A housing provider hit with a downgrade by the Regulator of Social Housing (RSH) over rents has reported a profitable year with increases in revenue, operating surplus and stock through a boosted development programme.
Housing 21, which manages over 14,000 retirement living properties in more than 395 schemes across England, reported operating surplus of £35.8m, up from £32.9m in 2020 following increased property sales. Total revenue rose by £8.9m to £202m. However pre-tax surplus for the group was slightly down on 2020, at £17.2m compared with £18.1m in 2020, as a result of higher operating costs and sales costs during the year.
The results cover a financial year in which the provider was downgraded to compliant G2 by the Regulator of Social Housing (RSH) in June 2020, following the discovery that there was “an overcharge to tenants of approximately £3m”.
The provider said at the time that it had failed to apply the government-imposed four-year rent cut to service charge, leading to these being £2.8m higher than they otherwise would have been. It later pledged to convert 3,200 existing affordable rent properties to social rent at an annual cost of £2.5m a year, with the group’s chief executive describing the downgrade as a “wake-up call”.
In its annual report, published last week, the registered provider said that the overcharging had occurred as a result of changes to its rent-setting process following the inception of the government-mandated Rent Standard in 2012.
Housing 21’s chair Stephen Hughes and chief executive Bruce Moore said in the report: “The first issue was that re-let rents on extra care and retirement living properties should have been set at formula rents from the inception of the Rent Standard in 2012, not the prevailing rent.
“The second issue related to compliance with the Welfare Reform and Work Act that required registered supported housing providers to reduce gross affordable rents (including service charges) by one per cent for three years from 2017. However, Housing 21 had incorrectly applied the one per cent reduction to net rents and maintained a variable service charge to recover the cost of services agreed with residents.”
The board has pledged to credit this sum of the overpayment back to the service charge accounts of the schemes affected.
Despite the downgrade, it was a strong year financially for Housing 21 – raising £120m in bond financing and almost doubling sales receipts on the year before from £5.8m to £10.4m. These were generated by the sale of 79 first-tranche shared ownership properties, delivering profit of £2.2m.
Housing 21 said the bond proceeds, raised by tapping its 2047 bond, are expected to be used in the coming year, “with 875 units on site and expected to complete over the next few years and a further 1,476 properties in the development pipeline”.
The group secured an all-in rate of 2.19 per cent on the issuance, compared with the 3.29 per cent on the original bond in 2017-18. This preferential rate, the provider said, resulted in an additional £27.0m in the form of a loan premium which will be amortised over the life of the bond.
It takes the group’s net debt to £439.6m (excluding derivatives), from £426m the year before.
The group also managed to complete on 400 homes during the year, split between rented (208 properties) and shared ownership (192 properties), and acquired 73 properties from other registered providers. This made it the 36th-biggest builder in Inside Housing’s annual survey.
This takes the total properties managed up to 21,547, with 13,323 retirement living units, 6,126 extra care units and a mix of 2,098 properties through its public-private partnership and private finance initiative schemes.
Housing 21 said it expects to sell 439 properties in the next two years, but the board has approved a strategy to reduce the number of shared ownership properties to a maximum of 25 per cent.
The group said that limitations on the level of investments into its schemes during the year caused by the pandemic meant that repairs and maintenance costs were £2.0m lower and annual stock investment was £18.4m compared to an original budget of £30.0m. This, it said, helped to offset some of the higher costs incurred during the year, from increased staff sickness costs and more voids, and spend on personal protective equipment (PPE).
The provider said the number of voids had almost doubled as a result of the pandemic and a total of £4.1m – compared to £2.2m the year before – of rent and service charges were lost because of void properties. It added that £2.1m of additional contributions had been acquired from local authorities to help combat problems posed by the pandemic and ensure care workers had sufficient levels of PPE, as well as the ability to offer additional support to its residents.