"Uncertainty relating to next year’s general election is inevitably compounding the current state of paralysis within the housing sector. Ambiguity over housing targets and the delayed publication of changes to the National Planning Policy Framework casts doubt on the support for the industry by the current government"
- Lindsay Garratt - Winckworth Sherwood
New regulatory frameworks
2024 will see many of the key provisions of the Social Housing (Regulation) Act 2023 kick in for RPs.
Matt Cowen, a Senior Associate in the Governance team explains: “This is a landmark moment for the social housing sector which will see a much greater focus on tenant issues which will now be ‘proactively regulated’ by the Regulator for Social Housing.
“For RPs, this means significant changes to the way they operate, where they allocate funds, the range of data they need to collect and the way that tenants are involved in decision-making structures. There is a lot for RPs to consider and the early part of 2024 really will be the last opportunity for RPs to prepare before they are subject to regulatory scrutiny from April 2024.
“As well as the introduction of a proactive consumer regime and a new set of consumer standards, the government will release the results of their consultations on Awaab’s Law and the professional qualifications that RPs’ employees will need to hold. RPs therefore need to be alive to whether further changes will be needed to their business.”
More planning uncertainty
Housing delivery declined dramatically in 2023 with unwelcome layers of complexity and bureaucracy in the planning system. Greater clarity is needed in 2024.
Lindsay Garratt, a Partner in the Planning team comments: “The Levelling Up and Regeneration Act (LURA) was designed to provide much-needed clarity and efficiency to the planning system, but various amendments during its passage through parliament have created unwelcome layers of complexity, bureaucracy and burden. Rising building safety standards and the introduction of new levies are slowing things down further.
“The current S106 and CIL regimes are by no means perfect but RPs are used to them and understand how they impact viability considerations. The proposed Infrastructure Levy presents a significant shift away from this. Despite the initial announcement in March, little detail as to how providers can prepare for this change has since followed. We hope that will emerge in 2024.
“Uncertainty relating to next year’s general election is inevitably compounding the current state of paralysis within the housing sector. Ambiguity over housing targets and the delayed publication of changes to the National Planning Policy Framework casts doubt on the support for the industry by the current government.
"In contrast, The Labour Party – currently enjoying a 21-point lead in some polls – has said it will recommit to targets and scrap plans for the Infrastructure Levy. With so much up in the air, providers can be forgiven for treading cautiously.”
Building safety’s long shadow
As expected, huge swaths of secondary legislation were published in 2023. Its immediate and unexpected effect was to create more, not less, uncertainty as RPs grappled with uncertain definitions, contradictions and lack of practical guidance.
Charis Beverton, a Partner in the Construction team explains why we can expect more of the same in 2024: “2024 will see the standard form construction suites, such as JCT, publish amendments to deal with Building Safety to assist the industry in fair contractual risk allocation. We will also start to see Building Safety Regulator Gateway 2 and 3 determinations. These will assist in understanding how to frame and particularise such applications and how much delay applications cause construction programmes.
“2024 will also be the year of building safety cases and building assessment certificates as the Regulator starts to call in buildings for assessment. We anticipate safety cases and certificates will start to become mandatory for insurance, sale and charging purposes throughout the year.
“The new year will also see determinations on Remediation Orders, more case law on Remediation Contribution Orders and, we predict, the first determination on the scope and extent of a Building Liability Order. The latter will have a profound effect on the industry, introducing a parent company guarantee by default and thereby, we think, preventing or hampering the dissolution of SPVs whose ‘lifespan’ would otherwise only have run to the end of making good defects or the last unit sale.
“All in all, building safety casts a long shadow and we anticipate its effects will continue to extend and surprise during 2024.”
For-profit RPs, new investors and investor-RP joint ventures will top 2024
The new year will see an increase in collaboration between for-profit and charitable RPs, particularly at the development stages. New investors and joint ventures will prove popular.
Ruby Giblin, a Partner in the Housing Finance team, adds: “Alternative funding models will continue to make an impact in 2024 whilst interest rates for traditional debt funding remain stubbornly high. Investors and stakeholders will increase activity through joint ventures, lease structures, management leases, taking equity stakes and entering into forward sale agreements. Successful models are already emerging, for example, M&G with its shared ownership fund and its tie-up with Hyde and other RPs. Others will follow.
“Investors not traditionally seen in the social housing market will show greater interest in this sector - and not just in shared ownership – and will look to see what suitable models will emerge.
“2024 is likely to continue to present challenges in the economy with a slow rate of growth, continued costs of retrofitting alongside construction and tenants’ consumer legislation. An injection of equity will provide a boost for the sector, provided it is carefully managed; and in this challenging environment traditional RPs going it alone might potentially struggle to pay their bills.”
The new year is expected to remain a challenging operating environment for RPs.
Finding opportunities will be essential.
Lucy Grimwood, a Partner in the Housing Finance team at Winckworth Sherwood, says: “The fundamental issue remains that there are currently far more things RPs need to spend money on - retrofit, building safety, consumer regulations, disrepair and staff training, to name but a few - than there is money to spend. Furthermore, the cost of that money remains far greater than in previous years with increased interest rates and inflation – hence the sector’s interest cover remains at an all-time low.
“Strong governance to ensure both a big picture understanding of the organisation and its competing priorities and obligations, together with comprehensive data to ensure specific details are available, will continue to be essential for all RPs. The Regulator will continue to expect RPs to firmly test business plans with robust stress testing, with real thought given to resolution recovery planning.
“Practical mitigations include a focus on flexibility. A rolling charging programme, finance terms with as much flexibility as possible and a hedging policy should all put RPs in a strong liquidity position so appropriate debt can be issued at short notice when market conditions are favourable.”
Social rents, homelessness… and a new government
2024 will see an increased focus on the delivery of social rented housing and on assistance in relieving homelessness.
Social Housing Partner, Charlotte Cook concludes: “The big question is whether there will be a change of government and with it a change in grant dynamics from home purchase products to those supporting rented stock. Would a new government create a renewed focus on the outlawing of s21 notices and enhanced protection for those in the private rental market?
“Whatever shape of government 2024 provides there will be an increased focus on professionalism as housing associations continue to address criticisms raised over the previous 12 months.”
