A perfect storm – why the rent cap is just the tip of the iceberg

And breathe. There was an audible sigh of relief from social housing providers as Jeremy Hunt announced in his autumn statement that rents would be capped at 7% for the year 2023/24.

The figure is higher than the 5% recommended in the original government consultation and will no doubt take some pressure off boards and executive teams who had been stress testing scenarios based on 3% and even 0% increases, with terrifying results.

The chancellor’s announcement has been broadly welcomed by the sector. The National Housing Federation said the 7% rise means housing associations “can continue to deliver their core services for residents now and into the future”. It also welcomed the news that supported housing providers would be exempt from the rent cap.

And in a move welcomed by shared owners, the NHF announced that housing associations, representing 80% of shared ownership homes, would increase rents by 7% in 2023/24 in line with the social housing cap.

There’s acknowledgment, however, that the higher-than-expected cap isn’t a panacea to the range of financial and operational pressures the sector faces. The Secretary of State for Housing, Michael Gove, addressed the point in a Commons debate following the inquest into the shocking death of two-year-old Awaab Ishak.

“We have a number of very different things that are operating in tension and that we need to review. First, we need to ensure, at a time of rising prices everywhere, that tenants in social housing are not faced with increases in rents that further add to the difficulties they face,” he said.

“At the same time, however, registered social landlords and housing associations need money to provide new stock, to pay for repairs when materials are costing more, and to undertake some of the work on insulation and energy efficiency alluded to earlier, as well as, in some cases, the building safety work required in the wake of Grenfell.

“I appreciate the pressures under which they are operating, and my commitment is to work with them constructively to try to ensure we can support them.”

Ratings agency Moody’s underlined the stillprecarious position for housing providers: “The temporary ceiling on social housing rent increases at 7% next year is credit negative for housing associations and local authorities with social housing stock in England as it will constrain their revenue growth while they grapple with high inflationary pressures and the need to spend to address regulated standards on quality, safety and energy-efficiency.”

And what about residents? The 7% rise has been criticised by campaign groups for putting a further financial burden on some of the poorest in society at a time when they’re already struggling with the cost-of-living crisis.

Social Housing Action Campaign, which had been calling for a freeze on rents, said the increase would “inflict an unmanageable burden on [tenants’] budgets”.

It all adds up to the fact that we still have some difficult decisions to make in the coming months, decisions that will have a fundamental impact on the shape, size and purpose of social housing organisations.

In its latest sector risk profile, the Regulator of Social Housing has identified 17 key risks (many of them multi-faceted) and acknowledges the pressures registered providers are under.

Michael Gove

“High inflation, a tight labour market, and the residual impact of the pandemic on supply chains have increased costs for providers,” it says. “Providers are also facing higher borrowing costs, both from substantially rising interest rates and from widening spreads on debt. At the same time, income streams are facing greater than usual uncertainty, with significant headwinds in the housing market.”

Regardless of the future direction of travel, we know that all housing providers need to show how resilient they are through a combination of good governance and astute financial decision making. But this must be combined with a desire to support residents at a time when they need it most.

To help organisations navigate these stormy seas, and held just ahead of the rent cap announcement, HQN hosted a series of roundtables with a range of housing professionals from across the sector. In the space of a couple of weeks, we heard the views of everyone from frontline housing management and repairs teams to chief executives and finance directors. We also spoke to residents.

Over the following pages, we highlight the key themes that emerged from the roundtables and some of the key quotes from those that took part.

Resilience was a theme that came up again and again in the roundtable discussions. Chief executives and finance directors generally referred to it in relation to their business and how they intended to balance the books over the next few years. However, many also referred to the resilience of frontline staff and the need to help residents stay resilient through the cost-ofliving crisis.

