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Risks to social housing sector on the rise, says English regulator
Social housing providers are facing increasing risks to their businesses, with Brexit and health and safety posing key challenges, the Regulator of Social Housing (RSH) has said.
In its seventh annual Sector Risk Profile, published today, the regulator noted that social landlords have “benefited from a generally benign economic climate” in recent years.
But it warned that it “is more important than ever that all providers test and understand the implications” of the UK’s departure from the EU.
And it said the “evolving requirements following the Grenfell Tower fire” are increasing risks further.
The risk profile also emphasised the importance of landlords having a good understanding of their existing housing stock, backed by “up-to-date data”.
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Exposure to a slowing housing sales market, reputational risks affected by “business decisions and performance”, including board and executive team members’ conduct, and an “increasing interest in equity or structured finance” also among the key areas of risk.
Fiona MacGregor, chief executive of the RSH, said: “Alongside some weakness in demand in the housing market and the need to respond to evolving building safety requirements, this year’s Sector Risk Profile highlights the importance of adequately investing in existing stock, as well as ensuring necessary scrutiny of the build quality of new stock.
“This includes satisfying statutory health and safety requirements and effectively managing all outsourcing arrangements, and demands high-quality data on the condition of properties.
“Failure in these areas not only puts tenants’ health and lives at risk but also has major reputational risks to both the provider and the sector as a whole.”
The Sector Risk Profile is intended to help boards carry out stress-tests and help other sector stakeholders understand the operating environment for social housing providers.
On health and safety, it said landlords “affected by tower blocks with aluminium combustible material and high-pressure laminate cladding will need to remove such cladding and ultimately invest in the replacement of the material”.
The regulator also called for landlords to ensure correct oversight of third-party contractors and adequate management of outsourcing arrangements.
The report said that high-profile business failures such as Carillion and Lakehouse had demonstrated third-party risk management required proper attention. Adding that profit warnings from significant housing maintenance contractors in recent months meant that boards needed to carry out due diligence on contracted companies and consider contingency plans to safeguard against potential issues.
Other areas of risk highlighted by the regulator included the roll-out of Universal Credit, cost inflation driven by Brexit, and rental market exposure.
The risk profile also gave a mention to specific risks around specialised supported housing provided on a leased basis.
It said: “The risks identified continue to be a significant concern, both in terms of viability some of the business operating predominately or exclusively on this model, given tight margins between net rents and lease costs, and in governance failures leading to poor services and stock quality, as well as a lack of assurance about compliance with rent requirements.”
