Updated March 2021 View full section
This section sets an overview of key issues and bodies within social housing finance.

This guide is aimed at landlords of publicly funded housing, excluding local authorities. Various terms are used to apply to these bodies, however the guide uses the generic term 'housing associations'. The guide provides a valuable resource in ensuring that housing associations have a sound understanding of financial management and governance.

The approach of this guide is, for each of the main areas of relevance to housing associations:

  • to provide a general background to the current position
  • to discuss the current issues and highlight emerging themes
  • to explain the regulatory requirements
  • to assist practitioners in the day-to-day application of processes that will need to be taken into account.

Where more detailed information is considered necessary in the exercise of the financial function readers are directed to appropriate sources.

Although the bulk of the guidance applies to the UK in general, for the most part, the individual sections concentrate upon the position in England. Naturally there are situations where practice in Scotland and Wales may vary. Issues that are unique to Scotland and/or Wales are discussed in detail in the respective Wales and Scotland Regional Variations sections.

This guide provides an overview of housing association finance and is not intended to be a detailed technical guide to all of the practical issues relating to the finances of social housing that the operational practitioner is likely to encounter. Neither is it intended to provide other users with a definitive guide as to the structure, broad legal constraints etc within which housing associations and other providers of social housing operate and that will need to be taken into account in any commercial dealings with them.

In the context of social housing finance the key bodies or types of organisation are:

  • housing associations, which together develop, own and manage over 3 million properties
  • the Department for Levelling Up, Housing and Communities (DLUHC), which provides the prime strategic and political direction for the provision of social housing in the UK
  • Homes England, an executive non-departmental public body sponsored by DLUHC – the national housing and regeneration agency for England, whose role is to improve the quantity and quality of housing through investment and enabling
  • the Regulator of Social Housing (RSH), an executive non-departmental public body sponsored by DLUHC, the Scottish Housing Regulator for Scotland, and the Welsh Government for Wales, which have a responsibility to set and enforce standards in the sector
  • accounting standards bodies, which have a role in determining the format and presentation of the accounts
  • trade bodies (including the National Housing Federation, the Scottish Federation of Housing Associations and Community Housing Cymru), which seek to influence the overall direction of social housing finance and provide guidance and assistance in the provision of social housing
  • local authorities, which may also provide housing but have a role in setting local policies around allocation and planning as well as enabling additional supply, and arms-length management organisations (ALMOs), which are owned by local authorities and manage housing stock on their behalf
  • commercial funders, which provide day-to-day and investment finance, but whose role has increased as less public grant is made available to the sector.

Other bodies such as the Charity Commission, Companies House and the Financial Conduct Authority may also be relevant, depending on an individual housing association's constitution.

Social housing finance has seen a number of significant changes over the last 40 years or so and this shows no sign of coming to an end.

For many housing associations the incentive to develop and provide more housing was found in the Housing Act 1974 which provided a generous grant structure. In 1988, it was recognised that housing associations should receive a percentage grant in respect of each development, raise the difference through the money markets and be responsible for setting their own rents.

Over time the proportion of capital cost that is provided by grant has reduced substantially with the majority of development costs often being met from other sources. More recently, this has included the ability to charge higher 'affordable' levels of rent to enable the increasing percentage of private finance to be funded. The Affordable Housing Programme 2016–2021 moved from subsidising affordable rented products to affordable home ownership products.

In addition, housing associations have explored more diverse activities as a way of cross subsidising more traditional and less economic areas of business or in some cases withdrawing from areas of business such as supported housing.

With the majority of housing associations' income deriving from rents, this area has particular importance to associations.

From 2001 until the introduction of the Welfare Reform and Work Act 2016 it was government policy to contain rent increases by referencing average increases to the retail price index (RPI) and harmonise social housing rents in a local areas irrespective of landlord.

With an increased focus on reducing public expenditure the Welfare Reform and Work Act 2016 introduced a requirement to reduce rents by 1% each year during the period from 2016/17 to 2020/21. In October 2017, the government announced that increases in social housing rents limited to the consumer price index (CPI) plus 1% would be permitted for five years from 2020.

