Research and analysis

Quarterly survey for Q1 (April to June) 2022 to 2023 Summary

Published 6 September 2022

Applies to England

Introduction

1 - This quarterly survey report is based on regulatory returns from 204 private registered providers and PRP groups who own or manage more than 1,000 homes.

2 - The survey provides a regular source of information regarding the financial health of PRPs, in particular with regard to their liquidity position. The quarterly survey returns summarised in this report cover the period from 1 April 2022 to 30 June 2022.

3 - The regulator continues to review each PRP’s quarterly survey. It considers a range of indicators and follows up with PRP staff in cases where a risk to the 12-month liquidity position is identified. We have assurance that all respondents are taking appropriate action to secure sufficient funding well in advance of need.

4 - Figures have been rounded to the nearest £billion to one decimal place. This can result in rounding differences in totals and percentages as the individual returns are denominated in £000s.

5 - For this quarter, the information submitted by one large provider was partially based on estimated outturn figures. Although this is not expected to have a material impact on the overall position presented for the sector, if necessary, figures will be updated in future publications.

Summary

Liquidity

Total agreed facilities increased in the quarter – Refinancing reduces after a period of high activity - Aggregate liquidity remains strong

• £119.3 billion total facilities in place at the end of June, up from £118.7 billion in March.
• New finance of £1.9 billion agreed in the quarter; the lowest amount in three years. 70% of new facilities were from capital markets.
• Loan repayments of £0.7 billion made during the quarter, compared to an average of £1.5 billion per quarter during 2021/22.
• Total cash and undrawn facilities total £35.8 billion; sufficient to cover forecast expenditure on interest costs (£3.4 billion), loan repayments (£2.2 billion) and net development (£16.4 billion) for the next year.
• Large reduction in mark-to-market exposure on derivatives, down to £0.9 billion, following a sharp increase in swap rates. This is the highest level that swap rates have reached in over six years, and the lowest MTM exposure ever reported.

Performance in the quarter

Cash interest cover reduces in the quarter before a forecast recovery - Capitalised major repairs below forecast but high for Q1 – Income collection indicators remain robust

• £503 million capitalised major repairs expenditure in the quarter; 33% below forecast, but the highest quarter one spend ever recorded.
• New disclosures added to the Quarterly Survey form for 2022/23 show expenditure on non-capital repairs and maintenance amounts to £0.9 billion during the quarter. This brings total repairs and maintenance spend in the quarter to £1.4 billion.
• 56% of providers experience delays to repairs and maintenance programmes during the quarter, with material and labour shortages continuing to have an impact.
• Adverse working capital movements reduce cash interest cover (excluding current asset sales) in the quarter. Interest cover over the 12 months to June 2022 was 124%.
• Forecast interest cover (excluding current asset sales) is 98% over the next 12 months as projected spend on capitalised repairs and maintenance increases.
• Interest payable forecast to increase by £0.2 billion (7%) over the coming year compared to actual costs over the previous 12 months.
• Income collection indicators consistent with previous performance and seasonal trends. Void losses remain above long-term averages.

Investment in new and existing stock

Development expenditure is below both Q4 outturn and the committed amount included in forecasts.

12-month development and major repairs spend forecasts remain high as delayed works are reprofiled into future periods.

• Capitalised repairs and maintenance expenditure was £2.3 billion in the 12 months to June 2022. Expenditure forecast to reach £3.3 billion over the next 12 months.
• £2.9 billion was invested in new housing properties in the quarter; 2% less than the previous quarter and 14% below forecast for contractually committed schemes.
• Forecast spend to reach £18.2 billion over the next 12 months, of which £11.7 billion is committed.
• Providers continue to report development delays due to on-going supply chain issues leading to labour and material shortages, along with planning delays and slower land acquisitions.
• AHO unit completions 13% lower than the previous quarter, and market sale units also behind with 6% fewer completions.
• 18-month pipeline for AHO units stands at 38,595 units and 9,677 units for market sales.

Sales

AHO unit sales below completions, leading to higher unsold units. However, unit sales for market sale were slightly above completions, resulting in a decrease in unsold units in the quarter. Sales are above the quarterly 12-month average before the pandemic.

• AHO sales total 3,759 units (March: 4,236), and market sales total 1,495 units (March: 1,316). Total unsold AHO units increase by 4%, whereas market sale reduced by 1%.
• 10% increase in AHO units unsold for more than six months, and a 4% reduction in market sale units unsold for over six months.
• Margin on AHO sales were 20.3% in the quarter to June 2022, compared to an average of 19.8% over the last three years. For market sale, a margin of 12.7% was achieved in the quarter compared to the three-year average of 16.1%.
• Total asset sales of £1.7 billion achieved. Current asset sales of £1.0 billion were 26% below forecast, and fixed asset sales of £0.7 billion were 23% above forecast.
• Changes were made to the Quarterly Survey form for 2022/23, separating fixed asset tenants/open market sales from other sales (bulk disposals) for the first time this quarter. Sales to tenants were £0.5 billion, and bulk sales were £0.2 billion.
• Fixed asset sale forecasts continue to increase; a total of £3.7 billion worth of sales forecast for the next 12 months, including £2.0 billion bulk sales.

Operating environment

6 - Inflationary pressures and economic uncertainty continue to impact the housing sector. Global growth forecasts have reduced following increases in energy prices, production delays, shortages of certain commodities, and rising inflation.

