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Housing

Special report: pre-tax surplus increases for first time in three years

By 03/11/2021No Comments

Analysis by Social Housing has found that total pre-tax surplus at Britain’s largest housing associations stood at £3.8bn in 2020, up 0.3 per cent. Chloe Stothart and Robyn Wilson report

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Analysis by Social Housing has found that total pre-tax surplus at Britain’s largest housing associations stood at £3.8bn in 2020, up 0.3 per cent. Chloe Stothart and Robyn Wilson report #UKhousing #SocialHousingFinance


Pre-tax surplus for Britain’s largest housing associations (HAs) has increased for the first time in three years, according to their 2020 financial accounts.

Analysis by Social Housing shows that total surplus for the year before tax stood at £3.8bn, which was up, albeit marginally at 0.3 per cent, with the regulators across all three countries describing the sector as operating from a “robust financial base”.

England, with the largest number of social housing units at 2.8 million (up 1.3 per cent), drove the pre-tax increase, after seeing a rise of 1.1 per cent to £3.5bn.



Although Wales saw a more significant year-on-year change, with a 70.6 per cent decrease, it has far fewer units (166,439).

England is represented by HAs with 1,000 units or more (accounting for more than 95 per cent of the sector’s stock).

Wales is represented by the 34 largest HAs. The data covers the year up to the end of March 2020, with COVID-19 restrictions having only just been introduced and therefore having a limited impact on organisations’ accounts.

Total housing units across Britain were up 1.4 per cent to 3,237.

Total turnover was up 2.2 per cent to £24.1bn, while operating surplus decreased by 7.4 per cent to £5.3bn. Finance and capital reserves were up eight per cent to £60.9bn, with long-term loans up nearly seven per cent to £87.1bn.

England

This accounting period was the final year of the one per cent rent reductions on general needs social housing stock. As of April 2020, social housing rent increases are limited to the Consumer Price Index plus one per cent for five years.

Figures show that turnover was up two per cent for the year for England’s largest HAs to £21.2bn, and that operating costs were up by five per cent to £13.9bn.

Surplus on sales of assets was up 20 per cent to £1.1bn. This was largely made up of ‘other sales’, totalling £493m. Right to Buy/Right to Acquire sales surplus totalled £274m, while shared ownership staircasing totalled £283m.

In its 2020 global accounts, England’s Regulator of Social Housing (RSH) said that despite the challenging environment in the period following the 2020 accounts, the sector remained “viable and liquidity-robust”.

England, Scotland and Wales housing association global accounts 2019/20 summary

Total GB Change on year (%) England Change on year (%) Scotland Change on year (%) Wales Change on year (%)

Social housing (number of units, ’000s)

3,237 1.4 2,768 1.3 303 2 166 1

Comprehensive income

£m

£m

£m

£m

Turnover

24,092 2.2 21,233 1.8 1,793 5.2 1,066 6

Operating costs

-16,181 5.4 -13,874 5.4 -1,429 4.2 -878 7.5

of which depreciation

-2,777 3.9 -2,300 4.5 -338 -0.7 -139 4.5

Operating surplus

5,283 -7.4 4,703 -9.8 392 31.3 188 -0.5

Surplus on sales of assets

1,078 20 1,050 -20.4 2 245.6 26 4

Interest payable and similar charges

-3,587 1.3 -3,263 0.8 -194 10.9 -130 2.4

Surplus for the year before tax

3,771 0.3 3,495 1.1 251 15.2 25 -70.6

Financial position

Net book value

181,197 6.4 160,304 7.3 13,678 7.5 7,215 6.3

Long-term loans

87,128 6.9 79,485 6.7 4,593 9.4 3,050 9.2

Capital grant

46,949 3.6 37,652 2.9 5,847 6.7 3,451 6.2

Total finance and capital reserves

60,884 8 55,723 7.4 3,909 18.8 1,251 7

Notes: 1) Some items of income and expenditure are not identified separately in the above table. These include exceptional items, Gift Aid, interest receivable, cost of sales, pensions, movements in fair value of financial instruments and ‘other’ items. However these items are included in the calculation of the surpluses

2) England represented by registered providers with more than 1,000 units; Wales represented by 34 largest housing associations

Source: Global accounts 2019/20, published by regulatory agencies in England, Scotland and Wales

The majority of costs came from depreciation (£2.3bn), management (£3bn) and maintenance (£3.2bn). Management costs per unit totalled £1,068, while maintenance totalled £1,162.

