Housing associations’ cash levels fall to lowest in a decade as development forecasts reduce

Cash held on the balance sheets of England’s largest registered providers has fallen to the lowest figure in a decade.

The Regulator of Social Housing’s (RSH) latest quarterly survey of more than 200 large providers shows cash reduced from £4.4bn to £4.2bn in the final quarter of 2023 compared to the previous quarter. RSH said by contrast, before the pandemic balances were £5.8bn.

This is the seventh consecutive quarter in which cash has reduced and levels are now at their lowest for 10 years. RSH forecasts cash falling further to £3.1bn over the next 12 months as associations dip into their reserves to fund development programmes.

The RSH said: “Providers continue to face inflationary cost pressures, combined with ongoing demand to improve the quality of existing stock; expenditure on which has continued to increase.

“This will inevitably place pressure on providers’ cash resources and limit their ability to manage further additional costs. In general, we have assurance that providers are taking action to manage their position, which for a growing number of providers includes the deferral of uncommitted development or arrangement of loan covenant waivers.”

Average cash interest cover - which compares earnings to interest payments and is used as a measure of financial capacity – has fallen to 79% quarter-on-quarter. More than half of providers now have cash interest cover below 100%,

RSH said net operating cashflows have been insufficient to fund net interest payments, resulting in an average cash shortfall of £278 million per quarter over the year to December 2023. This compares to an average quarterly surplus of £237m in 2021.

The survey shows providers spent £3.9bn on developing or acquiring new properties in the quarter.

This is higher than the three-year average and the largest amount for eight years, but still 12% below previous forecasts.

Providers are forecasting spending £15.9bn over the next 12 months, down 5% on the 12-month projection from the previous quarter and the lowest forecast since the start of the pandemic in 2020.

The survey also shows the extent to which providers are investing in existing homes to implement building safety and decarbonisation measures. The sector invested £3.1bn in capitalised repairs and maintenance in the 2023 calendar year, up from £3bn the previous year, while providers forecast spend of £3.9bn in 2024. Both the 12-month actual and 12-month forecast expenditure are the highest ever recorded’

The survey also shows total asset sales were 26% below forecast with around £700m generated compared to £800m the previous quarter.

Market sales remain below average with 708 units sold in the quarter, compared to 1,186 on average per quarter over the last three years. This was offset however by affordable home ownership sales increasing 6% quarter-on-quarter.

The sector’s total agreed borrowing facilities increased by £1.3bn to £126.7bn.

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Will Perry, director of strategy at RSH, said: “It is encouraging to see the sector raising new finance, which is enabling providers to invest in existing homes and build new ones for the future.

“But as a result of this higher spend and wider economic pressures, their interest cover remains very low. Boards must manage financial risks carefully and deploy appropriate mitigations when needed.”

The quarterly survey compiles figures from the 201 registered providers who own or manage more than 1,000 homes.