Housing association finance director

There were those who were despondent about the prospects for their organisation and the wider sector:

“The numbers are looking horrendous. As an accountant I can make them add-up, but I worry about our customers. I’ve been in housing for 25 years and I don’t think I’ve known it as bad as this,” Housing association finance director

“There comes a point where the soul of who we are just disappears. We don’t like what we will then become, especially when merger is the only realistic outcome and for some it will be,” Housing association finance director

“The sector is going to look very different after this,” Housing association chief executive

However, despite much talk of mergers and further consolidation of the housing association sector, some are reluctant to go down that route:

“I don’t think mergers necessarily do what they say on the tin. There may be, perhaps, an immediate overheads reduction but over time I’m not sure they deliver and some of the stuff we’re seeing come out of the big organisations fill you with dread with those organisations not knowing what’s going on in some of their properties” Housing association finance director

Amidst the doom and gloom, others saw it as the responsibility of the leadership team to stay positive, especially when talking to the wider workforce:

“It’s knowing there’s 1,000 people looking at us to see how we’re reacting and if they see us panicked or looking like we don’t know what we’re doing, that’s what creates real nervousness amongst the team. So, part of this is about us being resilient and getting across the message that as an organisation we’ve been through worse. We dealt with Grenfell and our 40 blocks. This is nothing we haven’t seen before and, ultimately, I’m glad it’s the government making a decision on our rents rather than waking up one morning with one of our tower blocks on fire. This is just the government playing politics and we deal with that, and we carry on,” Housing association chief executive

Some are taking a pragmatic approach:

“Resilience is about stopping more going out than coming in. What do we mean by that? Well, I’ve got to stop more homes going out than coming in because, even in these economic times, I’m losing properties every week through Right to Buy, right to acquire and shared ownership staircasing. We’ve got to stop staff leaving – that’s another big thing. And if they do leave, where are the new staff going to come from? We also need to make sure more money is coming in than going out. And that also applies to our tenants. If I’m honest with you, we need to take a really hard look at those services where there’s more going out than coming in and, ultimately, if there’s a drain on the rest of the organisation, we’ll need to decide if we can continue,” Housing association chief executive

Housing association finance director

Concern was also expressed about the resilience of employees:

“The nature of the job requires resilience and we have historically recruited the sort of person who can cope with whatever is thrown at them. But I think from 2020, the cumulative impact of the last two years has just literally broken even the best, strongest people,” Local authority income services manager

Across the housing sector, finance directors, boards and executive teams have been crunching the numbers to see if they can make their business plans stack up. The lack of certainty around the rent cap forced them to model and stress test a range of options, and many will be relieved at the 7% outcome.

The roundtables revealed that, regardless of the rent cap level, cuts to some activities were inevitable but there was no real consensus on where the axe would fall. The majority agreed, however, that the situation in 2022 is different to the previous rent cut ushered in by George Osborne.

“I think the context we face now is very different to the one we faced back in 2015 [with the rent cut]. Back then we had a government telling us to stick to the knitting. Whereas now we have decarbonisation, extra compliance pressures, more investment in existing stock and the supply crisis. So, we’re trying to refocus.

“For me, it’s about trying to strike a balance of how we mark time for a year, maybe two, until a settled picture starts to emerge again. So, is it about stopping doing specific things or paring back on lot of things? What we don’t want to do is cut ourselves off at the knees and leave us having to rebuild teams and activities further down the line.

“The short-term problem for us is interest rates. Like others, quite a few are fixed, but even so we need to modify our cashflow so that’s slowing down the decarb work or pausing development. That will help for the first year or two, then in the longer term we’re going to need some cost reductions to balance out the lost rental income,” Housing association finance director

“The biggest difference between 2015 and now is that we didn’t have 10% RPI in 2015. And that’s almost the more dangerous part for us. As much as we’re modelling through the nuances of the rent increase, for the business plan we took to board over the past year, we had assumed 7% RPI.

“The reason that causes us an issue is that back in 2015 we talked to staff and said we can either go down the multiple redundancies route, or we can all sign up to a pay freeze of 1% each year for four years (which is what we did). But they’re not going to do that now if RPI is at 10% or 11%.

“Given this is a problem specific to the sector, there’s going to be other jobs elsewhere they can go to. We’re now a high employment state and, frankly, if we offer them 1%, they will simply walk away. And if you can’t afford to retain the person, you can’t afford to replace them either,” Housing association finance director

“We’ve done a significant piece of work looking at our actual cost increases compared to the inflation figure and we’re at 14.9%, baked in for next year that we have absolutely no control over, and that’s without looking at energy or staff pay.

