With the cost of living and rising inflation hitting the headlines, Advantage has taken a look at the latest research by the Centre for Economics and Business Research (CEBR).
The CEBR has analysed inflation trends for the major costs housing associations face. It finds that in significant areas – including construction costs and repairs and maintenance materials – costs are increasing more than headline inflation rates.
The National Housing Federation has shared the CEBR’s key findings on their website:
- Inflation on construction costs overall accelerated to 9.6% in June 2022.
- The cost of new housing has risen even more quickly, with inflation at 12.3% in June 2022.
- Repair and maintenance prices surged over 2021 and 2022, with annual price increases for repair and maintenance materials peaking in April 2022, at 16.8%. Annual price growth was still highly elevated in July 2022 at 14.0%.
Supported housing providers face added challenges
NHF Chief Executive Kate Henderson said: “This report demonstrates the huge financial pressures housing associations are currently facing with the cost of repairs, materials and building new homes already rising well above inflation by 14% and 12.3% respectively.
“This is likely to worsen over the coming months, feeding through to all areas of spend and is on top of the pressures of building safety costs and the costs of retrofitting homes. We know there will be particular challenges for supported housing providers who operate on very tight margins.
“Housing associations must ensure they can continue to maintain their homes and provide vital services to residents in the years ahead. They are also concerned about the impact rising living costs are having on social housing residents.
“In this context they (have) been thinking very carefully about their approach to future rents and actively looking at what additional support they put in place for residents.”
The government may cap rent increases for social landlords
Meanwhile, Housing Today says they understand that the Department for Levelling Up, Housing and Communities is due imminently to consult on plans to limit the rent increases that social landlords can implement in the 2023/24 financial year to around 5-7%, due to ministerial concerns over how the cost-of-living crisis is impacting tenants.
While offering some respite to tenants following rapidly rising costs for essentials, such as food and energy consumption, limiting rent increases could add another challenge for housing associations seeking to balance the books.
According to Housing Today: “Sources said that, given runaway build cost inflation in the last year, a failure to increase rents in line with rising costs could force associations to dramatically cut back on capital spend, particularly on development and net zero retrofit plans. The news comes a week after the government published a report warning that the delivery of the 2021-26 Affordable Homes Programme was already at risk because of rapid recent rises in build costs.”
Advantage’s view: At a time when the rising cost of living is disproportionately affecting the poorest, the calls for rent caps and for the creation of more affordable housing are likely to get louder. Clearly, building more affordable homes is one of the key ways to help those who have been priced out of the housing market. However, the very conditions that make building affordable homes and offering affordable rents seem vital (namely rapidly rising inflation and housing costs) are likely to make it particularly challenging for housing associations to deliver. In the short term, it seems likely that housing associations will seek to focus on providing essential services to existing tenants. If the government is serious about more long-term goals being reached, there will be questions about how the delivery of more affordable homes, retrofitting existing properties and capping rents will be funded.