Commenting on the impact of today’s Budget on the social housing sector, Gary Moreton, Head of Social Housing at Baker Tilly said:
‘Reductions to future rental income, the extension of the right to buy policy and the impact of welfare cuts have made this one of the hardest hitting Budgets for the social housing sector in living memory.
The one per cent annual reduction in rents over the next four years, coupled with the right to buy measures will be a major challenge to the social housing sector which could severely impact on new build programmes.
The right to buy measures could have two major impacts. First, there could be a slowdown in new development as the proceeds from a sale at below market rate will be significantly less than the cost of building a new property. Providers will also have to deal with the longer term impact of loss of rent.
There are also worrying implications for the ability of providers to raise capital on the private bond market. The rating agencies liking of the sector and investors’ appetite for these bonds have been based on the reliability of the sector’s income stream, but reductions in future rental announced in the budget and increased uncertainty could adversely affect the ability of providers to raise future funds in this way.
Second, the reduction in welfare benefits will put pressure on social housing tenants with a knock-on increase in rental income risk for providers. While the welfare cap will undoubtedly affect some tenants, arguably the squeeze on tax credits and other allowances will have a much more significant impact on low income earners who make up the majority of social housing tenants.
The proposal to force tenants on higher incomes to pay market rents could also prove to be an administrative headache for the sector. Quite how this policy will be policed and by whom is not yet clear, and it could result in many thousands of tenants having to vacate their homes.
What is clear is that all housing associations will be rushing to update their risk maps tomorrow.’