Patrick Mooney of Mooney Thompson Consulting comments.
Over the summer months, housing association chief executives and chairmen face an anxious time worrying about a lengthening list of regulatory changes being imposed on the sector. However, not one of these changes is likely to result in improved services for tenants.
The irony of having a housing regulator that imposes compulsory charges for its work but is focused almost exclusively on financial issues, will not be lost on tenants, particularly those struggling with cuts in their benefits. Adding insult to injury, aggrieved tenants will see their rents paying the annual membership fee to the Homes & Communities Agency (HCA), but cannot get their complaints investigated or get teeth applied to the so-called consumer standards.
With annual fees of up to £250,000 to be charged for the largest HAs, I wonder how long it will be before someone does the maths and points out the number of shiny new kitchens or bathrooms that would pay for each year?
I have even heard someone suggest that the regulator’s fees should be dealt with like the bankers’ bonus tax – to be levied on the remuneration packages enjoyed by chief executives on six figure salaries and some of their equally well-paid chairmen. But let’s get back to that list of regulatory changes facing HAs, and I must admit it does look rather daunting, for it includes the following:
- A second and tougher round of value for money self assessments is due to be submitted to the HCA in September
- Tighter controls over future rent increases have been promised by the government
- The HCA will finalise its plans for imposing fees for regulation to be charged from 2015
- Yet another new regulatory framework is being introduced and with it a requirement is being placed on housing associations to undertake stress tests on their business plans.
This last one is a bit like asking mere mortals to acquire the forecasting abilities of Mystic Meg and to accurately predict what will happen to their businesses in what is afterall a very uncertain world.
There is of course a distinct possibility that some of these changes will not be implemented until after the general election in May next year. Who knows what a new government will do about implementing these measures, but it would be a brave or foolhardy chief executive or chairman who decided their organisation can ignore the changes.
The first post-election change which most people in the housing sector will probably want to see is the scrapping of the bedroom tax, which has failed miserably in its objective of freeing up larger homes for families on council waiting lists to move into. However, it is clear that it has driven many thousands of tenants deeper into debt and left countless families reliant on food banks run by the Trussell Trust and other charities.
Meanwhile, Ian Duncan Smith continues to obstruct the release of any reports exposing problems being experienced with the delivery of universal credit and the coalition denies the growth in food banks are anything to do with its welfare reforms. We have no idea how many people still believe that one.
More yellow cards?
Earlier this year, executives at the HCA were speaking in very tough terms, warning housing associations that they had not really got the message about value for money (VfM). Under pressure from MPs, the HCA told HAs they needed to up their game and deliver significant savings while also cutting out the large redundancy and retirement packages that departing chief executives regularly walk away with.
How will the HCA back up this promise to be tougher when it next marks the homework of HAs (their VfM self assessments) in September? HCA regulation chair Julian Ashby has already stated that the regulator lacks the resources to repeat last year’s exercise, which resulted in 15 HAs being downgraded and a further 150 getting yellow card warnings in the form of a sternly worded letter telling them they must do better in September 2014.
So Mr Ashby has said that the HCA is likely to focus on a single issue within the VfM standards, but he is not giving the sector any clues what this will be. Speeches given by the HCA’s executives over the summer months will be crawled over for possible clues.
“I think that what we might do next time is focus on one element of the requirement and see how people are doing on that. I won’t tell you what that will be in advance, because we don’t want you to only focus on that.” Julian Ashby backed up this statement with a further thinly veiled warning to the sector by saying:
“When government looks at the sector and sees the surpluses it is making and the payouts it can afford, it thinks the sector is not taking value for money seriously.”
Ouch, there really is no mistaking the threat contained in that statement.
However, if regulatory charges are brought in from 2015, this will surely change the relationship between HAs and their regulator. There are already signs that the biggest social landlords are openly speculating on the sort of changes they will expect to see.
David Montague, chief executive of 70,000-home London & Quadrant, is supportive of paying fees if it means more resources for effective regulation. However, he adds that L&Q already pays a combined £150,000 to its rating agency and to the National Housing Federation. “Why should we be paying twice for financial regulation? There needs to be some real value added,” he says.
Assuming similar costs in 2015/16, it is estimated that the regulatory fees would equate to about £5 per home. Based on this figure, the largest housing associations would face an annual regulation bill of hundreds of thousands of pounds. Affinity Sutton has already calculated its fee would be around £250,000 a year.
