Stuart Beattie: Innovation and government support essential for housing associations
Accountant Stuart Beattie sets out the key challenges of rising costs, sustainability investment requirements and a demand for more stock that are currently facing housing associations.
Last week I attended the annual Scottish Federation of Housing Associations (SFHA) Finance Conference. The event brought together social housing professionals, and people like myself from partner organisations, to share insights about the many challenges and opportunities facing the sector.
Scotland’s housing associations - like other social housing groups that provide homes for thousands of families across the nation - are facing their toughest times in living memory. The sector continues to face considerable financial burdens amid a cost-of-living crisis where many tenants are simply unable to afford monthly rent increases.
Housing associations are under pressure from the Scottish Government’s energy efficiency standards which require all rented social housing to achieve a minimum of a ‘B’ rating by 2032. While this is welcome and progressive legislation which will help promote environmental sustainability, it requires housing associations and other social landlords to invest huge sums - at least £2bn according to the SFHA - with only very limited additional support from public finances.
Common to most other sectors of the economy, housing associations are also struggling from high inflation and its impact on employee costs. As a result, many organisations face staff shortages and are unable to afford specialist advisers to help them manage these growing burdens.
In short, costs continue to rise and they can’t simply be passed straight to tenants.
The culmination of all these issues has left the social housing sector in limbo at a time when it is expected to step up a few gears to address a major shortfall in affordable stock throughout Scotland. The Scottish Government has set a target for 110,000 new affordable homes to be built by 2032. This pledge can only be met with major investment from housing associations, but their ability to do this has been significantly curtailed.
There is some grant funding support for energy efficiency improvements available through local authorities and central government, but this only covers a fraction of the outlay required by most housing associations. This is likely to result in some organisations holding back on further developments so they can focus on upgrading existing properties.
We are seeing smaller housing bodies share resources so that economies of scale help address financial pressures. This includes innovative partnerships like ARCHIE, the Alliance of Registered Co-operatives and Housing Associations Independent in Edinburgh, which shares skills and experience to enhance operational efficiency and reduce costs.
Diversification could be another option open to some social housing. One of our clients has created a successful model of this approach with the development of its own wind farm. It sells excess energy to the grid generating additional profits that benefit its tenants. Meanwhile, some housing associations, particularly those in more urban areas, have included retail and commercial spaces within a residential development to create a commercial revenue stream from rental income while making sure the community benefits.
Further consolidation between housing associations may be another potential option for some small and mid-sized bodies within this challenging climate, but this does require careful management to ensure tenants’ concerns are suitably addressed and a strong link
with local communities is maintained.
While there is scope to roll out more of this type of innovation across the Scottish housing association sector, there are limits to what it can deliver, and this was recognised at the Conference. Ultimately, if the Scottish Government is serious about addressing the housing shortfall and promoting sustainability (as well as cheaper energy bills for tenants) through its sustainability targets, it will need to give more support to the sector.
While a major part of the solution lies in providing more funding, there are other areas where the Scottish Government can help including greater flexibility in planning processes and more incentives in brownfield site development to support the building of new properties. Developing apprenticeship programmes to ensure we have the workforce so energy efficiency measures can be quickly rolled out is another key area for investment which can also help grow the green economy.
This support is essential if housing associations are to be in a position to help drive greater sustainability and make the huge investment required to provide homes for those who are often least able to afford them.
- Stuart Beattie is head of social housing at accountants CT