Service costs made up £1.8bn, with major repairs accounting for a smaller (but still significant) £500m. Total fixed assets totalled £171.9bn (up six per cent).

The RSH said that the rise in maintenance, repairs and service costs was partially attributable to building safety spend and health and safety compliance costs. Total reserves were up seven per cent to £55.7bn, with long-term loans up seven per cent to £79.5bn.

The RSH said that providers are primarily debt-funded and that they fix interest rates (for more than one year) on over 75 per cent of all borrowing.

Surplus from fixed asset sales: England

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Click on image to expand

The regulator added that the increase seen in debt was a sign of the sector’s commitment to investment in new supply.

Its figures showed that new supply investment increased by 13 per cent to £13.7bn, which was driven by an increase in spend on new social housing properties for rent. The sector developed 49,000 social homes in 2020 – 4,000 more than in the previous year.

The investment was funded by operating surpluses, debt and grant funding, it said. Debt increased by £6.2bn in the year to £83.1bn.

“The sector remains committed to future growth, raising £10.4bn of new facilities from banks and capital markets. In total, the sector had access to £28.1bn of undrawn debt facilities and cash at March 2020.

“The sector had future capital commitments of £36.8bn (a 12 per cent increase on 2019), of which £19.4bn had been contracted,” it said.

Turnover, operating costs and number of units: England

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Click on image to expand

Scotland

Scottish HAs appeared to be in a strong financial position for the period, reporting a 15.2 per cent increase in pre-tax surplus to £251m, with turnover also up 5.2 per cent to £1.8bn. Their total number of units increased 2.2 per cent to 302,510.

The Scottish Housing Regulator (SHR) said providers entered the pandemic in a strong financial position, adding that they are likely to face “considerable challenges in the future in managing their resources to ensure their financial well-being, while maintaining rents at a level that tenants can afford to pay”.

It added: “The medium-term outlook for social landlords, society in general, and the wider economic environment, remains uncertain and as we look towards the transition out of lockdown, RSLs [registered social landlords] will have to manage increased challenges in relation to service delivery and investment in new and current homes at a time when tenants and service users may be facing increasing financial hardship.”

England global accounts 2019/20: nine-year summary

Total

19/20

Change

on year

Total

18/19

Total

17/18

Total

16/17

Total

15/16

Total

14/15

Total

13/14

Total

12/13

Total 11/12

Social housing units (’000s)

2,768 1.3 2,733 2,712 2,761 2,734 2,640 2,624 2,613 2,551

Comprehensive income

£m

£m

£m

£m

£m

£m

£m

£m

Turnover

21,233 1.8 20,860 20,459 20,000 20,000 18,600 15,634 14,860 13,751

Operating costs

-13,874 5.4 -13,162 -12,610 -12,100 -12,500 -11,900 -10,606 -10,147 -9,846

of which*:

