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Released today (9th May) at the Social Housing Finance Conference, real estate agents, Savills have warned the need for housing associations to identify mitigation strategies, with new research revealing that associations are more “vulnerable” to market fluctuations than ever before.

The amount housing associations generated from new open market home sales is said to have increased 16% (£221m) to £1.61bn between 2016/17 and 2017/18, with 37,000 homes for sale contractually committed to be built in the 18 months from December 2018.

Data from the Regulator of Social Housing shows that the housing association sector is currently continuing to sell market sale and affordable home ownership properties.

Although the number of unsold market homes has increased, this has closely tracked the rise in completions.

Key findings from the new Savills analysis of sales for the 192 largest housing associations include:

  • Turnover from market sales increased by 16% (£221m) to £1.61bn between 2016/17 and 2017/18, while non-social housing activities turnover increased by only 6.5%
  • First Tranche Shared Ownership Sales homes also carry market risk and sector turnover from this activity increased by 10% (£110m) to £1.22bn over the same period
  • The combined increase in turnover from sales and Shared Ownership across the sector was 13% (£334m) to £2.83bn. Over the same period overall turnover increased by 1.8%
  • Most of the increase in turnover from sales is in London-focused housing associations, accounting for £305m (91%) of the increase
  • Average house prices in London fell by 0.6% over 2018 and annual transaction numbers in London were down 26% over the four years to February 2019

As a result, Savills says in ‘Mitigating Market Risk’, housing associations need to identify mitigation strategies in the event they are “unable to sell” homes designated for sale.

Switching to affordable tenures has been identified as an option that allows homes to be quickly occupied as demand is much less exposed to housing market fluctuations.

However, Savills have revealed that this will likely require additional grant funding from the government to compensate housing associations for the loss of return on capital and to ensure they are able to continue building homes through a housing market downturn.

Robert Grundy, Head of Housing at Savills, said: “Housing associations have never been more exposed to housing market risk.

“What our research shows is that they need to ensure they understand the impact this increased exposure has on their business plans.

“It underlines the importance of having robust mitigation options available to cope with market fluctuations. Housing associations are well placed to flip homes for sale into affordable rented tenures but need compensating for the loss of return on capital.”

Chris Buckle, Director, Savills residential research, added: “Making grant funding available to facilitate this activity would bring several benefits.

“Housing associations would be less vulnerable to market fluctuations, making their business models more robust.

“Importantly, this would allow them to carry on increasing the number of much-needed affordable homes being built, even when the rest of the housing market is slowing and the support for sales through Help to Buy is scaled back from 2021.”