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Housing associations face tough choices, but they must be transparent
As registered providers grapple with a myriad of issues, Simon Dow says the key when making difficult decisions is to be open and approachable
I wanted to use this opportunity to look at three significant challenges that I believe the sector currently faces: investment allocation, rents policy and value for money.
The government’s first Budget is next month. And my guess is that the chancellor is facing some of the same dilemmas as the sector when it comes to seeking to strike a coherent balance between a number of immediate and competing priorities for future investment.
Certainly, we know providers are framing their new business plans all too aware of some potentially hard choices.
Providers want to respond to the continuing and pressing need to invest in more new homes. They know they must ensure that current stock meets all relevant standards, particularly in respect of health and fire safety, and in the longer term they need to build capacity to deliver better energy efficiency.
It doesn’t take a genius to work out that on occasions this must feel like a daunting triumvirate of competing priorities.
That’s a clear message that has come up in many of the recent conversations that we have had with the sector, in particular at the three events Fiona MacGregor, chief executive of the Regulator of Social Housing, and I held for chairs of large registered providers before Christmas. And it is a tough question to which there is no single right answer.
Managing competing demands is a bit easier when there is the financial capacity to meet at least some of them. The 2019 global accounts showed that the sector has been able to increase investment in both new supply and their existing stock.
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Total investment in new or existing homes of all tenures was £14bn in 2019, an increase of 12% on 2018. All in all, some pretty impressive results.
We can see that maintaining this position of strength is a stretch, as rent reductions combined with increased costs, principally from higher maintenance spending, meant that operating surpluses were a bit lower.
While the return to an inflation-linked limit on rent increases from April will be income positive, we know the importance of sales turnover to providers’ business plans remains and as ever we endlessly emphasise the importance of routine stress-testing and contingency planning in order to be fully prepared should returns from sales not meet forecasts.
On rent policy, as the new rent standard will come into force this April it seems a good time for boards to assure themselves that their approach to rent-setting is robust and defensible.
In the last Sector Risk Profile, we highlighted some areas of risk that we identified in our regulation of providers’ rents. Ensuring that the quality of your data and reporting enables effective control and oversight of rent-setting is an important part of a board’s role.
Non-compliance with rent requirements has been a feature of some of our recent notices and judgements and we will shortly publish an addendum to our Sector Risk Profile setting out some of these issues in more detail, which we hope will be helpful.
“Investing enough to meet building safety requirements may lead to trade-offs with other investment plans… so it’s important that providers’ boards are clear about the decisions they take when it comes to prioritising investment”
On value for money, balancing investment priorities is a key question. A starting point is ensuring that existing homes meet health and safety requirements – a primary expectation of our Home Standard.
The growing number of regulatory notices for breaches of that standard shows how important this issue has become as the focus on building safety increases, and along with that, the number of referrals we receive.
Investing enough to meet building safety requirements may lead to trade-offs with other investment plans, including tough choices about development ambitions. So it’s important that providers’ boards are clear about the decisions they take when it comes to prioritising investment, consider the evidence carefully and then communicate those decisions clearly to their stakeholders.
This approach is embedded within the requirements of the Value for Money Standard. The outcome the standard seeks to deliver is that providers clearly articulate their strategic objectives.
It also includes a specific expectation to annually publish evidence in the statutory accounts that enables stakeholders to understand providers’ performance against their own value for money targets, as well as the metrics set out by us as the regulator.
Last month we reported the findings of a review of providers’ value for money reporting in their accounts. This showed that the quality of reporting by registered providers has been mixed.
Positively, several providers’ reports had a ‘golden thread’ running through them and included a clear set of strategic objectives and suitably aligned, measurable targets with historic performance against these.
They provided brief explanations where targets were not achieved alongside future targets and plans. Some also included useful information about how investment and maintenance decisions were taken.
But other providers’ reports were less transparent. They either did not include targets or had vague or generic objectives that did not clearly relate to their business plans or activities.
“We entirely accept that providers are having to take difficult decisions, and we welcome the fact that many of you are working hard to take account of how stakeholders will perceive your priorities”
Some reports ignored or failed to explain areas where performance did not meet a target, and how they would be improved.
And some reports used adjusted measures from previous years making it difficult for anyone to get a realistic view of a provider’s performance over time.
We entirely accept that providers are having to take difficult decisions, and we welcome the fact that many of you are working hard to take account of how stakeholders will perceive your priorities.
We believe that the way through this is to publicly own your own narrative about how you are optimising your resources to meet your objectives.
Of course, you may not please all your stakeholders with the choices and trade-offs you make. But you risk pleasing none of them if you are not open and approachable about how you have arrived at those decisions.
Simon Dow, interim chair, Regulator of Social Housing
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