Peabody to ‘significantly reduce’ its development output

Housing association Peabody is to significantly rein in its development ambitions in the short term in the wake of “headaches” caused by rising inflation and interest rates.

Ian McDermott, chief executive of Peabody, told Housing Today that next year was likely to see a “significant reduction” in the development output of the 104,000-home London-based social landlord, which was likely to last a couple of years.

McDermott was speaking after the housing association mega-merger between Peabody and Catalyst completed its final stage yesterday with the submerging of 37,000-home Catalyst within the Peabody Group.

In the 2021-22 financial year Peabody and Catalyst produced 1,435 homes combined, with the merged organisation having upped the development rate in the 2022-23 year, producing 1,004 homes in the first six months alone. When the merger was first announced in 2021, Peabody chair Lord Kerslake said the combined organisation would be targeting production of 3,000 homes a year.

However, McDermott today said there will now be a significant short term reduction in output, and that development in the medium term will not ultimately reach 3,000 homes per year.

He said: “A lot of the changes we’ve seen in the last years have caused a few headaches regarding development. Next year we’re likely to see a significant reduction in our development output for the next couple of years as we’ve had to re-size the programme.

“We’re keeping as much going as we can. What we’re doing is keeping going our projects most focused on our existing communities and existing stock, such as Thamesmead – while others have slowed down.”

McDermott said the reassessment of the development programme had been driven by the spike in interest rates weighing on the market and the high inflation seen in the last year, in particular around material costs, where he said: “the construction industry has been disproportionately impacted.”

He also said the government’s decision to limit rent increases in the coming year to 7%, while “the right thing to do”, was also impacting on Peabody’s ability to invest in new build.

McDermott declined to say what he expected the group to be able to deliver in the medium term, and while he said the group will retain a “significant development programme”, he said it would be “something shorter” than the 3,000 homes per year initially suggested by Kerslake. McDermott’s comments come weeks after the organisation warned of dramatic delays to its developments due to the requirement for a second staircase on high rise homes. 

Last year Catalyst became a fully owned subsidiary of Peabody, with this week’s change marking the moment the smaller organisation was dissolved as a separate legal entity into the wider Peabody Group, which houses 220,000 people across the capital and the home counties.

Peabody said it had published a refreshed Group Strategy which would see it prioritise and accelerate investment in planned maintenance and retrofit projects “to make thousands of Peabody owned homes more energy efficient over the next three years”.

The landlord said it now operates across 107 local authority areas offering effective rental subsidy of £679m per annum, with an average rent of £122 per week.

With recent controversy over the quality of housing association homes, and over the provision of landlord services, Peabody said it was planning to “put residents at the heart of the organisation”, via a new regional structure that will deliver an “enhanced” responsive repairs service.

The controversy comes as landlords across the housing association sector are facing tightening finances amid the drive to invest more in their existing stock to address housing quality and net zero issues, which is putting pressure on development programmes.

The organisation’s refreshed strategy said in a statement it wanted to “Create a development pipeline across the next three years which recognises our competing priorities.”

It added it also wanted to focus on the acquisition and control of large sites, and develop alternative funding models for new development.

Peabody plans to offer community support such as an energy advice service, food pantry networks and partnerships with food banks, and small business incubation services.

Peabody has recently faced intense scrutiny over the case of a resident, Sheila Seleoane, who died in her flat at Lords Court and lay undiscovered for two years.

McDermott said in a statement that Peabody “needed to improve” and had “detailed plans to do so”.

He said: “We need to be better at getting the basics right, get closer to our communities, and continue to invest in safety, services and a sustainable Peabody. Our increased scale will help us do that. By combining a new locally focused operating model with better technology and data driven services, we’re determined to boost resident satisfaction for the long-term.

“We’ll seek to do our bit in providing social and economic support for people as well as providing quality new homes in partnership.”