It is also a brave (or is it reckless?) regulator which demands greater focus on value for money from HAs while at the same time planning to impose another £12.5 million of costs on the sector – which represents the cost of regulation currently met by the taxpayer. We shall find out much more in the coming months.
More consultations
Between May and August, the HCA is consulting the sector on changes to the regulatory framework. It is notable that the proposed changes barely touch upon the services provided to tenants such as repairing their homes, managing estates and improving living conditions. Instead, the changes focus on how associations are run, how they look after their finances and how they plan and prepare for changes in the housing market.
The changes require landlords to ‘stress test’ their businesses ‘under a range of different scenarios and if multiple risks were to materialise’.
The document states: ‘registered providers should have a clear understanding of what would cause their business significant financial distress and plan mitigating strategies.’
Landlords will also be required to have a ‘thorough and documented understanding of their assets and any liabilities on those assets’ and to certify every year that they meet the regulator’s standards. This looks like more of the same agenda which gave us the VfM self assessments that so many HAs struggled with last year.
Somewhat surprisingly the document also places an onus on landlords to make sure their boards and executive teams have the range of skills necessary to properly manage the type of activity they are undertaking. Surely this is something that HAs should have been doing ever since their establishment, whether this was a Victorian philanthropist or more recently in taking a stock transfer from a local authority.
Tenants are understandably frustrated that the HCA is not taking this opportunity to toughen up its checks on whether HAs are complying with the consumer standards. So far only two or three HAs have been hauled over the coals for failing to complete annual services to gas boilers in tenants’ homes. This is a pretty poor return given the thousands of complaints being made about inadequate and poor quality services, shoddy repairs and failures to tackle nuisance neighbours.
Speaking at the launch of the consultation Julian Ashby, chair of the HCA, said:
“The sector used to rely on substantial levels of government grant for new development, housing benefit underwriting rental income in full, and banks providing long-term debt on low margins. This no longer applies. The consequences for both providers and the regulator are profound.”
Changes to rents
The government has been asked to postpone the new rent regime until 2016 or risk fewer affordable homes being built. Associations are urging the government to delay implementation of its new rent regime so they can draw up plans to cope with the hole it will leave in their finances.
The sector’s fears stem from a government announcement that landlords will no longer be able to raise rents by up to an additional £2 a week until they align with a ‘target rent’.
The change, which comes into effect next April, has a particularly negative impact on stock
transfer associations because local authority rents are normally lower.
The National Housing Federation called on the government to postpone implementing the policy until 2016. It argued a ‘protracted delay’ issuing the rent standard guidance makes it difficult for associations to plan ahead, particularly if they need to urgently revise their business plans.
Another consultation process due to be launched in late June or early July is on the detail of how the new regulatory fee charging arrangements will work. Landlords should know the size of their regulation fee from October, but hints already given suggest it will be a combination of a flat fee payable by everyone plus a fixed fee per home. “We are considering a range of options,” said Matthew Bailes, director of regulation at the HCA. Any delay in the consultation could mean that fees would not be introduced until the following financial year, in April 2016.
Meanwhile, senior housing figures in the local government sector have been annoyed by being charged subscription fees for the Housing Ombudsman service. Responsibility for investigating complaints from council tenants was previously with the Local Government Ombudsman and paid for by taxpayers. Council housing chiefs now fear that the HCA’s economic standards could be extended to apply to their services as well.
New houses or golf courses?
A growing number of developing HAs are turning their back on the HCA’s grant conditions for building new homes by either bidding for lower numbers than previously or not bidding at all. London and the South East have been particularly badly hit. This is creating a real risk that the new housing development budget will be undersubscribed and underspent – despite us having the worst housing supply problem since the Second World War.
The solution to the country’s housing crisis is simple – build more homes. Governor of the Bank of England Mark Carney revealed this when he outlined the fact that Canada– with a population of roughly half that of Britain – is in fact building twice as many homes as we are here every year.
Despite a lack of government support, councils managed to build 1,090 new homes between January and March this year. This is the highest quarterly total in almost 25 years. Sadly, this increase in council building was matched by a drop in completions by HAs, down by 22 per cent to 4,950 in the quarter.
It was also revealed that Surrey has more land given over to golf courses than it does to housing. Now how can that be right?