depreciation*

-2,300 4.5 -2,200 -2,200 -2,100 -2,000 -1,900 -1,452 -1,347 -1,235

impairment*

0 0 0 0 0 -100 0 -34 -50 -16

management costs*

-3,000 3.4 -2,900 -2,800 -2,600 -2,800 -2,700 -2,612 -2,488 -2,317

service costs

-1,800 5.9 -1,700 -1,600 -1,500 -1,500 -1,400 -1,365 -1,302 -1,175

maintenance*

-3,200 3.2 -3,100 -2,700 -2,700 -2,700 -2,700 -2,678 -2,593 -2,497

major repairs*

-500 0 -500 -500 -500 -500 -600 -576 -572 -593

Cost of sales

-2,656 7.1 -2,481 -2,205 -1,900 -1,900 -1,600 -848 -852 -672

Operating surplus

4,703 -9.8 5,216 5,644 5,900 5,500 5,100 4,139 3,849 3,220

Surplus on sales of assets

1,050 20.4 872 932 783 700 600 630 466 516

Interest receivable

172 39.8 123 104 100 100 100 217 182 171

Interest payable

-3,263 0.8 -3,238 -3,175 -3,500 -3,000 -3,000 -2,638 -2,522 -2,355

Movement in fair value of financial instruments

-112 -8333 1 -15 300 -100 -500 n/a n/a n/a

Movement in valuation of housing properties

-11 51.7 -23 -5 -8 -100 0 n/a n/a n/a

Surplus before tax

3,495 1.1 3,457 3,700 4,100 3,400 2,600 2,362 1,946 1,775

Unrealised surplus/deficit on revaluation of housing properties

83 -10.3 92 0 0 -400 100 n/a n/a n/a

Actuarial loss/gain on pension schemes

1,101 390.5 -379 323 -500 400 -600 n/a n/a n/a

Change in fair value of hedged instruments

-280 -419.3 -54 374 100 0 -900 n/a n/a n/a

Comprehensive income for the period

4,417 65.2 2,673 4,411 3,700 3,400 1,100 n/a n/a n/a

Note: * ‘of which’ figures reflect social housing lettings only

Financial position

Housing at cost

157,967 6.2 148,737 142,356 137,475 101,800 n/a 106,851 105,090 98,075

Housing at valuation

2,337 15 2,033 2,666 2,047 2,500 n/a 24,105 20,886 20,488

Housing at deemed cost

n/a n/a n/a n/a n/a 40,900 n/a n/a n/a n/a

Gross book value

182,900 7.6 171,500 164,100 156,600 148,600 na 130,956 125,976 118,563

Social Housing Grant

n/a n/a n/a n/a n/a n/a n/a -41,984 -43,059 -41,616

Other capital grants

n/a n/a n/a n/a n/a n/a n/a -2,367 -2,348 -2,214

Depreciation and impairment**

-22,600 9.7 -20,800 -19,100 -17,300 -15,600 * -8,427 -7,781 -6,783

Net book value

-160,304 7.3 150,770 145,022 133,000 134,800 131,100 78,179 72,788 67,950

Total fixed assets

171,921 6.1 162,000 155,400 148,000 143,200 139,000 81,958 76,357 71,150

Current assets

18,882 4.9 18,000 16,300 15,597 14,300 13,200 11,063 10,184 9,119

Current liabilities

9,322 16.5 -8,000 -7,600 6,900 -6,800 -5,900 -5,037 -6,488 -6,388

– deferred capital grant

457 14.2 400 400 400 -300 -300 n/a n/a n/a

Pension liability

-5 -4.3 5 73 n/a n/a n/a -724 -963 -688

Total assets less current liabilities

-181,421 5.5 171,900 164,100 -157,500 150,700 146,300 87,261 79,090 73,193

Long-term loans

79,485 6.7 74,500 70,200 67,600 64,400 63,300 50,707 51,215 47,869

Group undertakings

367 0 0 0 0 0 0 6,119

Finance lease obligations

659 9.9 600 600 400 400 300 130

Deferred capital grant

37,652 2.9 36,600 35,700 34,900 35,100 35,300 n/a n/a n/a

Other creditors and provisions

7,199 -13.3 8,300 8,200 9,300 8,900 9,000 2,867 4,556 4,665

– of which pension provision

2,059 -33.6 3,100 1,900 2,200 1,900 2,200 n/a n/a n/a

Reserves

55,723 7.4 51,900 49,500 45,200 41,800 38,500 27,436 23,319 20,658

Growth and debt-servicing ratios

Growth in turnover

2 2% 2% 0% +7.5% n/a +5.2% +8.1% +8.7%

Operating margin

22 25% 28% 30% 27.6% 27.4% 26.5% 25.9% 23.4%

Net margin

16 17% 18% 20% 16.7% 13.8% 15.1% 13.1% 12.9%

Debt servicing ability

Debt per unit

29,987

£28,138

£26,738

£25,871

£24,397

£23,951

£22,474

£21,313

£20,400

Effective interest rate

4

4.7%

4.8%

5%

4.9%

5.0%

4.7%

4.8%

4.8%

EBITDA MRI interest cover

138

153.0%

174.0%

170.0%

174.0%

153.0%

153.7%

138.0%

115.7%

Gearing

52

51.0%

50.0%

50.0%

50.0%

49.2%

96.2%

92.9%

92.2%

Operating ratios

Management cost per unit

1,068

£1,045

£1,016

£940

£1,080

£1,010

£996

£952

£908

Maintenance cost per unit

1,162

£1,104

£1,028

£990

£1,010

£1,030

£1,021

£992

£979

Note: Global accounts represent RPs larger than 1,000 units. Figures before 2014/15 calculated under FRS 102, figures from 2014/15 onwards under UK GAAP. Some FRS 102 and UK GAAP (including gearing) are not comparable. n/a = not applicable under relevant accounting standard, n/s = not stated. * = no FRS 102 figure available. ** = depreciation only up to and including 2014