“Last time, with the rent cuts, we were pretty comfortable with anticipating what our costs were going to be year on year. But I don’t think inflation is going to go away. Those 10%, 15%, 20% increases we’re seeing will probably be short lived but our intrinsic costs of running the business aren’t ever going to come back down,” Housing association chief executive

Housing association resident

The majority of chief executives and finance directors who took part in the roundtables agreed that cutting or reducing core services was not an option this time around:

“Some have referred to an inevitable fall off in service standards. I don’t think that will be acceptable. I think it’ll create a real issue with residents, the regulator and government. The expectations of tenants have really been raised since 2017 and I think the regulation bill and the TSMs will be full steam ahead with Michael Gove back as secretary of state,” Housing association finance director

Across all the roundtables we hosted, the number one issue raised was around staff recruitment and retention. Ever-increasing demands on the workforce, particularly those in frontline roles, combined with a desire for better pay, is leading to thousands of staff changing roles within the sector or leaving housing altogether.

“We’re experiencing the highest churn rate I’ve ever known. Staff turnover is currently 20%. It tends to be younger people leaving for jobs outside housing and then more experienced staff being poached by others in the sector, or just deciding to retire early,” Housing association finance director

“Recruitment is really difficult, and it means there are gaps all over the business, which results in everyone having to work harder, and because they are under increased pressure, they’re struggling,” Housing association finance director

“We’ve been plotting where people are going. Some have changed careers completely and decided to get out of housing and find something they’ve had a passion for – quite a lot have retired early, particularly from senior posts. As for care, I’ve got people oozing out everywhere to any job other than care – into supermarkets, setting up cleaning businesses, you name it.

“I’ve got a bizarre situation going on where, during Covid, the care staff stuck with us. But as soon as we came out of it there’s been a mass exodus. We’re in a situation where we need to decide whether we continue with the care side of the business anymore,” Housing association chief executive

“We’re seeing the same things as other people. Turnover is higher, people are leaving, particularly in the frontline teamssuch as the call centre and digital media, they’re going elsewhere. The job is bloody hard at the moment, they are getting inundated with stuff.

“We’re also seeing a change in the sector. We’re losing experienced colleagues to other places because agile working means location isn’t as important, and they’re paying £3,000 to £5,000 more. Can we still recruit? Yes, but then there’s a training gap and familiarisation gap before you get people up to speed.

“We’re experiencing the highest staff turnover we’ve ever had. HR say they’re getting a notice nearly every other day. We’ve not been able to compete on salaries. That then impacts on the culture, and we’ve seen that in residents. When you have colleagues struggling with their own bills it becomes harder to help others,” Member of HQN’s Next Generation group

ALMO resident

At least one CEO saw an upside to the situation:

“The one advantage of that is that we don’t have to look at redundancy because we can reshape teams due to the high turnover rate. This has helped to provide staff with some certainty,” Housing association chief executive

The cost of living has already had an impact on the daily lives of many residents. And while benefits being uprated in line with inflation is welcome news, this will be tempered by the 7% rise in social housing rents. During our roundtable discussions, it was interesting to note how committed organisationsare to supporting residents by maintaining investment in hardship funds and other direct financial support alongside community development activities.

“As an organisation we’re taking the view that this is the time to make sure that the services and solutions that are supporting customers are bolstered and not reduced.

“Just looking back over past performance, some of those services have been cut previously because they’re not ‘core’ landlord services, but actually they’re more crucial in the current environment than ever before.

“We’ve just refreshed our business plan; I’m sure others have. It’s been more about looking at our programmes and not stopping investment, but maybe slowing things down a bit.

“We’re finding more customers are getting engaged with us and reaching out for help. For example, our customer voice panel started with 80 residents – it’s now up to 150. This has helped us to co-create solutions and it’s something where we’re really focusing our energy.

“What’s quite interesting to me is the interest from residents in sustainability and renewables, very much linked to ‘How am I going afford to heat my home?’. We thought it was going to be hard work getting people engaged in this conversation, but we’re finding that people are really interested because bringing their running costs down matters to them,” Housing association chief executive

“We’ve seen a big increase in the number of residents asking what their EPC rating is, can they have solar panels, what other energy efficiency measures are there. While it shows how worried people are about their energy bills, it does make our retrofit job a lot easier in terms of engagement,” Environmental sustainability business partner and member of HQN’s Next Generation group

“We’ve been lucky enough to have a wellbeing fund for the last two years, which means our customers can apply for essential support – basically things like school uniforms, food bank vouchers, energy vouchers and things like white goods.

