Sector analysis
Detailed analysis of value for money across the social housing sector.
Applies to England
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Details
Contents
- Reinvestment
- New supply
- Operating margins from social housing lettings and Overall
- Social housing lettings % - overview
- Headline social housing cost per unit - overview
- Gearing and EBITDA MRI Interest Cover
- Return on capital employed
Reinvestment
Reinvestment in new and existing homes ranged from 4.3% of the value of the existing homes for the lowest quartile to 9.4% for the highest quartile.
Much of the variation will stem from providers’ characteristics as well as business decisions taken by Boards around their asset management strategies.
The nominal amount reinvested into existing homes increased by 29% to £2.8bn compared to 2022, while reinvestment into ‘development and other’ activity increased at a lower rate of 12% to £9.7bn in the year. This reflects providers’ continued priority of meeting home decency and sustainability targets.
The weighted average reinvestment into existing homes as a proportion of total asset values increased by 0.3 percentage points compared to the previous year. There was a similar pattern of reinvestment into ‘development and other’ activity which increased by 0.4 percentage points.
Overall, housing valuations* increased by 5% compared to the previous year.
Additional analysis on reinvestment per unit expenditure is set out in the Regional section of this report.
*Refers to average fixed asset valuation and not market valuation
Reinvestment breakdown (weighted average)
Reinvestment breakdown accessible data table
New supply
The number of new social homes delivered increased by 7% to 48,791 compared to the previous year’s outturn of 45,542 homes.
While the median new supply (social) as a proportion of existing social units owned fell slightly to 1.3%, it has remained relatively stable over the past three years.
The weighted average new supply (non-social) as a proportion of total existing units increased from 0.18% to 0.27% in the year. This was driven by a small number of providers and is likely due to the delayed delivery of new homes post the Covid-19 pandemic.
Some providers have revised their short-term development plans due to changes in economic conditions, as identified in section 5 of the Global Accounts.
New supply (social)
New supply (non-social)
New supply social and non-social 2021 - 2023 accessible data table
Operating margins from social housing lettings and Overall
The operating margin is an indication of profitability of operating assets before exceptional expenses.
The variation in performance between quartiles can be largely explained by measurable factors set out within the sub-sector section.
The median operating margin fell by 3.5 percentage points to 19.8% while the operating margin (Overall) which includes all business activities at a group level, also fell by 2.3 percentage points to 18.2% in the year to March 2023. This primarily reflects rising costs and lower than expected returns from some non-social housing activities which affects the operating margin overall.
Operating margin %
Median operating margin
Operating margin (Overall) %
Median operating margin (Overall)
Operating margins from social housing lettings and Overall accessible data table
Social housing lettings % - overview
Social housing lettings remains a core activity for most private registered providers. Around 73% of total sector turnover is generated through SHL activity.
Turnover derived from SHL increased by £1.1bn (7%) to £17.6bn compared to previous years. However, the net impact of operating costs, which increased by 12% to £13.8bn had a significant bearing on the sectors’ SHL operating margin.
The operating margin from SHL activity (weighted average), fell by 4 percentage points to 21.3% in the year.
Note: Operating cost SHL = SHL turnover – Surplus on SHL
SHL turnover, operating cost, and operating margin trend to 2023
SHL turnover, operating cost, and operating margin trend to 2023 accessible data table
Headline social housing cost per unit - overview
The median headline cost per unit increased by 14% to £4,586 in the year. The increase reflects high inflation which rose to 10.1% in the period to March 2023 as well as supply chain pressures.
The weighted average increase in maintenance and major repairs was 18% in the year. Since 2021, more than 70% of the increase in HSHC relates to maintenance and major repairs. This demonstrates the sector’s continued focus on the quality and safety of homes.
There was also a marked increase in service costs of 13% to £800 per unit - now at their highest level and likely affected by increased energy costs. The overall increase since 2021 was just over 17%.
Management costs per unit increased by 9% to £1,201 per unit as efforts continue to back-fill vacant posts or posts filled by temporary staff.
The weighted average headline cost per unit of £5,300 is higher than the median due to a small number of specialist providers with very high costs.
Note - HSHC is a proxy cash measure of a social housing unit cost defined by the Regulator.
Headline social housing cost per unit (weighted average) by expenditure component
Headline social housing cost per unit by expenditure component 2021 - 2023 accessible data table
Gearing and EBITDA MRI Interest Cover
The VFM gearing metric, which is measured net of cash, indicates the degree of dependence on debt finance.
The median rate of gearing has remained relatively stable over the past three years and increased slightly to 45% in the year to March 2023. There continues to be a large variance across quartiles, broadly reflecting providers’ risk appetite. Providers in the lower quartile include organisations who provide specialist services – they are likely to have lower operating margin and are unlikely to have capacity to service new debt.
The EBITDA MRI metric is a key indicator of the sector’s ability to cover ongoing finance costs from its operating activities.
The median EBITDA MRI Interest Cover deteriorated by 54 percentage points to 128% compared to 2021 - its lowest level since emerging from the financial recession in 2010. This reflects the general economic and political backdrop seen over the past couple of years.
Gearing %
Gearing (median) %
EBITDA MRI Interest Cover %
EBITDA MRI Interest Cover % (median)
Gearing and EBITDA MRI Interest Cover accessible data table
Return on capital employed
The return on capital employed measures the amount of pre-tax surplus an organisation can generate from the capital employed in its business. It is a measure of efficient investment of capital.
ROCE fell by 0.3 percentage points to 2.8% in the year.
While the return from joint venture activity increased by 10%, the downturn in ROCE is attributed to the overall decline in operating surplus (including fixed asset disposals) of 7% combined with an increase in net assets (the denominator of the ROCE metric) of 3%.
Return on capital employed % (median)
Return on capital employed accessible data table