Source: RSH, 2012-20 global accounts of housing providers; TSA, 2011 global accounts of housing associations; Housing Corporation global accounts

Operating costs for the sector were up 4.2 per cent to £1.4bn. In its analysis, the SHR said there had been an “upward trend” in affordable lettings costs, with a “marked stability” in the cost of other activities.

It said that it had also seen a “relatively large” 12.1 per cent increase in planned and cyclical maintenance revenue spend.

Unit management and maintenance costs increased 2.7 per cent to £2,455 per unit, according to the SHR.

Total reserves increased by 18.8 per cent to £3.9bn, while long-term loans were up 9.4 per cent to £4.6bn. Total assets less current liabilities were up 8.1 per cent to £14.3bn.

The SHR said lending and investor demand for RSL debt remains high “despite the additional challenges caused by COVID-19”. It added that maintaining lender and investor appetite will be essential if providers want to maintain or increase levels of capital investment and new development.

Scotland global accounts 2019/20: nine-year summary

Total

19/20

Change

on year (%)

Total 18/19

Total

17/18

Total

16/17

Total 15/16

Total

14/15

Total

13/14

Total

12/13

Total 11/12

Total units

302,510

2.2

296,021

293,777

289,638

289,620

287,038

285,181

282,966

282,514

Comprehensive income
statement

£m

Turnover

1,793

5.2

1,704

1,616

1,560

1,585.9

1,537

1,318.2

1,275.6

1,241.6

Operating costs

-1,429

4.2

-1,372

-1,296

-1,262

-1,282.7

-1,235

-1,103.2

-1,053.4

-1,026.3

Operating surplus

392

31.3

299

320

409

298

304

203.8

213.9

215.2

Surplus on sales of assets

2

245.6

-1

10 14 12 10 13.6 5.9 -14.6

Interest receivable and other income

10

56.4

6

7 9 10 16 9.6 9.5 45.0

Interest payable

-194

10.9

-175

-169 -167 -157 -160 -131.1 -125.4 -112.9

Movement in fair value of financial instruments

2

138.1

-4 7 3 10.2 -21 n/a n/a n/a

Movement in valuation of housing properties

16

293.3

-8 -6 -12 4.1 3.7 n/a n/a n/a

Pre-tax surplus

251

15.2

218 184 251 171 153 96.4 103.9 132.7

Unrealised surplus/deficit on
revaluation of housing properties

0 0.0 0 73 16 -9 -2 n/a n/a n/a

Actuarial loss/gain in respect of

pension schemes

156 272.9 -90 53.0 -42 52 41 n/a n/a n/a

Change in fair value of hedged
financial instruments

-1 -496.7 -0.14 2.7 -0.3 -0.1 -6 n/a n/a n/a

Total comprehensive income for the year

406 239.6 120 312 224 214 187 n/a n/a n/a

Statement of financial position

HAG

n/a

n/a

n/a

n/a

-7,257

-7,104

-6,919

Other capital grants

n/a

n/a

n/a

n/a

-286

-261

-236

Depreciation

-3,148

5.5

-2,985

-2,797

-2,465

-2,301

-2,187

-929

-838

-736

Net book value

13,678

7.5

12,718

11,970

11,321

10,826

10,504

4,858

4,404

4,023

Total fixed assets

14,051

7.7

13,044

12,331

11,656

11,147

10,805

5,132

4,623

4,569

Cash in hand

836 13.9 733 660 648 624.0 557.5 607 539 524

Other current assets

252 -0.1 252 238 249 221 235 402 519 272

Scottish housing grants under a year

-179 17.8 -185 -148 -126 -185 -268 n/a n/a n/a

Current liabilities

-830 4.1 -798 -748 -621 -646.5 -759.0 -444 -498 -429

Assets less current liabilities

14,309 8.1 13,232 12,481 11,931 11,345 10,838 5,698 5,184 4,936

Long-term loans

4,593 9.4 4,200 3,926 3,815 2,731 2,678 3,378 3,154 2,991

Reserves

3,909 18.8 3,291 3,166 2,851 2,612 2,397 1,950 1,619 1,469

Growth ratios

Growth in turnover

+5.2% +5.5% +3.6% -1.6% +3.2% +3.3% +2.7% +1.6%

Profitability ratios

Operating margin

21.9% 17.5% 19.8% 26.2% 18.8% 19.8% 15.5% 16.8% 17.3%

Net margin

14.0% 12.8% 11.4% 16.1% 10.8% 10.0% 7.3% 8.1% 10.7%

Debt servicing ability *

Debt per unit

15,771

14,960

£14,059.00

£13,638.00

£12,814.00

£12,530.00

£12,184

£11,697

£10,908

Interest cover

262

291

305

274

291.92

292.0%

101.2%

227.2%

226.6%

Gearing

129

112

109

116

118.23

126.3%

31.9%

20.2%

19.9%

Note: Figures from 2014/15 calculated under FRS 102, figures before 2014/15 under UK GAAP. Some FRS 102 and UK GAAP (including gearing) are not all directly comparable. n/a = not applicable under relevant accounting standard

Source: Scottish Housing Regulator; * = ratios before 2014/15 do not include intra-group finance

Wales

Turnover for Wales’ 34 HAs, which are categorised as traditional or large-scale voluntary transfer organisations (LSVTs), increased by six per cent to £1.1bn. Operating costs of £878m resulted in an operating surplus of £188m, which was down 0.5 per cent.

Operating surplus was reduced to a pre-tax surplus of £25m for the period (which was down 70.6 per cent on the previous period), largely due to a 2.4 per cent increase in interest payable, totalling £130m.

Wales global accounts 2019/20: eight-year summary

Traditional

19/20

LSVT

19/20

Total

19/20

Change

on year (%)

