2020 was one of the most disruptive years in living memory and its effect will be felt long into the year ahead. But the impact of COVID is not the only thing that social housing providers will need to keep in mind during 2021. Winckworth Sherwood’s market-leading social housing team point to six things they will need to consider.
1) Increased demand for social housing
Despite the best efforts of the Government to protect jobs, unemployment rates are increasing and are likely to accelerate further. Historically, high unemployment is followed by increased demand for social rented accommodation, says Charlie Proddow, Partner at Winckworth Sherwood.
He comments: “We would not be surprised to see providers looking to switch tenure models away from shared ownership to rented in increasing numbers throughout 2021. This may mean providers needing to revisit s106 agreements, seek approval from funders, and if part of a wider development, check whether any restrictions on tenures apply.
“If homes were originally intended for shared ownership, internal fit-out may also need to be reviewed alongside service charges for residents.”
2) Concerns over shared ownership remain
Questions remain over changes to the shared ownership regime, says Ruth Barnes, Partner at Winckworth Sherwood.
She adds: “In a market already fragmented by the leasehold reforms, social housing providers should expect further division in the shared ownership market. There is concern surrounding the availability of 10% mortgages, how 1% staircasing will be managed and the viability of schemes with the proposed repair costs reclaims. Concerns have also been raised about how the transitional arrangements will work in practice.
“There is a general feeling that reform is being rushed through and that the sector, and the wider property market, needs time to adjust and prepare for these changes.”
3) Modular comes of age
2020 finished with considerably more clarity on the funding and charging on modular homes. Ruby Giblin, Partner at Winckworth Sherwood, says: “Valuation models have finally emerged that offer funders the confidence needed to charge modular homes. Modular has been part of the development landscape for a number of years, but this means providers will now be able to use those homes to raise funding to deliver yet more new homes. Modular will finally move into the mainstream for social housing development.”
4) Fire safety and cladding
Senior Associate, Charis Beverton, comments: “The shorter Fire Safety Bill codifies ‘Advice Note 14’ making the safety of external walls the responsibility of building owners or those in control of a building. In principle a good thing, the extension to buildings of any height (in January 2020) has precipitated a lending crisis, with many residents being trapped in flats that cannot be let or sold. That is because lenders will not lend without an EWS1 and those certificates are in short supply.
“The Government has tried to limit the scope of EWS1; however, it is not yet clear whether lenders have accepted that limitation.
“Where remedial work is required, and before any certificates can be issued, there is an ongoing battle about who must pay for the costs of the remedial works. The House of Lords is trying to push through an amendment to prevent freeholders passing on remediation costs to leaseholders through demands for one-off payments or increases in service charges. This amendment is unlikely to pass, but a battle is brewing on this issue with all parties having much to lose.”
Charis adds: “At present, the costs of implementing the necessary safety measures falls on leaseholders under a separate, reserved service charge; however, this is unpopular and may face political backlash (as per the amendments to the Fire Safety Bill). Developer surcharges and taxation are alternative solutions, but given the huge public expenditure on COVID and Brexit this year, it is unclear how much more will be given from the public purse to resolve these issues.
“Whatever the solutions, complying with the legislation is likely to be expensive for all those involved in development and property management and may impact on the ability of social housing providers to fulfill development commitments this year.”
5) Challenges remain on raising funds
All of the issues raised will affect registered providers’ (RPs) ability to raise finance, says Winckworth Sherwood Partner Louise Forrest.
“As demand for social housing increases, RPs will need to ensure that they have raised enough capital to meet development plans. When thinking about capital, RPs will need to consider funds that first have to be allocated to fire safety issues and, depending on funder’s policies, if any assets cannot be charged in the interim. The effects of shared ownership also need consideration, particularly if increasing numbers of shared ownership properties are taken out of portfolios available for charging but only a very small fraction of the ownership has been sold.
“Alongside this, finance teams will this year need to transition existing and new facilities away from LIBOR, which will take the teams’ attentions away from business as usual, at least to a degree. Overall, there will be a number of issues for treasury teams to work through, which will require consideration and monitoring, not just the execution of a pre-formed plan.”
6) Later life care
Social care has been at the COVID frontline for much of the year, says Winckworth Sherwood Partner Charlotte Cook. “It is a sector that will need continued support throughout this year and should be one of the Government’s priorities.
“But later life housing extends beyond social care, and local and national Government needs to acknowledge the growing demand for age-appropriate housing, taking into account the rapid adoption of technology seen this year.
“We expect to see technology continuing to play a critical role in 2021, with online and web-based support becoming the norm. However, its adoption by the private sector far outweighs that of social providers – they need to take stock and invest in their technological capabilities.”