 that we were too reliant on open market sales and our view was that the market was becoming more risky,” says Mr Hill, explaining One Housing’s decision to reduce its reliance on market sales when he took over.

He notes that the group received around £65m from open market sales in 2016 – before he took charge – but that he wanted to focus on One’s social purpose as a housing association offering affordable homes. This shift, combined with the softening of the market because of factors such as Brexit, has had an impact on income.

“Lots of the earlier profits were coming from open market sale, so that’s now gone,” Mr Hill explains.

He also highlights impairments the group suffered on “development schemes that were inherited”.

“People were over-optimistic in the original appraisals is the best way to put it,” he says.

One such example was the association’s £31.1m acquisition of Victoria Quarter, a former gas works in Barnet, north London.

The remediation of this site proved more extensive and expensive than what had been appraised for acquisition. The accounts said that the additional ground remediation works, as well as a failure to properly masterplan the site and additional site acquisitions because of an evolving approach to design, all meant that it was clear they had paid too much for the site.

One Housing also admitted in the document that the site is impaired and will not yield future profits to the group.

4. One Housing remains compliant, for now

One Housing’s troubles do not begin and end with its finances. Shortly after posting an £8.6m loss, the housing association was dealt a governance downgrade leaving it with a G2 rating for governance and a V2 rating for financial viability.

The Regulator of Social Housing (RSH), which conducted a stability check and reactive engagement, found that the association’s decision-making had not been supported by accurate data. The RSH said: “This has impacted on the board’s ability to foresee and manage these risks in a sufficiently timely way.”

The RSH acknowledges that the group has undertaken some work to improve its data quality but warns that it needs to “ensure quality and timely information on a consistent basis”.

Despite the financial challenges One Housing is facing, the RSH decided to leave its financial viability rating at V2, as it is satisfied that it has “adequate liquidity” (£369.2m at March 2020) to support its business.

However, the regulator is wary of risks brought by the need to invest in existing stock, fire safety works, and risks relating to One’s care and support activity.

“This combination of risks reduces OHG’s capacity to respond to adverse events and needs managing to assure ongoing compliance,” the RSH said.

5. There could be more difficult times ahead

The view from the top is that One Housing is not yet out of the woods.

As Mr Hill explains: “We have been honest in the accounts that it was a tough year and this year will be difficult as well.”

He recognises that the ongoing impact of the COVID-19 pandemic will take a greater toll on the care and support business this year, having hit services only in Q4 of 2019/20.

Care homes that were already struggling have been hit by high underoccupancy levels and increased costs related to PPE and the need to make settings “COVID-secure”.

Despite this, Mr Hill remains optimistic that there is light at the end of the tunnel.

“We are very confident that the restructuring of the business is the right thing to do and that we are focusing on the right things by putting more effort into our customer service, being committed to care and support but in an economic way and doing the right thing on building safety,” he says.

He adds: “We are confident that the long-term future of the business is very strong.”