From economic shocks to housing resilience

In April 2020, one key measure of the oil price turned negative as the pandemic crushed demand and storage capacity became scarce. For a brief period, traders were effectively paying others to take the obligation to receive oil off their hands. This September, the picture was very different, with Brent, another key measure of the oil price, moving above $100 a barrel as conflict and disruption raised concerns about energy supplies.

Economic shocks that begin far from Wales can still travel through the economy and affect households, businesses and housing providers here. Geopolitics can influence energy prices by disrupting supply, transport routes or expectations about future availability. Higher energy prices, in turn, raise transport and production costs.

Take diesel as a simple example. A haulage company facing a sustained rise in fuel costs may initially absorb some of the increase, but eventually it may need to charge customers more. A supplier of building materials then pays more to transport its goods and may pass some of that cost on to a contractor. Ultimately, the housing association building or maintaining homes faces higher costs too.

The same process reaches households. Higher transport costs can feed into food and other prices, while energy bills may rise directly. As these price increases become more widespread, they show up in measures of inflation. For tenants, this is not simply a percentage in a dataset. It can mean essentials taking a larger share of the household budget.

We saw this clearly after Russia’s invasion of Ukraine in 2022. Disruption to European energy markets contributed to sharply higher gas and electricity prices, while UK CPI inflation reached 11.1 per cent in October that year.

Persistent inflation then creates another challenge. The Bank of England cannot produce more oil or reopen a shipping route. What it can do is use monetary policy to try to prevent an initial shock becoming embedded in wages, prices and expectations. If inflation looks likely to remain high, Bank Rate may need to stay higher or rise further.

But Bank Rate is only one part of the financing environment. Financial markets try to anticipate what the Bank may do next, so gilt yields, swap rates and other benchmarks can move before Bank Rate itself changes. Those rates help determine the cost of longer-term finance, while lenders and investors also add a credit spread reflecting the risk associated with a particular borrower. Borrowing costs can therefore rise even when Bank Rate has not moved.

The same economic pressures also reach the public finances. Higher inflation and market interest rates can increase the cost of servicing government debt. In the run-up to the October Budget, Chancellor John Healey said that “fiscal discipline” would be at its core and highlighted how debt-servicing costs were absorbing resources that could otherwise support public services. Higher debt-interest costs do not automatically determine how much funding is available for housing, but they reduce the room available when government is choosing between competing spending and investment priorities.

For Welsh housing associations, these pressures come together.

Inflation raises the cost of building, repairing and maintaining homes, while also putting pressure on tenants’ household budgets. Financial-market conditions affect the cost of borrowing and refinancing. Pressure on the public finances makes the environment for government funding and investment more difficult.

These pressures arrive at the same time that housing associations need to build more homes, improve existing stock and meet decarbonisation commitments. The Welsh Government’s own 2026 sector risk assessment highlights many of the same issues, including long-term interest rates, liquidity and covenant headroom.

The challenge is not simply that each pressure exists. It is that several can persist and compound at the same time, placing greater demands on the same balance sheet.

That is why financial resilience matters. It means retaining flexibility: being deliberate about when housing associations borrow and when they fix rates, blending funding sources, sequencing projects, protecting liquidity and covenant headroom, and using partnerships where they genuinely share risk or add capacity.

There are still grounds for confidence in the sector’s ability to respond. Housing providers cannot control geopolitics, energy prices, or financial markets. They can understand how those shocks reach them, stress-test their plans and preserve room to act when conditions change.

That flexibility matters because financial resilience is not an end in itself. Its purpose is to protect the sector’s ability to build, maintain and improve homes, and to continue supporting the people who depend on them.

That matters because behind every discussion about inflation, borrowing, investment and balance sheets are tenants, families and communities. Ultimately, the numbers matter because people live with their consequences.