September 30, 2015
From April 2016 social housing associations will be required to reduce rent by 1% each year over a period of four years; which in real terms is a 12% cut in rental income. Pioneering renewable heating company Minus7 based on the Isle of Wight, working with clients across the UK, has designed a heating system that has zero running costs. This innovation allows landlords to charge for a reduced price for heat and use that income to offset the Government’s 1% rent reduction.
Hamish Wilson – CEO Minus7 comments: ”Dealing with the affordability of heating for housing is critical to making the homes we build, and manage affordable. With the average cost of housing rent at £5,000, and assuming 4% based on the removal of the Consumer Price Index (CPI) equates to a £200 saving; this is achieved by charging consumers an equitable rate per kilo watt hour (KWH) for heating generated through Endothermic – Solar Heating.”
Mr. Wilson explains further: “For social landlords the affordability of housing in both energy and rental is an essential element in their business model. Quite simply the income generated from rent maintains the property through planned programmes of investment and allows development to continue and as such any risk to that income is bad news for landlords. Our innovative heating solution not only provides low cost heating, but directly supports the rent reduction imposed as part of the £12bn of welfare reform savings that the government wants to make by 2019-20.”
The innovative Minus7 Heating was recently installed to develop a pair of energy-efficient three-bedroom homes for Poole Housing Partnership (PHP), built by C G Fry & Son Ltd. Responding to the demand for more affordable housing in Poole, Borough of Poole, Poole Housing Partnership and C.G. Fry & Son worked together and the project has improved the former car parking site at Old Farm Road in Poole, creating a much-enhanced street scene for local residents.
Mike Harrison - Director of Technical Services, PHP comments: “It is absolutely critical that we have social housing with the lowest energy running costs available. We chose the Minus7 system due to its 24 hour high efficiency capabilities. It has minimal requirements, i.e. warm or colder. We need new solutions to reduce our reliance on fossil fuels and this project was a first for both C G Fry and PHP. The efficiency of the system since installation has been impressive performing at 500% efficiency, in that 1kW of energy is providing 8KW of heat. This compares to other renewable heating performance figures that are between 250 and 400 percent efficient such as ground source and air source heat pumps, making the Minus7 system efficient and cost effective for residents which is the number one criteria. In fact, we were so impressed with the innovative system, that we have signed a new contract for four new flats at a value of c. £440,000 being built by C G Fry & Son commencing in October.”
The change to the rent formula is set to raise serious questions over housing association’s cash flows; the reconfiguration of business plans; the impact on credit profiles; the ability and appetite of registered providers to raise finance and meet existing commitments; and their plans to build new homes. It will require each housing association to assess their cost base and decipher potential cuts, or cessation of certain activities, which could mean pulling back on development programmes.
Mr. Wilson concludes: ”It’s understood the HCA will be writing to all registered providers to ask for assurance about how the rent cut risk will be absorbed by their businesses - the Minus7 design makes these assurances easier to give.”