Written evidence submitted by Midland Heart [RSH 017]

We are a leading housing organisation, delivering homes and services across the Midlands that enable people to live independently.  We own and manage 34,000 homes and are dedicated to providing decent, affordable homes combined with excellent services to over 70,000 customers across 54 local authority areas ranging from Staffordshire to Northamptonshire, with the majority of stock in the West Midlands conurbation.

We are committed to spending £120m over six years to improve the condition and energy efficiency of our existing homes.  We are also on track to build 4,000 new affordable homes across the Midlands by 2025.  While we build homes principally for low-cost rent, in line with our social purpose, we also offer a route to affordable homeownership via our shared-ownership homes.

Alongside our general needs’ homes, we offer retirement schemes and temporary accommodation for people with a history of homelessness.  These schemes’ focus is to enable independence.

We are responding to this consultation because as a registered social landlord who is subject to this regulation, we have a clear interest in ensuring that the proposed changes to the regulations are effective and proportionate.

Key points

• Whilst there are clearly some serious problems and unacceptable practices and conditions in the sector, the evidence available e.g. the English Housing Survey suggests that overall the sector provides good quality, energy efficient homes
• The sector faces several challenges as a result of its history and purpose, but still, overall, provides better quality homes than those found in the private rented sector or owner occupation
• The sector faces significant financial challenges in remediating building safety and retrofitting homes to make them more efficient. We would support a revised Decent Homes Standard that includes measures to combat climate change – however, there is great diversity in the sector – a one size fits all approach would, therefore, not be helpful. Some properties for example are only capable of reaching a particular energy efficiency standard. It would be impractical and not provide value for money to seek to go beyond recommended levels of investment
• Whilst the current regulatory regime should have been more effective, we support the changes in the Social Housing White Paper and a strengthened regulatory consumer focused framework that is robust and proportionate
• ‘Diversification’ is a key issue for the regulator and sector – we believe that some landlords over time have morphed their services and as a result perhaps provide too wide a set of services. This has led to a dilution of focus on their core mission – we would welcome greater powers for the regulator to scrutinise this.

Detailed response

How widespread and serious are the concerns about the quality of social housing?

Any sector that has a daily impact on people’s lives and is seen as a public good, be that transport, healthcare or housing is rightly the source of a lot of scrutiny and regulation.  While it is likely that recent high profile media coverage on a small number of providers in the sector increased the wider public’s awareness on the most extreme issues facing some social housing tenants it is hard to say if these concerns and the level of them are justified by conditions on the ground or the services that are being provided by other housing associations in the sector. 

In terms of severity, it is clear from recent national media coverage that some households/families are living in unacceptable conditions that are deleterious to their health, and that this should never have been allowed to happen.  There will be examples of bad conditions and poor practices in most sectors, however it would not be prudent to judge the entirety of a sector as large as housing, based on a minority of landlords and cases.

To give some broader context on conditions in the social housing sector, according to the English Housing Survey 2019-20, 12 per cent of social dwellings did not meet the Decent Homes Standard, compared to 16 per cent of owner-occupied dwellings and some 23 per cent of dwellings in the private rented sector.  Likewise, five per cent of social dwellings have a Housing Health and Safety Rating System (HHSRS)[1] Category One hazard, compared to 10 per cent of owner-occupied dwellings and 13 per cent of privately rented dwellings. 

In terms of our own stock, 99 per cent meets the Decent Homes Standard.  We have plans in place to get the remainder up to this standard by the end of March 2022. 

The social housing sector nevertheless faces a combination of challenges in providing and maintaining its homes. 

• Firstly, the sector provides homes to people having come from the most challenging circumstances in society and to many households with complex needs.  In some circumstances, this means that some households find it a challenge to sustain a tenancy. Tenants living in social housing often face challenges with their mental or physical health, have physical disabilities, behavioural issues such as hoarding, or live-in financial hardship.  These challenges, especially those centred around mental health and financial hardship, lead to one of our biggest challenges in maintaining safe homes – gaining access to our properties to carry out routine safety checks. 

The support available for people facing these challenges has reduced significantly in recent years, particularly since the winding down of the Supporting People Programme since 2010. This provided regulation and funding for supported housing and floating support for tenants in other tenures.

• As a landlord, we also face challenges due to limits on our ability to allocate properties in a way that creates sustainable communities.  Fifty per cent of our allocations come via local authority nominations; of these, most are individuals and households facing significant challenges.  This means that we are often left in the position of having to cluster these very challenged households in the same communities, meaning that these neighbourhoods can be hard to manage and very often face challenges such as drug use, anti-social behaviour, and higher levels of crime.

