Vistry partnerships boss says rent cap won’t stop housing associations building

The boss of Vistry’s partnerships housing business has claimed that investment by housing associations in new development will be unaffected by the government’s proposed cap on rent increases.

Stephen Teagle (pictured, below), speaking in a call to analysts and investors last week, also said that housing associations were only claiming that the planned rent cap will limit development because they wanted to pressure government to up grant rates.

His comments come after the government last month consulted on a cap on the amount housing associations will be able to increase rents by in the next financial year, to between 3-7%. Without a cap being brought in, tenants would have been facing double digit rent rises of 11-12%, with rents otherwise allowed to increase at a rate of CPI inflation plus 1%.

While housing associations have welcomed the action to protect vulnerable tenants, many have warned of the impact this could have on their finances, and particularly their ability to develop, with an impact assess issued alongside the consultation saying the cap could cost landlords as much as £9.2bn over five years.

Consultant Greg Campbell said at the start of the month the cap could kill housing association development “stone dead”.

However, Teagle said that because housing associations had such long-term business plans, and because many had assumed rent rises would be curtailed this year, the impacts on development would be negligible, and demand from associations remained strong.

He said: “Most housing associations have baked in [a] 5% [rent rise into their business plan]. And bear in mind, they’re looking at 45- and 60-year business plans. These are not short term, three- and five-year business plans. So that pricing impact is not going to deter their ongoing investment into new supply.

“They’re not going to say that, because they’d like more grant, but it isn’t going to deter their investment into new supply.”

Teagle’s comments are likely to be controversial, given that many associations are claiming to be struggling with significant cost pressures currently when undertaking development, with a recent study by the NHF putting build cost inflation for new build at 12.3%.

The comments came as £1.3bn turnover Vistry reported results for the year in which its partnerships housing business, which works to deliver schemes with housing associations and local authorities, saw its operating margin increase from 9.1% to 10.2%, despite the big rises in construction costs.

See also>> What the rent cap will mean for social landlords

See also>> Rent cap plan would cost landlords £7bn over five years

The firm said this was down to its increasing focus on land-led mixed-tenure schemes, rather than projects where Vistry essentially acts just as a contractor for the public or housing association landowner. It’s partnerships revenue grew to £426m in the year, up 9%

Teagle said Vistry used “a range of devices” to manage the risk of the current build cost inflation on contracts, including fixed price allowances, indexation, and phased delivery – in which Vistry re-prices as it goes along during the longer schemes.

However he also said that cost inflation was “an opportunity” for Vistry on fixed price contracts “as inflation goes back and we’ve got fixed prices going forward.”

He said: “I hope that that will come through on a positive basis.”

Despite concerns overall over housing association build programmes, many of which have experienced delays in recent months, Teagle said: “Housing market demand absolutely strong demand across PRS and affordable housing.”