Other changes linked to welfare reform have and will continue to impact on the financial arrangements of housing association. Roll-out of the universal credit full service is substantially complete and the Department for Work and Pensions (DWP) is working to move all remaining existing benefit claimants to the universal credit full service. The impact of COVID-19 is expected to delay full migration until late 2024. The reforms are having a challenging impact on both housing associations and their tenants, with increasing evidence of higher collection costs and arrears.

Housing associations operate in a regulated environment that has seen ongoing change in both the housing association regulator and the standards by which housing associations are regulated. The objectives of the regulator are set out in the Housing and Regeneration Act 2008.

From 1 April 2012 and following the Localism Act 2011, the HCA took over responsibility for the regulation of social housing providers in England from the Tenant Services Authority (TSA). It operates its regulatory functions through an independent Regulation Committee.

From January 2018, the HCA's non-regulation arm adopted its new trading name Homes England. From that point, the HCA's regulation directorate, which undertakes the functions of the Regulation Committee, refers to itself as the Regulator of Social Housing (RSH). As of 1 October 2018, the RSH has been established as a standalone body.

Regulation by the RSH has been enforced through a range of regulatory standards. These standards have evolved since 2010, with an increasing emphasis on the economic standards, especially those covering viability and value for money (VFM). Through the concept of co-regulation there is an increasing role for local scrutiny with the HCA only intervening against the consumer standards when it considered there may be serious detriment to tenants.

A set of regulatory standards implemented in 2015 were brought in to reflect the more challenging operating environment of housing associations. With reduced levels of public subsidy but continuing demand for affordable housing, housing associations are increasingly looking at new opportunities for development and new ways of raising money. These activities were seen to bring new risks, which need to be managed effectively and regulated appropriately. In this environment there is an expectation that associations have asset and liability registers and robust business plans that are stress tested to reveal and mitigate weaknesses.

From 2018 a new standard for VFM requires the sector to measure and report efficiency in a different and less narrative way, aiding greater comparison between associations.

Although viability and VFM remains the priority for the regulator, the fire at Grenfell Tower in June 2017 has increased the focus on health and safety within association stock and the role of residents in holding landlords to account for the services they receive. Although the Grenfell inquiry will not report until 2022, changes are already underway or in train. The Hackitt Review has started to lead to changes within building regulations and the public inquiry is likely to make recommendations that will increase expectations on those organisations that own and manage social housing. In the interim, associations have already reviewed levels of investment on existing stock to address newly emerging risks and the highest priority towards compliance.

The publication of the Social Housing White Paper in 2020 introduced a new charter for social housing residents. This covered safety, landlord performance, complaints, tenant voice, quality and home ownership. Although the regulator indicated it would maintain a robust approach to economic regulation, it will establish a proactive customer regulation regime with active oversight of landlord performance while maintaining the principle of co-regulation.

The sector has established a role in increasing housing supply, beyond affordable housing for rent. Through the Housing and Planning Act 2016 focus was on initiatives that would see greater levels of home ownership through Starter Homes and the extension of Right to Buy to housing association tenants. More recent announcements reflect a more pluralist approach to increasing supply, although the lack of grant means many of the homes developed by housing associations are for sale, some of which are used to subsidise properties let at affordable rent. As more associations respond to the expectation to add to the supply of housing, a sector that was historically insulated from economic cycles or was counter cyclical has now started to get used to managing new risks and being more commercially aware.

The increasing understanding of the impact of housing on the environment is starting to lead to expectations and requirements to respond. This impacts on new housing, but energy use in existing housing will need to reduce in the medium term, creating the requirement for major investment in the next decade and beyond.

In response to the legislative and regulatory changes, we are seeing changes within the sector as housing associations adapt to the new and evolving environment. In particular, the need to be more efficient and create development capacity is seeing ongoing consolidation, both among medium size organisations and some of the larger ones.

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