Peabody to scale back development ‘significantly’

Peabody is to significantly rein in its development ambitions in the short term in the wake of “headaches” caused by rising inflation and interest rates.

Ian McDermott, chief executive of the housing association, told Housing Today that next year was likely to see a “significant reduction” in the development output of the 104,000-home, London-based social landlord, a situation which was likely to last a couple of years.

McDermott was speaking after the housing association mega-merger between Peabody and Catalyst completed its final stage yesterday, with the submerging of 37,000-home Catalyst within the Peabody Group.

In the 2021-22 financial year Peabody and Catalyst produced 1,435 homes between them, with the merged organisation having upped the development rate in 2022-23, producing 1,004 homes in the first six months alone. When the merger was announced in 2021, Peabody chair Lord Kerslake said the combined organisation would be targeting production of 3,000 homes a year.

However, McDermott said there would now be a significant short-term reduction in output, and that development will not reach 3,000 homes per year in the medium term.

He said: “A lot of the changes we’ve seen in the last years have caused a few headaches regarding development. Next year we’re likely to see a significant reduction in our development output for the next couple of years as we’ve had to re-size the programme.

“We’re keeping as much going as we can. What we’re doing is keeping going our projects most focused on our existing communities and existing stock, such as Thamesmead – while others have slowed down.”

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McDermott said the reassessment of the programme had been driven by the spike in interest rates weighing on the market and the high inflation seen over the past year, in particular around material costs. He said the construction industry had been “disproportionately impacted”.

He also said the government’s decision to limit rent increases in the coming year to 7%, while “the right thing to do”, was impacting on Peabody’s ability to invest in new build.

McDermott declined to say what he expected the group to be able to deliver in the medium term and, while he said the group would retain a “significant development programme”,  it would be “something shorter” than the 3,000 homes per year initially suggested by Kerslake. His comments came weeks after the organisation warned of dramatic delays to its developments due to the requirement for a second staircase on high-rise homes. 

Last year Catalyst became a fully owned subsidiary of Peabody, with this week’s change marking the moment the smaller organisation was dissolved as a separate legal entity into the wider group, which houses 220,000 people across the capital and the home counties.

Peabody said it had published a refreshed group strategy which would see it prioritise and accelerate investment in planned maintenance and retrofit projects “to make thousands of Peabody owned homes more energy efficient over the next three years”.

The landlord said it now operates across 107 local authority areas offering effective rental subsidy of £679m per annum, with an average rent of £122 per week.

With recent controversy over the quality of housing association homes, and over the provision of landlord services, Peabody said it was planning to “put residents at the heart of the organisation”, via a new regional structure that will deliver an “enhanced” responsive repairs service.

The controversy comes as landlords across the housing association sector are facing tightening finances amid the drive to invest more in their existing stock to address housing quality and net zero issues, which is putting pressure on development programmes.

The organisation’s refreshed strategy claimed it wanted to “create a development pipeline across the next three years which recognises our competing priorities”.

It added it also wants to focus on the acquisition and control of large sites, and develop alternative funding models for new development.

Peabody plans to offer community support such as an energy advice service, food pantry networks and partnerships with food banks, and small business incubation services.

It has recently faced intense scrutiny over the case of a resident, Sheila Seleoane, who died in her flat at Lords Court in south London and lay undiscovered for two years.

McDermott said in a statement that Peabody “needed to improve” and had “detailed plans to do so”.

He added: “We need to be better at getting the basics right, get closer to our communities, and continue to invest in safety, services and a sustainable Peabody. Our increased scale will help us do that. By combining a new locally focused operating model with better technology and data driven services, we’re determined to boost resident satisfaction for the long-term.

“We’ll seek to do our bit in providing social and economic support for people as well as providing quality new homes in partnership.”