Skip to content

Social Housing Speed Read – housing associations exposed to housing market fluctuations

In this week's Speed Read, we look at a recent report into the exposure of housing associations to risk caused by fluctuations in the housing market, and potential ways of minimising this risk.

The findings of the report

The report, prepared by Savills looks at fluctuations in the housing market and considers how these could have an effect on housing associations, as well as considering ways in which housing associations could ‘de-risk’.

According to statistics in the report, turnover from market sales for 192 of the country’s largest housing associations grew by 16% from 2017 to 2018, while non-social housing activity and shared ownership sales increased by 6.5% and 10% respectively. This would appear to suggest that housing associations are in a current state of good health.

However, the vast majority of the increase in turnover from sales (91%) came from the London market, which is the area of the country with the weakest housing market currently – London saw a fall in house prices of 0.6% in 2018 and a drop in sales numbers of 26% across the four years to February 2019. While housing associations are continuing to increase housebuilding volume, the slowdown in the housing market is spreading beyond the boundaries of London and the South East, which could put a greater range of associations under pressure.

In addition, Savills ran stress-testing analysis to explore the effects of falling sale prices on a hypothetical housing association, which included scenarios in which sale prices fell by 10% and 35%. In both cases cashflow and future homes capacity were reduced, with a reduction of 60% of the current 10-year development programme under the more severe scenario.

The report’s recommendations

Savills’ findings demonstrate that housing associations must have “robust mitigation options to cope with market fluctuations.” Robert Grundy, head of housing at Savills, has made clear that, while the more eye-catching figures in Savills’ stress-testing assume a large reduction in sale prices of 35%, “housing associations have never been more exposed to housing market risk” and they “need to ensure they understand the impact this increased exposure has on their business plans.”

The report notes that housing associations may, in the face of falling house prices, convert homes for sale into affordable rented tenures, but acknowledges that additional grant funding would be needed to compensate “for the loss of return on capital.” Government funding would mean that housing associations would be “less vulnerable to market fluctuations” and would ensure that builders of affordable housing would be able to continue operating even if the housing market as a whole was slowing down.


It is evident that, as part of the wider housing market, housing associations would be affected by a downturn just as private housebuilders would, although perhaps not to the same extent. However, according to John Butler, finance policy leader at the National Housing Federation, government cuts to social housing funding since 2010 have meant that housing associations have had to sell homes on the private market to cross-subsidise affordable housing which exposes them to greater risk. Butler insists that “cross-subsidy can’t deliver enough affordable housing” and so “it’s vital that the government invests in social housing.”

Paul Hackett, chair of the G15 group of London housing associations and chief executive of Optivo, backed this call for greater government investment, stating that the cross-subsidy model “is at full stretch and massively exposed to the market” and that “a new funding deal for affordable housing is now imperative” to ensure that housing associations continue to be able to build, especially during a market downturn.

Additionally, the issue of cross-subsidy was highlighted by the comments of Martin Hewes, of construction industry research firm Hewes Associates, who believes that the issue is simply that “lots of people…can’t afford to buy a home” and so further funding for construction of houses only goes so far if so much of the public lack the ability to buy them. This issue is exacerbated by the scheduled ending of the Help to Buy scheme in 2023 which, due to its involvement in 33% of the housing market, could result in a large downturn in both sales and construction.

Inspiration for potential solutions can be taken from a recent Welsh government Independent Review of Affordable Housing Supply in Wales. This report called for the introduction of grant partnerships, which it referred to as a “flexible, long-term, five-year affordable housing supply partnerships model” which would see funding distributed to affordable housing providers based on promises to deliver a target number of new affordable homes. The model would combine existing funding arrangements and would involve “the contribution of private finance and alternative finance models”. The key issue with implementing this proposal would be to ensure a ‘race to the bottom’ was avoided whereby providers promise to build as many homes for as little outlay as possible in order to secure funding.

Further proposals from the Welsh government report include allowing local authorities to access grant funding and encouraging them to partner with housing associations to unlock more housebuilding; and, corresponding with Savills’ comments in relation to converting homes to affordable rented tenures, the introduction of a five-year social rents policy with added flexibilities and emphasis on cost efficiency, which would make affordable renting a more attractive option to both landlords and tenants.

What’s next?

Housing associations should certainly take note of the findings of the report and the recommendations from Savills and the various sector leaders following its release. While there is no need for alarm at present housing associations should be reviewing their risk profiles, particularly their exposure to market risk, and the potential measures they might look to implement in order to mitigate.

If you have any questions on the above and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact John Murray or a member of our expert Social Housing Team.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.

Follow us on LinkedIn

Keep up to date with all the latest updates and insights from our expert team

Take me there

What we're thinking