2022 Sector Outlook

Addressing the housing shortage while reducing its carbon footprint creates a dilemma for the sector

View our 2023 sector outlook for social housing

Dave Cassidy looks at how social housing providers will need to balance demand for affordable homes with growing pressure to meet sustainability objectives.

Despite the pandemic, 2021 was a very active year for funding of new social housing development and continued remediation works on the existing housing stock.

At Barclays alone, we lent more than £750m to the sector and were involved in around £4bn of public debt capital market issuance last year.

This significant lending and capital markets activity has been increasingly underpinned by environment, social and governance (ESG) considerations. More than ever, social housing providers need to meet stakeholder, investor and lender expectations around their sustainability performance and that of their supply chains and the organisations they partner with.

We had a record number of interactions with clients around ESG in 2021 and I believe this is going to become an even more important factor in social housing financing going forward.

The sector has been operating against an economic back drop of rising inflation, along with shortages of materials and labour, all of which have impacted on providers’ ability to deliver new homes and maintain existing properties. There’s also been the uncertainty around the housing market generally, with London in particular lagging behind the recovery elsewhere.

This situation seems likely to continue, at least during the early part of 2022, with post-Brexit supply chain issues and the pandemic still capable of generating headwinds, and the legacy of Grenfell continuing to ensure that ongoing maintenance and safety issues remain firmly in the spotlight.

Catch 2022?

I think the inherent dilemma facing the sector will really come to the fore in 2022 and beyond, given the UK’s ongoing chronic housing shortage, balanced against the already massive carbon footprint of the sector’s three million homes, accounting for around 65% of the affordable rental stock.

On the one hand, we still need to build around 340,000 new homes in the UK every year. On the other, the built environment is estimated to contribute approximately 40% of all carbon emissions worldwide.

Clearly, social housing providers need to think long and hard about how to reconcile their development aspirations for affordable homes to house some of the most vulnerable people in our communities, with their ESG targets as part of the UK’s drive towards net zero and a 70% reduction in emissions by 2035.

The road to net zero

I expect to see net zero carbon commitments – and associated spending – being factored into more and more housing associations’ business plans as a major priority.

Some providers will be seeking first-mover advantage by adopting and investing in emerging technologies like air source heat pumps or electric central heating boilers, and securing the necessary contracts to ensure they have sufficient, reliable supplies.

At the same time, we should start to get greater clarity on what net zero really means for the built environment in terms of public policy, whether that means stricter energy efficiency ratings requirements, new regulations about insulation and getting rid of old boilers, or driving and enforcing more capital intensive, longer-term solutions.

Furthermore, the government is now starting to allocate grants from its £9bn affordable housing programme, under the new Housing Minister, Michael Gove, who appears to understand the importance of both maintaining existing stock and building new affordable homes and shared ownership, and will hopefully be supportive of the sector. It will be interesting to see where this funding ends up being invested.

I think we’re also likely to see a growing trend towards development in regions outside London, in tune with the Government’s levelling up agenda. We’re already seeing some larger housing associations pivoting away from the capital towards the Midlands and North West and some selective and creative redevelopment of former office, retail or manufacturing sites.

Funding challenges

The challenges that many providers face in continuing on a growth trajectory to deliver more homes, while providing a high quality service and attracting the talent necessary to deliver those service, all now need to be viewed through an ESG lens.

Certainly, ESG factors are integral to our finance solutions, whether they be loans for specific sustainability initiatives or accessing the debt capital markets, and should be a priority consideration for housing associations when selecting any partner or supplier.

Through our Sustainable Impact Capital Programme we have £175m to invest over five years in scalable, environmentally-focused businesses that support the aims of the Paris Agreement and the zero carbon agenda, and help our clients achieve their ESG objectives.

As just one example, we’re working with SaveMoneyCutCarbon^, which provides an online platform that brings together products and specialist advice that can help make your operations more sustainable.

We’re here to offer advice to help providers achieve their ESG goals and ensure they have appropriate strategies and funding in place to deliver on them.

Please get in touch if you want to find out more.

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