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| 2 minutes read

What the RSH’s VFM analysis does and doesn’t tell us

After three years of rent cuts to 2020, the Value for Money (VFM) analysis published yesterday by the Regulator of Social Housing (RSH) on the 2020 global accounts confirms how margins continue to tighten across the social housing sector. There are many illuminating points made by the VFM analysis but, even to a non-financially qualified layman like me, it also unearths the reasons why registered providers (RPs) perform very differently and why national benchmarking standards can only tell one part of the story. Here are my key takeaway points.

15% increased maintenance spend

One of the most reassuring statistics in the analysis in this post–Grenfell environment is the 15% increase over the last three years spent on capitalised major repairs, total repairs and maintenance costs. Half of the sector reported an increase in repairs and maintenance spend of greater than 5% during 2020, much of it attributable to building safety spend and health and safety compliance costs. Overall, this led to the 3.8% increase in the median headline social housing cost metric to £3,830 per home.

The impact of the rent reductions 

At the same time, with the impact of the rent reductions, operating margins from social housing lettings, fell to 23% and 26%, depending on the specific measure used. This has meant that the average return on capital employed (ROCE) fell from 3.8% to 3.4% over the year. All of this recognises the squeeze being placed on RPs, through rent reductions and increased costs, to maintain tenants’ homes and ensure they are homes where tenants are happy and proud to live.

All these pressures mean, with gross debt for the sector exceeding £80 billion for the first time, the EBITDA MRI interest cover has fallen by an average of 35% over the last three years. The squeeze is most definitely on.

Varying performances 

Of course, we all know that the differing financial performances for different RPs are based on a range of factors and this is reinforced by the analysis. Obviously, supported housing providers would have much higher costs per home, which extends to the category of those RPs with a significant proportion of housing for older people. Added to this is the maturing (and reducing) cohort of stock transfer RPs less than 12 years old who have materially higher reinvestment costs as they deliver their remaining stock transfer promises. Their operating margins, as a group, are therefore lower and this is to be expected.

It's geography, not size, that counts

However, it is interesting the analysis confirms there is no direct relationship between size and performance on the VFM metrics after controlling for other factors – there is no correlation whatsoever. However, the analysis notes that RPs with more than 30,000 homes now account for almost half (47%) of the sector’s total social housing when it was only just over one third (36%) in 2018 – and this is all down to merger activity. Why is this the case when there is no correlation between size and VFM performance?

Perhaps the answer lies in the major differences in the performance of RPs related to geography. The 64 RPs that operate in London and the North West, perhaps some of the most challenging urban areas in the country, have an operating margin of just 18.5%. This is compared with the 43 RPs operating across the South East and East of England which have an operating margin of 29.7%. It does undermine RPs comparing themselves with the sector’s average of 23.1% unless they are truly national. Interestingly, only in this latest VFM analysis has the RSH undertaken and published this regional analysis.

Is it any surprise that the RSH introduces its analysis by saying that, in a post-pandemic environment and with other competing pressures, RP boards will need to make some difficult and sensitive decisions in pursuit of their strategies?  

There is no direct relationship between size and performance on the VFM metrics after controlling for other factors.


housing, corporate governance, group structures, value for money, governance, social housing sector, housing providers