Anthony Marriot

Following the recent publication of Peabody's Annual Report, Anthony Marriott, Head of Treasury, talks about the complexities of social housing finance.

Published: 04/08/2020

Peabody published its annual financial statements last week. We were pleased to report an annual operating surplus of £122m in the year while spending an additional £426m on new and existing homes. £313m of that was on building new homes, with over 40% of our programme delivering new social rented homes.

Sometimes I am asked how that works. How is it a surplus if you are spending more than that?

Well, it’s important to note that surplus is not cash or cashflow. It doesn’t provide extra cash at the end of the financial year that we can go out and spend, but it does allow us to borrow to invest.

To properly understand the complexities of social housing finance, and how we are able to fund new homes and important works, you have to look beyond surplus and look at costs and income over time.

Social rented housing is a vital part of what Peabody does.  The social and economic benefits of low rents are huge, but public investment – government money – only covers a small proportion of the funding necessary to build and manage each home.  We are deeply committed to building desperately needed new social housing, so we need to borrow and raise the funds ourselves to pay for it.

The payback from a market sale property is as soon as you sell it, but that is still probably up to 3-years after you’ve started building and assuming a reasonably buoyant property market.

Even with cross-subsidy from market sale properties, the payback on a social rented home for Peabody is at least 60 years – since Peabody rents are on average £117 per week.

That 60 year funding gap has to be funded alongside the ongoing management and maintenance costs once the home is completed. This is funded by borrowing from banks and others, which is supplemented by the cross-subsidy model. This is where you take the proceeds from the sale of market properties and use them to partially plug the social housing funding gap.

To keep doing this we need to borrow and we obviously need a strong housing market to generate the money to reinvest. The model means that each new social rented home is built and managed at a financial loss, but without our continuing commitment to making it possible, there would be very little new social rented housing at all.

This underlies the dynamics within Peabody’s funding portfolio.

  • The short-term borrowing to fund properties for sale;
  • The long-term borrowing to part fund social rented homes.

This is why we borrow, and why surpluses are needed.

Currently, both short and long-term borrowing are about as cheap as they’ve ever been, but the economic conditions and the uncertainties around the housing sector (Covid-19, Brexit, safety improvements, environmental improvements) mean that flexibility in funding is more important than ever. The ability to turn borrowing on or off in line with development activity will be important over the next 3-5 years.

Delivering new social rented housing is a huge financial challenge, but Peabody will continue to do as much as we possibly can in the years to come.

Anthony Marriott is Head of Treasury at Peabody

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