• Because of the background of the sector, many social landlords face challenging stock conditions.  Social landlords often take on the most difficult stock to maintain and upgrade by the nature of their work.  For example, a third of Midland Heart’s stock was built pre-1919, and is comprised of solid wall, terraced housing in inner-city Birmingham.  This kind of property leaves very little scope for asset improvement, particularly in terms of increased energy efficiency measures.  Other social landlords (although not Midland Heart) have transferred stock from local authorities via Large Scale Voluntary Transfer (LSVT), often with much of the better-quality stock having been sold under Right To Buy, leaving much of the older and poorer quality stock under their management. 

These issues can combine to create problems with damp and condensation.  Our older, terraced properties can require significant management to prevent damp and condensation e.g.  opening windows, ensuring adequate ventilation etc.  Individuals and households facing particularly challenging circumstances can be least equipped to do this, thus making their situations even more complex. 

Against this backdrop of some of the most challenging properties and tenants, the social sector has continued to focus on investing in its stock and providing decent homes for people and households.  Whilst the problems highlighted by recent media coverage are no doubt serious and damaging for the people living in poor conditions, as a whole the sector provides a good standard of housing in comparison to the private rented sector or in fact how most people maintain their owned properties.

What is the impact on social housing providers’ resources and therefore their ability to maintain and improve their housing stock, of the need to remediate building safety risks and retrofit their homes to make them more efficient?

Although the financial impact of remediating building safety risks will be significant, landlords will have differing levels of exposure dependent on the number of high-rise buildings in their stock and the level of remediation required.  The impact will also depend on the level and nature of grant funding available from Government for remediation, including access to the Building Safety Fund. 

For some landlords with high levels of exposure, the impact will be significant – and will mean they are not able to develop as much new stock as would otherwise have been the case or spend as much on improvements to existing stock.  Midland Heart has limited exposure to this, having only five buildings above 19 metres that qualify as high-rise buildings and none with hazardous cladding. The impact on us is therefore minimal.

More significant for us is the impact of retrofitting homes to make them more energy efficient.  Again, this comes against a backdrop of the social sector being the best performing tenure, with 61 per cent of social dwellings have an energy efficiency rating between A and C, compared with 38 per cent and 36 per cent in the private rented and owner-occupied sectors respectively (English Housing Survey, 2019-20).

In common with many other housing associations, however, Midland Heart’s history is one of a traditional housing association, accumulating challenging stock and making it liveable, particularly in inner-city Birmingham in the post war period.  Many of these properties were built pre-1919, have solid walls and are therefore more difficult to heat efficiently.  In addition, to make these properties more energy efficient we have removed ‘sash’ windows in favour of double glazing and blocked chimneys to reduce heat loss – as a result, these dwellings can be susceptible to condensation where they are not heated and ventilated properly.  A key part of Midland Heart’s history was the demolition and replacement of ‘back-to-back’ slum housing in Birmingham.  We are now in the position once again, where we are maintaining housing stock that will potentially cost more than its existing use value to retrofit with greener technologies. 

Is the current regime for regulating social housing fit for purpose?

It could be argued that following the footage from ITN and the resulting regulator’s investigation into the affected homes the current regime is not fit for purpose.  However, as stated in the above questions, the social housing sector is a large sector which cannot fairly be characterised by the images shown in recent media coverage and is the best performing of the three main tenures in respect of overall condition, quality, and energy efficiency.  This suggests to us that the sector not only adheres to regulations but largely goes above and beyond to keep their tenants safe and comfortable. The annual sector accounts highlights that over £5.7bn was spent on assets last year alone.

There is also much that is unclear at the present time, such as the scope and nature of the new tenant evaluation measures and reporting methodology.  Both a KPI and long form report approach have been floated.  Our view is that what is in place currently has been, and should have been, more effective in dealing with regulatory issues, including those that ITN raised. 

It is certainly true that the ‘serious detriment’ test may have prevented the Regulator from being as robust as it might have been, and that this is now being removed should be welcomed.  However, we feel that there are other tools available to the regulator that have remained underutilised.

Alongside the formal role of the Regulator, tenants are also able to raise complaints via landlords’ internal processes and escalate these to the Housing Ombudsman Service (HOS). Again, theoretically this should have been robust, but wasn’t. 

The problem, in our view, is therefore not one of lacking powers but rather their effective employment. For example, during the investigation into Clarion, the Regulator conducted the investigation via virtual meetings with the landlord and never once spoke to tenants or visited the problem dwellings before exonerating Clarion.  Had the Regulator done these things, the outcome may have been very different. 

