Our public policy positions
Southern Housing is committed to using our size to influence positive change. We develop recommendations for change based on our operational experience. We share the new Government’s ambition for safe, affordable homes to be in reach of more people and are keen to play our part in delivering the homes they want to build. But a series of financial challenges mean we’re unable to take on further debt to build new homes. Measures that shore up our financial stability by tackling the rising costs of our existing homes would enhance our capacity to build new ones.
Government policy in recent years has led to below-inflation rent increases, with a one percent reduction each year from 2016/17 to 2019/20 and a seven percent cap for 2023/24. This has resulted in a 15% lower rental income in real terms for us compared to 2015. If we’re to return to building homes, we need a long-term approach to social housing rents – our key source of income. A 10-year rent settlement set at CPI+1% is needed to provide this stability.
Rents across homes vary significantly, even between neighbouring properties with the same number of bedrooms. In 2002, the government introduced a rent convergence process to align rents based on factors like property values, local income levels, and property size. But this was discontinued in 2015 before many homes reached their formula rent. As a result, we lost over £16 million in potential rental income in 2023/24. We need to see a return to rent convergence so we can standardise rents and reinvest the additional income in new and existing homes.
Building safety funding isn’t available for social and affordable rented homes. Nothing is more important to housing associations than the safety of their residents. We need fair funding for rented homes in need of building safety remediation works. The expansion of the Building Safety Fund and Cladding Safety Scheme to cover all tenure types would be a far more equitable solution than currently exists.
For every £1 of government investment in building new homes, housing associations like Southern Housing must find at least £4 of private capital to meet the total construction costs. Increased grant funding in the Affordable Home Programme would enable us to build the homes that are desperately needed. More flexibility to use Recycled Capital Grant Fund to top up Social Housing Grant on sites that have stalled due to contractor insolvency would also enable schemes to break even.
We’re expected to ensure all our homes achieve Energy Performance Certificate (EPC) Band C by 2030 “where practical, cost-effective and affordable”. Currently, government offers funding over short-term cycles, including through the Warm Homes: Social Housing Fund. Providing long-term certainty over net zero carbon funding would boost our ability to plan and execute these essential works, and boost our development capacity. A long-term funding settlement that keeps pace with inflation and avoids abrupt cut-offs is essential.
Why are we asking for these measures?
Our rents were cut by 1% per year for four years from 2016 and were capped at below inflation last year. We’re also facing unprecedented cost increases including decarbonising our homes and building safety remediation.
The combination of rent cuts and caps, inflation, and remediation and decarbonisation have resulted in a cash interest cover, which measures interest to earnings, of less than 100%. This means in cash terms we’re unable to cover interest costs from net operating income. Interest cover is restricted in housing association lending covenants (contracts).
This need to get rising interest cover levels back down has led us to scale back our development. We’ll build our committed development pipeline of 3,700 homes but can’t enter into new development commitments until our financial capacity has improved. To ensure that affordable housing continues to be built it is imperative that government takes action to help rebuild housing association capacity.