ao link

Is the social housing sector going to sell off its hard-to-retrofit housing?

Faced with homes that are hard or expensive to make more energy-efficient, some social landlords are planning to sell. But is this the right thing to do? Peter Apps reports. Illustration by Sara Mulvanny

Linked InTwitterFacebookeCard
Sharelines

Faced with homes that are hard or expensive to make more energy-efficient, some social landlords are planning to sell. But is this the right thing to do? @PeteApps reports for @insidehousing #UKhousing

“If you think about it on a community level, it might be an entire street or an entire estate – you have to recognise how disruptive that policy [selling when void] could be” – a senior housing figure talks to @PeteApps

If we are to decarbonise the UK’s housing stock by 2050, the maths suggest we need to be doing a huge amount of work. To take one example alone, we need to be converting 20,000 homes a week to low-carbon heating systems by 2025, or one million a year.

Of all the steps needed to take the country to ‘net zero’ over the next 30 years, weaning our ageing housing stock off carbon is arguably the most daunting.

If it is to happen, it must be led by the social housing sector where there is at least the potential for the right blend of will, funding and professional management to get this huge ball rolling.

The sector is keenly aware of this challenge: across the country, plans are being drawn up to improve the energy efficiency and reduce the carbon footprint of the five million homes managed by social landlords. These plans, however, are throwing up a new dilemma: what to do about the most inefficient homes which would either be impossible or extremely expensive to bring up to standard?

One option is to sell them when they fall vacant – removing the investment need and providing a handy cash receipt to put towards the conversion of the others.

“It’s not as simple as: this is the bottom 10%, let’s sell them. What if the property that we can’t improve is the only affordable housing in a particular village?”

But where will this home go once auctioned off? And will the new owner or private landlord do the painstaking work to decarbonise it? If not, we will have also lost what may have been a perfectly lettable home from our ever-depleting stock of social housing and the opportunity to convert it into a comfortable home that uses much less energy, and is cheaper for the resident.

This debate is currently raging in executive teams and boards around the country. Inside Housing has looked into how it is developing.


READ MORE

Cost of retrofitting all social homes in the UK to zero carbon to top £100bn, exclusive research revealsCost of retrofitting all social homes in the UK to zero carbon to top £100bn, exclusive research reveals
Major house builders agree to sector-wide net zero planMajor house builders agree to sector-wide net zero plan
Measure twice, retrofit once: how an experiment in Manchester aims to improve energy efficiency renovationsMeasure twice, retrofit once: how an experiment in Manchester aims to improve energy efficiency renovations
Sadiq Khan aims to help social landlords with £10bn ‘retrofit revolution’Sadiq Khan aims to help social landlords with £10bn ‘retrofit revolution’

We asked dozens of housing associations how they would approach the issue, and 32 responded. The answers showed a sharp divide:

  • Five confirmed that at least some difficult-to-retrofit properties would be sold.
  • Five ruled it out entirely, or said they have “no plans to do so” currently.
  • Three said that energy efficiency would never be the sole criteria for a disposal.
  • Nineteen had their approach under consideration.

Applying some interpretation to the qualitative answers given by these landlords, eight deemed some sales likely, five had an essentially neutral position and six said it was unlikely to happen. So this appears to be an issue that has split the sector, almost in half.

What reasoning is being applied? At a most basic level, this is a decision that comes down to the balance sheet.

The basic strategy most organisations are following is known as ‘fabric first’. This means the first thing they work on is the structure of the home, to limit the amount of heat it loses.

This can involve adding insulation, filling in draughty gaps and replacing windows. In some properties, the construction type prohibits or at least limits the amount of this sort of work that can be done. Others would simply need so much work that it becomes vastly expensive.

Social housing accountants use an assessment known as ‘net present value’, or NPV, which assesses the income to be gained over 30 years from a home against the cost of any necessary works. Where this turns negative, many organisations would naturally consider the property for disposal when it becomes empty – reasoning that the money is better spent elsewhere.

The issue is that sustainability has changed these calculations. The increase in necessary work means a greater number will return a negative NPV. If housing associations were to ruthlessly pursue the logic of their balance sheet, the sector could end up divesting itself of hundreds of thousands of homes.

“As a housing association, you do have to ask: why are we hanging on to a property which we know is a low-performing asset when we could reinvest into a new sustainable home, close to employment and transport links?”

But even for those who are planning some sales, the assessment will be more nuanced.

Ceri Theobald, group director of strategic partnerships at Futures, explains that the organisation has 200 homes (of 10,000) which it believes it will not be able to bring up to EPC Band C. Some of these will be sold when the current tenant leaves, but the decision will consider the property’s overall utility.

“It’s not as simple as: this is the bottom 10%, let’s sell them. What if the property that we can’t improve is the only affordable housing in a particular village?” he says.

How many energy-efficient homes are there in the English social housing sector?