7 - For the UK, the International Monetary Fund has revised its annual gross domestic product growth forecast for 2022 once again, down by 0.4 percentage points, from the 3.7% forecast in April 2022 to 3.2%^{[footnote 1]}. This compares to the 4.7% projected at the start of the year^{[footnote 2]}. Forecast GDP growth in 2023 has been revised downwards from 2.3% in January 2022 to 0.5%.

8 - Reported GDP fell by 0.2% in April, after a decline of 0.1% in March, the first time the economy has contracted for two consecutive months since the pandemic began. Over the quarter there was an overall decrease in GDP of 0.1%.

9 - Following on from an increase in interest rates in May to 1.00%, the Bank of England further increased the base rate to 1.25% on 16 June^{[footnote 3]} and again to 1.75% on 4 August. This is the sixth consecutive rise since December 2021, when rates were at historical lows of 0.1%. Interest rates are at their highest level in 13 years and the increase is the biggest jump in 27 years^{[footnote 4]}. The Bank of England expects the economy to shrink in the fourth quarter of this year and enter a recession^{[footnote 5]}.

10 - Overall inflation, as measured by the Consumer Prices Index, increased to 9.4% in the 12 months to June 2022, up from 9.1% in May^{[footnote 6]}. This is the highest 12-month rate recorded since March 1992, when CPI was 7.1%, and the 9th consecutive 12-monthly increase. The Bank of England is forecasting inflation to reach around 13% in the final three months of this year^{[footnote 7]}, and remain at elevated levels throughout much of 2023, before falling to the 2% target. This is mainly due to gas prices more than doubling since May, higher prices for importing goods, and businesses facing pressures on selling prices and wages.

11 - Construction output grew by 2.3% in the quarter to June 2022, despite the decrease of 1.4% in the month. This is the first monthly decrease since October 2021 following seven consecutive months of growth and is driven by falls in both new work and repairs and maintenance works (2.0% and 0.2% respectively). At the end of June, total output was 2.9% higher than February 2020 (pre-pandemic) levels; repairs and maintenance works being 12.6% higher, although new works remaining 2.2% below the levels recorded at that date^{[footnote 8]}.

12 - Construction output prices grew by 9.6% in the year to June 2022; the largest annual increase since records began in 2014. New housing works experienced the greatest annual growth in prices, rising by 12.3%, whilst repairs and maintenance prices increased by 6.9% over the 12-month period^{[footnote 9]}.

13 - England house prices grew by 7.3% in the year to June 2022, down from 13.0% in May 2022, with the average house price reaching £304,867^{[footnote 10]}. The largest annual increase was recorded in the East of England (9.7%), and the smallest was in the North East (3.6%).

14 - The unemployment rate for the quarter to June 2022 increased by 0.1 percentage points to 3.8%^{[footnote 11]}. The number of job vacancies in May to July 2022 was 1,274,000; a decrease from the previous quarter and first quarterly fall since June to August 2020. Estimates of the number of payrolled employees in June 2022 stood at 29.6 million, a 3% rise compared with the same period of the previous year^{[footnote 12]}. The total number of people on Universal Credit in England as of June 2022 was around 4.9 million, compared to 5.1 million in June 2021, a decrease of 4%^{[footnote 13]}. The region with the highest number of claimants was London (0.9 million), whilst the lowest number was in the North East (0.3 million).

15 - In response to the exceptional inflation levels currently being experienced, the government has launched a consultation on social housing rents, alongside a proposed draft Direction on the Rent Standard^{[footnote 14]}. The current cap is set at CPI+1%, which is expected to be around 11% in total for 2023-24. The new Direction proposes the introduction of a 5% ‘ceiling’ on annual rent increases from 1 April 2023 to 31 March 2024. Registered Providers would be permitted to increase rents by up to CPI+1% or by 5%, whichever is lower, and this would apply to both Social Rent and Affordable Rent homes. The consultation welcomes views on alternate ceiling options (including a 3% and 7% ceiling) and closes on 12 October 2022.

16 - Providers need to remain alert and ready to respond to further changes in the operating and economic environment. They will need to ensure that risks are monitored, including increasing interest rates, the rising pressures on repairs and build costs, and changes to the market affecting the supply of labour and materials. Increasing energy costs and wider inflationary pressures impacting the cost-of-living burden on tenants will need to be understood, and forecasts closely monitored and updated. Given these trends, and uncertainties over rents, providers will need to ensure that contingency plans and mitigations are robust.

1. World Economic Outlook Update, July 2022: Gloomy and More Uncertain (imf.org) ↩

2. World Economic Outlook Update, January 2022: Rising Caseloads, A Disrupted Recovery, and Higher Inflation (imf.org) ↩

3. Bank Rate increased to 1.25% - June 2022, Bank of England ↩

4. UK interest rates see biggest rise in 27 years, BBC News ↩

5. Monetary Policy Report - August 2022, Bank of England ↩

6. Consumer price inflation, UK - Office for National Statistics ↩

7. Monetary Policy Report - August 2022, Bank of England ↩

8. Construction output in Great Britain: June 2022, new orders and Construction Output Price Indices - Office for National Statistics ↩

9. Construction output price indices - Office for National Statistics ↩

10. UK House Price Index summary: June 2022 - GOV.UK (www.gov.uk) ↩

11. Labour market overview, UK - Office for National Statistics (ons.gov.uk) ↩

12. Earnings and employment from Pay As You Earn Real Time Information, UK - Office for National Statistics (ons.gov.uk) ↩

13. Total number of people on Universal Credit in England, LG Inform (local.gov.uk) ↩

14. Social housing rents - GOV.UK (www.gov.uk) ↩