Going forward, our view is that the revised regulatory regime should be based upon a small number of transactionally based KPIs, that landlords are required to monitor and respond to in real time and then report upon to the Regulator, as well as reporting information on performance to customers and stakeholders in real time.  Tenant voice must also be key to this framework; the framework is clear that landlords should be doing this, and those focused on core business will be doing so already.  We would not support a return to Audit Commission or Status Survey style reports that only assess performance periodically, nor would we like to see a return to a ‘Best Value’ style basket of indicators.  The indicators should be relevant, focused and as minimal as practicable. In our view the current VFM metrics work well, and the transactional KPIs should be applied in a similar way. Our view is that regulation should be healthy but not burdensome, we would ask at what point the Office for National Statistics might decide the level of government or regulatory control is so great, that the sector is back on the Government balance sheet.

Secondly, there is little to no contact between the Regulator and landlords between ‘Financial Forecast Return’ (FFR).  We would suggest and welcome annual meetings between the Regulator and the CEO and Chair of providers, to discuss progress in the past year, and an annual review of the FFR to provide reassurance that the board is addressing the major issues the organisation faces.

Thirdly, the Regulator currently lacks the powers to properly scrutinise organisations that have diversified into other areas.  For example, many landlords have expanded into the care sector, providing Care Quality Commission (CQC) registered care.  Midland Heart decided to cease providing such care, as discussion of it was taking up increasing amounts of board time and leaving limited opportunity to discuss our core business of providing affordable homes.  We would question the degree to which some organisations subsidise their care function from rent paid by general needs tenants. There is also the use of ‘Special Purpose Vehicles’ for development outside core functions and provision of other services such as employment and skills training to consider.

We would therefore like to see ‘look through’ powers extended to the ‘care arms’ of registered landlords, and proper segmental reporting to establish the degree to which rent is subsidising care costs, and non-core business is a distraction.

How clearly defined are the roles of the Housing Ombudsman and Social Housing Regulator?

The roles of the Regulator for Social Housing (RSH) and Housing Ombudsman Service (HOS) are currently relatively well defined with RSH responsible for landlord services standards and Housing Ombudsman Service HOS acting as an independent arbiter for the sector, with a focus on tenant complaints, investigating systemic failings and acting as a learning resource for landlords.  These bodies will be joined shortly by the Building Safety Regulator (BSR); however, in our view there is no reason this tripartite system cannot work effectively, as long as clear boundaries are in place regarding the role of each. 

The roles of the RSH and BSR are already well defined, it is the role of the Ombudsman that we think is in danger of slipping into a more regulatory one.  There is a risk that boundaries between the three bodies will become blurred; for example, the recent proposal that the HOS become the ‘appeals body’ for the ‘access to information’ scheme risks giving the HOS a more regulatory role. 

We greatly value the role of the Ombudsman as a fair and independent arbiter in our relationships with tenants who addresses complaints fairly.  We also value the Ombudsman’s role as a learning resource for the sector.  It would be counterproductive to this trust if the HOS strayed into enforcement, either by accident or design. It is also clear that RSH recognises its limitations and is pushing for consumer regulations to be introduced – this is also something we welcome.

Does the current regime allow tenants to resolve issues effectively?

This is largely dependent on individual landlords rather than the broader system.  Tenants with landlords that are committed to resolving issues successfully and working with them on doing so will inevitably fare better in the current system.  Tenants also have the HOS to escalate cases to where this is necessary and the HOS’s powers are effective on a case-by-case basis. 

We are supportive of the HOS’s role identifying and responding to systemic issues in the sector.  In our view, the HOS should be the eyes and ears of the two sector Regulators, passing concerns to the RSH or BSR as appropriate to the issue.

Do the Regulator and Ombudsman have sufficient powers to take action against providers?

Yes, we think that, generally speaking, they do; despite the egregious examples of malpractice that have come to light recently.  As per the figures quoted above, the condition of the stock is generally good; and issues are dealt with effectively via inhouse processes or the HOS. 

There are always times when things will go wrong, however; and there are improvements that could be made to any system.  The removal of the ‘serious detriment’ test will enable RSH to take a more pro-active regulatory role; and its new powers to remove non-profit status, levy unlimited fines, require improvement plans etc. will offer greater penalties for non-compliance.