Total 18/19

Total

17/18

Total 16/17

Total
15/16

Total
14/15

Total
13/14

Total
12/13

Number of units owned and managed

General needs

74,887

66,705

141,592

1.2

139,979

138,001

137,349

134,539

133,730

131,141

130,638

Supported

6,069

1,518

7,587

1.2

7,500

7,353

6,967

6,545

6,293

7,925

8,893

Student accommodation

3,970

0

3,970

0.0

3,970

4,035

4,102

4,061

4,061

4,235

4,112

Other

3,970

256

4,226

10.8

3,815

4,119

3,115

3,153

3,131

13,318

9,458

Shared ownership

2,302

154

2,456

-16.8

2,951

2,907

2,610

2,632

2,076

na

na

Leasehold

2,361

4,247

6,608

0.0

6,606

6,568

6,493

6,678

6,580

na

na

Total units

93,559

72,880

166,439

1.0

164,821

162,983

160,636

157,608

155,871

156,619

153,101

Comprehensive income statement

£m

£m

£m

£m

£m

£m

£m

£m

£m

Turnover

682 384 1,066 6 1,006 954 908 905 855 784 736

Operating costs

-549 -329 -878 7.5 -817 -764 -715 -734 -698 -634 -582

Operating surplus

133 55 188 -0.5 189 190 193 171 166 150 154

Surplus on sales of assets

4 22 26 4 25 15 9 12 10 11 6

Interest receivable

8 1 9 0 9 7 8 7 8 10 9

Interest payable

-94 -37 -130 2.4 -127 -139 -120 -112 -105 -97 -85

Pension scheme net financing gain/loss

4 5 9 175 -12 0 -5 -5 -9 n/a n/a

Fair value movements increase/decrease

1 0 1 0 1 3 5 2 0 n/a n/a

Actuarial gain/loss on pension schemes**

51 12 64 197 -66 15 -32 4 -34 n/a n/a

Surplus for the year before tax

29 -5 25 -70.6 85 76 90 79 36 74 85

Statement of financial position

Capital grants

n/a

n/a n/a n/a n/a

-2,888

2,768

Depreciation

-821

-412

-1,233

+11.2%

-1,109

-993

-882

-760

-664

-357

-301

Net book value

5,813

1,402

7,215

+6.3%

6,786

6,393

6,078

5,703

5,370

2,658

2,360

Total fixed assets

6,142 1,453 7,595

+6.2%

7,154 6,756 6,425 6,014 5,676 2,773 2,515

Current assets

663 689 1,352 1 1,339 1,287 1,259 1,282 1,321 -443 367

Short-term loans

-114 -25 -139 17.8 -169 -162 -110 -121 -102 n/s n/s

Short-term capital grant

-46 -17 -63 14.9 -74 -113 -73 -68 -38 n/a n/a

Other current liabilities

-196 -108 -304 -9 -279 -264 -249 -269 -417 -251 -240

Total assets less current liabilities

6,449 1,992 8,441 5.9 7,972 7,504 7,252 6,838 6,580 2,965 2,641

Long-term loans

-2,397 -653 -3,050 -9.2 -2,793 -2,656 -2,594 -2,377 -2,225 2,112 1,883

Long-term capital grant

-3,067 -321 -3,388 -6.7 -3,176 -2,912 -2,787 -2,626 -2,521 n/a n/a

Pension liability

-71 -124 -195 24.1 -257 -157 -166 -128 -120 -26 -50

Total long-term creditors and provisions

