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Peabody is to significantly rein in its development ambitions in the short term in the wake of 鈥渉eadaches鈥� caused by rising inflation and interest rates.

Ian McDermott, chief executive of the housing association, told 好色先生TV鈥檚 sister title Housing Today that next year was likely to see a 鈥渟ignificant reduction鈥� in the development output of the 104,000-home, London-based social landlord, a situation 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 between them, with the merged organisation having upped the development rate in 2022-23, producing 1,004 homes in the first six months alone. When the merger was announced in 2021, Peabody chair Lord Kerslake said the combined organisation would be targeting production of 3,000 homes a year.

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

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

鈥淲e鈥檙e keeping as much going as we can. What we鈥檙e doing is keeping going our projects most focused on our existing communities and existing stock, such as Thamesmead 鈥� while others have slowed down.鈥�

McDermott said the reassessment of the programme had been driven by the spike in interest rates weighing on the market and the high inflation seen over the past year, in particular around material costs. He said the construction industry had been 鈥渄isproportionately impacted鈥�.

He also said the government鈥檚 decision to limit rent increases in the coming year to 7%, while 鈥渢he right thing to do鈥�, was impacting on Peabody鈥檚 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 would retain a 鈥渟ignificant development programme鈥�, it would be 鈥渟omething shorter鈥� than the 3,000 homes per year initially suggested by Kerslake. His comments came 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鈥檚 change marking the moment the smaller organisation was dissolved as a separate legal entity into the wider 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 鈥渢o make thousands of Peabody owned homes more energy efficient over the next three years鈥�.