Social housing letting margins in London see sharpest drop

Social housing letting (SHL) margins have fallen faster in London than in any other part of England over the past three years, according to research by ratings agency Moodys.

Between the year ended December 2020 and 2023, London housing associations experienced the largest decrease in their SHL margins compared to other English regions, with an average decrease of 13 percentage points.

London’s housing associations face higher costs relating to building and fire safety because they have a larger share of high-rise buildings. Despite the increased costs, median SHL margins in London remained at 19% in fiscal 2023.

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Across all English regions, SHL margins have fallen as cost inflation has outstripped social rent increases while spending on repairs and safety has risen sharply.

On average, housing providers in the South of England saw a 10 percentage point drop in SHL margins between 2020 and 2023, with a median SHL margin of 23% in December 2023.

Median SHL margins in the North of England were lower compared to other English regions, standing at 18% in December 2023.

Housing associations in the East of England and the Midlands had median SHL margins of 28% and 25% respectively in December 2023, which is an eight percentage point drop compared to 2020.

SHL margins for most housing associations have fallen regardless of the number of social housing units under management.

Moody’s has indicated that housing associations’ margins will go down again in fiscal 2024 and that their recovery in 2025 will be driven by inflation-linked rent increases.

In addition, Moody’s data found that the percentage point decline in the operating margin of housing associations was higher, the greater the provider’s exposure to market sales.

Housing providers who relied on market sales for 5 to 10% of their turnover saw their operating margin decrease by an average of four percentage points between 2020 and 2023.

Meanwhile, housing associations that relied on market sales for 30% of their turnover experienced an even more significant drop in operating margin, of nearly 10 percentage points.

According to the report, the profitability of housing associations’ market sales has been affected by falling house prices in certain regions.

Specifically, in London, the margins of market sales have decreased by an average of nine percentage points, while in the North of England, they have dropped by five percentage points, and in the Midlands, they have fallen by two percentage points.

Giulia Calcabrini, an analyst at Moody’s Ratings said: “Housing associations in London face greater risks to margins compared with other parts of England in 2024 due to higher costs of repairs and maintenance amid rising demand and a housing market downturn”.

Data from the Regulator of Social Housing published last month found that housing associations’ median interest cover fell by 54 percentage points to 128%, compared to 2021, marking its lowest level since the economy emerged from the financial recession in 2010. 

The findings of the RSH’s most recent quarterly survey of more than 200 large providers, released earlier this month, revealed that cash reduced from £4.4bn to £4.2bn in the final quarter of 2023 compared to the previous quarter. By contrast, the RSH said that before the pandemic balances were £5.8bn.