-5,613 -1,577 -7,190 -205.7 -6,804 -6,185 -6,185 -5,834 -5,656 -2,159 -1,951

Net assets

836 415 1,251 7.0 1,169 1,155 1,067 1,004 924 807 690

Reserves

836 415 1,251 7.0 1,169 1,155 1,067 1,003 924 2,965 2,641

Growth ratios

Growth in turnover

+5.1%

6.0

+5.4%

+4.9%

+0.3%

+4.9%

+9.1%

+6.5%

+8.9%

Growth in operating costs

+7.5%

7.5

+6.9%

+6.2%

-2.6%

+5.3%

+8.6%

+8.9%

+10.0%

Growth in operation surplus

-0.3%

-0.5

+0.0%

+0.0%

+12.7%

+3.0%

+10.6%

-2.6%

+10.0%

Profitability ratios

Operating margin**

19.5%

14.3%

17.6%

-6.1

18.8%

19.9%

21.3%

18.9%

19.4%

19.1%

20.9%

Net margin**

4.3%

-1.3%

2.3%

-72.2

8.4%

8.0%

9.9%

8.7%

4.2%

9.4%

11.5%

Debt servicing ability

Long-term loans per unit**

-25,600

-9,000

-18,300

-8.3

£16,900

£16,300

£16,100

£15,100

£14,300

£13,500

£12,300

Gross interest cover***

155.0%

-2.5

159.0%

165.0%

172.0%

166.0%

158.0%

154.0%

189.6%

Operating ratios

Management cost per unit

1,320

2.8

1,284

£1,221

£1,181

£1,221

£1,307

£1,293

£1,110

Routine maintenance per unit

1,189

3.9

1,144

£1,108

£1,091

£1,087

£977

£1,369

£1,319

Notes: Compiled from the financial statements of the 34 largest housing associations measured by number of units owned and managed. n/a = not applicable under relevant accounting standard, n/s = not stated. *‘Other’ units include market rent, shared ownership, extra care. **Net margin, operating margin, and long-term loans per unit calculated by Social Housing. ***Interest cover 2019 to 2014 operating surplus/interest paid; 2013 to 2011 is SBIT/gross interest paid. Figures from 2014/15 calculated under FRS 102, figures before 2014/15 under UK GAAP

Source: ‘Financial Statements of Welsh Housing Associations’ 2012 to 2020, published by Community Housing Cymru

Community Housing Cymru (CHC) and the Welsh government (which co-produce the sector’s annual global accounts) said loan breakage costs of £77m and an actuarial gain of £9m in respect of pensions also impacted pre-tax surplus.

Despite this, CHC said the sector’s financial performance had shown “consistent progress” and was “well placed to continue investing in existing stock and deliver new supply”.

Total reserves were up seven per cent to £1.3bn, while long-term loans were up 9.2 per cent to £3.1bn.

CHC said that there had been “considerable activity” on loans during the period, which it surmised “should increase the capacity to build new homes in the future”.

Source

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