Altair’s Quarterly Sector Stocktake

At Altair, we see housing associations, local authorities and private developers face new and growing challenges every day. Constant political, policy, economic and regulatory change means organisations are actively re-evaluating risk and exposure. To help you keep abreast with these sector and wider changes, we’ve compiled the following extracts to keep you up to date on what they need to know from Q2 2019.

Politics

Boris Johnson was confirmed Prime Minster on 23rd July and soon after appointed Robert Jenrick as Communities Secretary of State and Esther McVey as Housing Minister.

Speculation has occurred on Jenrick’s housing policy positions, with general agreement on his support for home ownership. During his recent announcement of the plans for a new national model of shared ownership, currently under consultation, his mission to get more young people and families on the housing ladder was made clear. We also know Mr Jenrick wrote a 2017 Times op-ed that called for a policy to sell homes built on government land at cost to under-40s. He alluded in the article that inspiration for the policy came from Jenrick’s grandparents’ home purchased in the 1950s, a product of a supply and homeownership push under Churchill’s government.

Since appointment, Ms McVey has lauded modular housing and the need for attention to the design of housing for the future. She’s visited a housing association development site and has regarded regeneration as a long-term strategic partnership between government and people, but she’s yet to publicly embrace Theresa May’s rhetoric about the need to invest in social housing.

Policy

In July, ministers pledged to end the use of “poor doors” in new developments, which include separate entrances and facilities reserved for private residents. But in late July, then Housing Secretary James Brokenshire admitted this would not be an outright ban.

We are still waiting for the results of the consultation on the social housing green paper, which ended 6 November 2018. Theresa May announced in June that the next stage of the government’s green paper will be published in September, and it will include an action plan and timetable. We are unsure if governmental changes will delay this release.  

Parliament’s return from recess on the 3rd September has been followed by chaos in Westminster and a likely early General Election. With PM Johnson’s promise that the U.K. will leave the EU without a deal on 31st October, it is likely that housing policies will stay dormant until 2020. 

In other parts of the UK:

The Welsh Affordable Housing Review was released in a report in April 2019. It states the Welsh Government will implement a five year rent policy from 2020-21, providing stability for tenants and landlords. We’re awaiting the final policy. 

In April in Scotland, Nicola Sturgeon announced a £150m pilot to help first-time buyers gather a deposit. Once buyers have saved 5% of the value of their new home, the Scottish Government will offer loans of up to £25,000 to top up their deposit.

Brexit & The Economy

The European Union agreed to extend the UK’s Brexit deadline to the 31st of October, which in the short term helped subside risk of a no-deal departure. However after a chaotic week at Westminster, PMs prepare to vote on halting a no-deal Brexit, against PM Johnson who is willing to leave at the end of October without a deal in place. We wait to see what will happen next.

The Bank of England has tested the core of the UK financial system and says the UK Financial market is resilient to and prepared for a worst-case disorderly Brexit. The assumptions of the test include: a 4.7% fall in gross domestic product, a 27% drop in the sterling effective exchange rate and a rise in the bank rate to 4%.

But financial stability is not the same as market stability. According to the Bank of England, significant volatility and asset price changes are to be expected in a disorderly Brexit.

The House Market & New Supply

At the end of Q2, the overall UK House Market remained resilient, but with London and surrounding areas down. Annual house price inflation in the capital turned negative in July 2018 and has remained so in every month since then.

According to the Bank of England on 29th July 2019, the annual growth rate of mortgage lending remained stable at 3.1%, around the level that it has been at since 2016.

House market sales have stalled in London and uncertainty exists among cross subsidy providers but housing associations across England are building more social rented properties now than in 2017/18. Figures released by the NHF in March 2019 showed HAs completed almost 44,000 homes in the twelve months to December, an increase of over 12% compared to the previous year.

RICS says prices in Scotland, Wales and Northern Ireland have been rising at a “solid pace” and new analysis from Rightmove in August 2019, suggests Scotland has replaced London as the fastest place for a seller to find a buyer for their home. Last year, it took 60 days to secure a buyer in London, but only 41 days in Scotland.

Over the past few decades, affordability has gotten worse for lower middle-income households. July 2019 analysis from the Living Standards Audit suggests that over 1994-2018, housing costs (adjusted for inflation) have increased most for households in the bottom half of the income distribution, with housing cost increase highest for the third decile (see chart).

Regulation & Governance

In May, the RSH wrote a letter to remind local authorities that the consumer standards (incl. the Home Standard) apply to them, including where local authorities contract out services (i.e. to ALMOS).

In July, the RSH wrote to all housing associations outlining plans to increase fees for providers with more than 1,000 homes to £5.47 per unit in April 2020/21, up from the current level of £4.72. The initial registration fee (£2,500) and the fixed fee for small providers (£300) will stay the same. They are currently seeking views before making a final decision later this year. The increase is due to the RSH’s efforts to cope with housing associations’ market focus and exposure as well as the emergence of for-profits in the sector.

In August, the NHF published consultation results on the Together with Tenants Charter, bringing to light the gap between tenants’ oversight and regulation. Overall, the four-point approach is generally favourable among stakeholders, of which 2,500 responded to the consultation. The NHF says there is clearly a gap between tenant oversight and regulation and that they will continue work on this front. The four-point approach includes:

  1.  A new requirement in the NHF Code of Governance for boards to be accountable to their tenants and residents
  2. A new charter setting out what tenants and residents can expect from their housing association landlord
  3. Tenant and resident oversight and scrutiny of the charter with a report on how their landlord is doing against charter commitments.
  4. A closer link with regulation

The NHF also wants to use data to support wide picture performance including developing metrics akin to the Social Housing Green Paper’s proposed a set of KPIs to be reported on the sector.

As we know, the sector never stops moving. In early September, we have already seen a new consultation open on the model for shared ownership, and commitment of £600m for housing infrastructure and £54 million for homelessness as part of the Spending Review, though little else. Should there be an early General Election it will be interesting to see what the Party manifestos say about housing.

We here at Altair are always striving to ensure our clients are equipped with the knowledge and advice they need to deliver quality services for the people and communities that they serve. If you’d like to commission a copy of our full quarterly stocktake, or further sector updates, research or analysis, please e-mail our lead research analyst Cassidy Curls at  Cassidy.curls@altairltd.co.uk