61%
Social housing units with EPC Band A-C – the highest of any sector

23%
Proportion in 2009 – illustrating a sharp increase in performance across the decade

£5,910
Estimated cost per unit of moving a Band D-G housing association home to Band C. The figure is £6,067 for local authority housing

83%
Proportion of housing association dwellings with gas heating – compared to 94% for owner-occupiers

Source: English Housing Survey 2019/20 (published July 2021)

The organisation will instead carry out a property-by-property analysis on these difficult-to-fix homes. “What’s the impact on the customer? Can they get to work without a car, can they get to a supermarket rather than a corner shop? There will be some homes where it doesn’t make sense for a family to be there, and those we would look to dispose of,” he explains. “But if a property can only get to EPC Band D but in all the other ways it’s a good social home, it would be nonsensical to push it out of the door.”

Meanwhile, Kevin Williamson, strategic asset management director at Sovereign, explains that the organisation has developed a ‘Homes and Place Standard’ and has graded all of its 60,000 homes against this technical standard, considering sustainability alongside other factors.

“If you think about it on a community level, it might be an entire street or an entire estate – you have to recognise how disruptive that policy [selling when void] could be”

“We will be selling homes, but we’ll be selling them where they’re vacant and wherever we sell a home we will replace it with another new home. So we’re creating social capital,” he says. “As a housing association, you do have to ask: why are we hanging on to a property which we know is a low-performing asset when we could reinvest into a new sustainable home, close to employment and transport links?”

Social landlords must also consider that a disproportionate number of their residents live in fuel poverty. They cannot countenance converting to zero carbon alternative heat sources if it makes this worse. Most currently are – at least without the work to improve the fabric of a home so it requires less heating.

There is a policy for no new gas connections for new build from 2025, but no set date for switching off gas for existing homes. Nonetheless, if we are to truly hit net zero, this will have to happen at some point and the improvements are needed now to ensure we are ready when it does.

“It’s not yet clear what happens when gas goes. Air and ground source heat pumps will not work for all homes. If you were to simply replace a gas boiler with an electric one in 2025, energy bills would go through the roof,” says Ian Thomson, executive director for asset management at Magenta Living.

But there are landlords facing all of these concerns down and still ruling out the sale of homes on sustainability grounds.

Robert Gilham, corporate director of business strategy and assets at Walsall-based WHG, says the board of the 21,000-home landlord considered the question and decided it wanted to take an “authentic” approach to the challenge of net zero. “We have stock that will deliver a negative NPV. We could look at disposing of that and write it out of the business plan,” he says. “But we would be outsourcing the problem to the private sector, who probably won’t do it.”

This is not the only concern that comes with large-scale sales of empty homes. “Because we operate in low-value areas, we would be likely to sell to buy-to-let landlords and, of course, you have the consequences of that, which can result in the slow decline of the neighbourhood, in which we will remain the anchor organisation,” he says. “Our first instinct is to say: actually we need to tackle the problem. Either we need to find a way to do the investment or we need to look at regeneration opportunities.”

Another senior figure at a large organisation that is ruling out sales adds: “If you think about it on a community level, it might be an entire street or an entire estate – you have to recognise how disruptive that policy [selling when void] could be.”

Inside Housing survey: disposal of energy-inefficient housing

Will housing associations sell homes that are difficult or expensive to upgrade to energy-efficient standards?

No: 5

Under consideration: 19

Yes: 5

Never sole criteria, but may influence: 3

Source: Inside Housing research, June 2021 (32 housing associations responded)

“I don’t think we will end up taking that many properties out,” adds Mr Thomson of Magenta, which believes just 34 of its 12,700 homes would be impossible to bring up to a ‘B’ grade for energy performance with current techniques. “Some of those properties are bungalows, which are always in really high demand and others are in quite high-demand areas. They aren’t properties we want to lose. I think we will keep our properties in the main.”

Another consideration for these landlords is that technologies available now in 2021 will not be the technologies available in 2040 and 2050. That may change the calculation in terms of how easy it is to cut energy use from a home. Hydrogen heating, advancements in solar panels and improvements to existing technologies like heat pumps will all advance as the market develops.

“We don’t know how technology is going to develop in five or 10 years,” says Mr Theobald. “If some of those technologies come down in price, it changes things, but if you have sold the property you can’t go back on that.”

It is not yet known what the government makes of all of this. Would ministers welcome disposal strategies that reduce the call on the taxpayer to fund the conversion of social housing, or would they baulk at the idea of moving the most problematic properties into the private sector where they are less likely to be dealt with?

Eventually privately owned homes will need to have substantial work done, but how to get private landowners and homeowners to make this investment is an even trickier political and economic issue than in the social sector.

As it stands, the regulator has little control. Targets for social landlords are not statutory or binding and it has very limited control over disposals.

Elad Yasdi, a partner at law firm Devonshires, explains that deregulatory measures in 2017 stripped the regulator of its previous power to consent to sales. Now social landlords are only obliged to inform the regulator of sales. “The regulator may want to understand the rationale or see the business plan, but it would be very hard for the regulator to do anything about it, even if they wanted to,” he explains.

So for now, the decision is the sector’s to make. It is a tricky one, but perhaps the only right way to approach it is to keep in mind what the real aim is: hitting a target or genuine change.

“You can get rid of a lot of problems through disposal,” says Mr Gilham. “But it passes these problems on to someone else. But we are saying we are going to try and tackle this problem. If we don’t, who will?”

Sign up for our asset management newsletter

Sign up for our asset management newsletter