“We know that not having a washing machine or tumble dryer means that they might not be washing their clothes properly, not drying their clothes properly. It could lead to things like condensation and mould in their homes. Having a washing machine will make a massive difference to them. Having a cooker or freezer, so they can cook, and access to meals, and things like that will make the difference,” Housing association regional neighbourhoods and communities manager

As is often the case, there’s a disconnect between how the landlords see the world compared to their residents. During our roundtable discussion, all residents were grateful of the additional support on offer, but concerns were raised about how the support was delivered:

“In relation to the cost-of-living support, [my landlord] has put together quite a good service for people who are in need during the current economic situation. Unfortunately, 90% of it is online. If they genuinely want to help, they need a fundamental rethink about what they’re doing,” ALMO resident

Lack of communication came up again and again, which many felt was more important than ever in the current climate:

“The main issue I would raise is the lack of communication. It’s been a common theme throughout every resident meeting. A lot of people won’t be aware of the White Paper or the new legislation that’s coming. As a member of the scrutiny panel, I have a fair idea of what’s going on, but for other residents they simply won’t have a clue.

“There’s always amassive difference between what the board and executive say they’re doing and what the residents say is happening. You do wonder if managers aren’t telling the board exactly what’s going on – maybe they just want to hear good news?” Housing association resident

Concern was also expressed about the lack of a landlord presence on estates and the perceived failure to return to face-toface visits post-lockdown:

“When you walk out of your front door, do you ever see somebody from your landlord in your area? They’ve lost that interaction with people. They don’t know their tenants. During Covid, the housing managers worked from home and, even now, they seem to be staying at home. They have not got back out onto the estates. They’re not passing on information face to face. In your local area, you need to know who your housing manager is, that they are there and approachable,” ALMO resident

Housing association contact centre co-ordinator

One resident said that tenants don’t really ask for much, they just want the basics done properly:

“There’s a difference between wanting and needing. Tenants need to know that they’ve got a comfortable, safe, warm place to live. I might want to have a swimming pool in the garden, but I don’t need one. I just want to know that my home is safe and warm and comfortable to live in and when I do need a repair, it’s done, and it’s done properly,” Council tenant

If there’s one area of housing that dominates the housing debate – from politicians and the media to finance directors, CEOs, frontline staff and residents – it’s the poor state of many social housing properties. Shocking cases of tenants being forced to live in squalid conditions dominate the headlines and damage the sector’s reputation on an almost daily basis. The problem for many landlords is that they’re struggling to keep on top of repairs. The majority of housing professionals we spoke said rising costs, labour shortages and the backlog caused by the pandemic had all played a part in the deterioration of their service.

“The 7% rent cap won’t help – repairs and maintenance inflation is around 20%,” housing association chief executive

“We had a programme to do a certain amount of kitchens and bathrooms but we’ve had to scale that back. We were doing boiler replacements but now that has stopped and changed to a reactive service rather than a proactive one. We can’t do storage heater replacements. That’s been stopped fully so we have people with old expensive heaters. It feels like we’re robbing Peter to pay Paul,” Resident liaison officer and member of HQN’s Next Generation group

“We’ve experienced a huge staff turnover in our property services team, which then impacts all the other parts of the business. Work takes much longer, and we’re experiencing more complaints as a result,” Aftercare and quality manager and member of HQN’s Next Generation group

“Our staff get hammered on the phones every single day and it’s always about repairs. It’s a constant struggle and staff are leaving as a result. No-one ever phones to say thanks. Part of this is that customer expectations are much higher now, especially coming out of Covid. But the national media attention means we’re all seen as useless and get spoken to like dirt,” Housing association contact centre co-ordinator

But on a more positive note:

“We’re in a different place to a lot of other people and feel quite positive about repairs. Our new CEO has come in with lots of fresh ideas and it’s got the blood running round everyone’s veins quicker. Despite the rent cut, we’re planning to increase investment in planned maintenance by three in 2023 and by five over the following five years. We’ve been piloting smart technology and it’s worked – we’ve not had any disrepair claims from properties where the tech has been installed.

“We’re also increasing investment on voids and raising the spec of our voids standard with the aim of being more proactive. If we can sort issues out at the void stage, it should prevent further repair work down the line,” Housing association head of assets

• Support with cost-of-living pressures where possible

• Talk to residents/contact them – do as much as you can to listen and help

• Know your tenants and take a personalised approach – you can’t help them if you don’t know them

• Be transparent about rents and service charges

• Digital is important but not the ‘be all and end all’

• Face to face very important, especially post-Covid.