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Social Housing Development: Takeaways from the Risk Sector Profile

For Regulated Providers of Social Housing (RPs), development will always carry it a degree of risk. This is, however, usually mitigated by careful management and effective governance. The Regulator of Social Housing (the Regulator) recently published a Sector Risk Profile 2021 (the Report) outlining the increased number of risks currently affecting the development process, many of which go beyond those previously acknowledged by the sector.

The Report identified how the construction sector is currently facing significant disruption due to both the pandemic and the UK leaving the Single Market. Additionally, the Report outlines how RPs are required to consider the additional requirements for new build homes brought about by the Fire Safety Act 2021 and Building Safety Bill, and how the newly established New Homes Ombudsman has increased the level of scrutiny and accountability applied to RPs in respect of new build properties.

An additional risk, not identified by the Report, is the impact that the various 'lockdowns' have had on the development process. During these periods many RPs fell behind with regard to cyclical repairing obligations. As such, some RPs have been required to prioritise repairing existing stock over new developments.

The overarching risk currently faced by an RP is that of a delay (or the collapse of the development project). While some RPs may have accounted for such factors via well drafted amendments to their development agreements, particularly to the JCT or NEC contracts entered 'post-COVID', the risk remains. Where a contract does not protect the developer against delays often the subsequent effect is the requirement to pay the contractor an additional sum of money. In the worst-case scenario the contractor may even have the right to walk away from the development, leaving the RP to consider the potential of a re-tendering process (it is worth noting that tender costs are expected to increase by as much as 5% year on year for the next three years).

The ever-changing legislative landscape may also create further issue for RPs. Not only do they need to ensure that their contractors adhere to the necessary requirements but also, with the current issues surrounding cladding in mind, plan accordingly to allow for changes to statutory requirements which may affect the stock over time.

A failure to complete a project on time would obviously have a financial implication on the RP. Additionally, a failure to satisfy statutory requirements could result in reputational damage. Ultimately the concern for the RP relating to failure of a development project would be the risk of a governance and viability downgrading by the Regulator.

RPs must therefore consider how they might adapt their development processes to ensure they meet any government lead targets affecting the sector while not impacting on the bottom line or the sector's legislative requirements.

RPs may choose to explore beyond traditional building practices and consider modern methods of construction (MMC). MMC is a wide term, embracing a range of offsite manufacturing and onsite techniques that provide alternatives to traditional house building. As such, MMC can mean anything from the adoption of lean construction techniques through to the prefabrication of individual components (such as wall units) or complete modular builds.

With most of the 'construction' completed off-site, projects adopting MMC techniques tend to be less affected by weather conditions and / or the availability of trades than traditional building practises might be. A modular home can be erected in as little as three days (as opposed to a traditional build taking up to 32 weeks). Whilst currently the cost per unit is slightly higher than traditional building methods, as such techniques are honed the cost of developing using MMC is likely to be reduced and could lead to a situation ultimately where RPs are able to meet their development targets at a reduced outlay.

The RP should also consider how the 'factory standard' processes applied to MMC techniques ensure that identical properties can be built which are specific requirements of the client and, most importantly, compliant with government legislation. The modern materials utilised, and modular nature of the process have also been found to result in lower maintenance costs (a factor which can offset the higher build cost).

Whilst risk will never be truly eliminated from the development process, the efficiencies which MMC can afford an RP may assist with mitigation and during these testing times allow the RP to meet its build targets.

For further information please contact Jonny Hutchings.

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