Housing associations face £20bn spend on building safety and decarbonisation amid growing debt, Moody’s warns
English housing associations will have to spend an estimated £20bn over the next decade and many will increase their borrowing to cover building safety and decarbonisation costs as current government support “falls short”, Moody’s has warned.
In a new report, the ratings agency said it expects debt levels among housing associations in England to increase to 4.6 times turnover, up from the current figure of four times turnover.
More than half of the 40 English associations that Moody’s rates expect to increase their borrowing, which the agency said would “weaken debt and interest coverage ratios”.
Around four out of 10 landlords the agency rates expect to scale back their development plans.
“We are likely to see an increase in leverage or a scaling-back of development plans because grants, reserves and operating efficiencies are unlikely to cover these costs in full,” said Maylis Chapellier, lead analyst at Moody’s.
“Moreover, risks for the sector are elevated by significant uncertainty as to how future decarbonisation costs will be financed.”
For London landlords in particular, with a large number of high rises and older stock, Moody’s said the extra borrowing could be “credit negative”.
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A number of housing associations have already significantly downsized their development ambitions in the face of rising costs, including London giant L&Q.
Moody’s flagged estimates that suggest English housing associations will have to spend around £10bn to meet new post-Grenfell standards on fire and building safety. Spending is expected to peak in the 2023 financial year.
Spending on getting properties to Energy Performance Certificate (EPC) Band C or better by 2035 is forecast to cost £9.1bn across the English sector, Moody’s said.
Looking further ahead, some estimates suggest that making social housing carbon-neutral by 2050 will cost between £36bn and £58bn, the agency said.
“English HAs had already revised their repair and maintenance spending estimates for the next five years upwards by around 12% in anticipation,” the report said.
“However, labour and material shortages together with wider inflationary pressures will likely see costs creep upwards even further.”
Moody’s also warned that government “funding announcements to date fall short of required spending”.
It pointed out that few housing associations qualify for the government’s £5.1bn Building Safety Fund or for the extra £4bn announced by housing secretary Michael Gove in January.
“Few HAs will actually be able to access the funding because they are only eligible if costs would otherwise be passed on to leaseholders or they threaten the financial viability of the HA,” the agency said.
On decarbonisation, Moody’s said the government’s £3.8bn Social Housing Decarbonisation Fund only covers 42% of the estimated cost to reach EPC Band C and only tackles ‘fabric-first’ measures, which relate to the fabric of the building.
“London has the highest share of old housing units (37% built pre-1929), suggesting that London HAs
are likely to face the highest retrofitting costs,” the report said.
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