Taking effective action is not only down to the powers of the Regulator and Ombudsman, however.  Also key to this is tenants having the knowledge and ability to raise concerns and complaints and to escalate these when not satisfied.  The recent promotion of its role by the HOS led to a significant increase in complaints being escalated to its service, showing that there was significant underlying dissatisfaction with services and complaints processes. 

Will the reforms proposed in the SHWP improve the regime and what progress has been made implementing those changes?

Although the reforms in the White Paper are welcome and are the right ones, in our view the more important changes are those in the culture of the sector that the White Paper has engendered.  The White Paper clearly sets out the expectations on the sector and has focused minds on what the areas of core business should be. 

We acknowledge that the sector needs a Regulator, as the scope for consumer choice is reduced by the nature of the sector, the law and the housing status of people who apply for and live in social housing.  We also welcome the introduction of consumer standards but think that these can only be effective if applied sensibly.  As stated above, we would welcome a small, focused set of effective measures that focus on the core business of social landlords. 

There is a danger that the Regulator could return to a ‘best value’ style approach of a plethora of indicators that become an industry in and of themselves, and do not have any meaningful impact.  Instead, the revised measures should be transactional in nature and monitored in real time by boards, then boards scrutinised both by their own tenants and the Regulator. In short, the Board should run the business.

What changes, if any, should be made to the Decent Homes Standard?

Again, to put this in its wider context, the social sector is already ahead of the other two main tenures in terms of ‘decency’ (see above).  According to the Centre for Ageing Better, between 2001 and 2011 local authorities and housing associations spent £37 billion improving their homes under the Decent Homes Programme.  This performance is against a backdrop of many older properties in worse condition, with structural issues that mean they are intrinsically more inefficient.

In our view, what is needed is a universally understood benchmark for decent housing, that can be applied across tenures.  If well designed and implemented correctly, it should be effective.  The revised standard should be considered a minimum standard, rather than an aspirational target. 

We would therefore recommend that any revised standard takes into account that the funds to deliver it are finite and will inevitably impact upon landlords’ ability to deliver reactive repairs, cyclical maintenance and other investment programmes.  It must strike a balance between delivering improvements and viability.  Any revised standard must also account for the fact that landlords will all start from different positions with wide variations in the condition and decency of their existing stock. 

Should the DHS include energy efficiency, and other means of mitigating climate change? If so, how?

Yes, given the urgency of addressing climate change, we think it sensible that any revised standard includes energy efficiency and other means of mitigation.  However, this approach needs to take into account that social landlords have very different stock profiles, meaning that those with newer stock will inevitably outperform those with older stock – this is a structural issue. 

Midland Heart know that it is possible to remediate even the hardest properties.  One third of our stock is pre-1919, inner city terraced housing – yet overall 99 percent of our stock meets the Decent Homes Standard, and this will be 100 per cent by the end of March 2022.  We also have plans to get all our stock to EPC level C or above by 2030.  Moving beyond EPC level C may however prove harder, due to the practical and cost issues of retrofitting pre-war housing.

There are also new challenges posed by climate change that should be taken into account in any revised standard.  The increased risk of overheating and extreme weather events means retrofitting existing and building new properties to provide resilience to these conditions.  The likelihood of increased rainfall means taking measures to mitigate this, but also offers opportunities for technology that collects and recycles rainwater. 

It should also be taken into consideration that the carbon footprint of landlords does not only come from properties in management.  Beyond the Decent Homes Standard, the wider regulatory regime should take account of emissions from offices and travel and incentivise recycling and sustainable procurement. 

That said, we would caution against using the sector as a ‘testbed’ for unproven technology.  As a sector that houses some of the most challenging tenants, and puts its operating surpluses back into the business, we want to be assured that any alternative technologies we implement are tested and proven to deliver the savings claimed. As per the Social Housing Decarbonisation Fund, the sector should tackle the worst properties first and should not regret any measures undertaken on a property.

Finally, we reiterate the point that the social housing sector is one of the most diverse regarding the stock and operating models of each landlord.  Any revised standard will need to be flexible enough to deal with this diversity.

Should all providers of social housing be required to register with the Regulator?

A categoric yes.  In our view it is vital that all providers of social housing should be registered with, and subject to, the same regulator, regulations, and requirements. It needs to act as a just level playing field amongst registered providers, regardless of size and scope. This would help protect the reputation of the sector (we are often judged as a sector, rather than as individual landlords), and provide an opportunity for genuine social landlords to differentiate themselves from other landlords, especially those in the private sector who generally provide a much poorer product and service at the bottom end of the market. 

We have seen that some of the smaller housing associations are less able to deliver effective financial covenants or are prone to more governance failures. Without proper regulation, organisations may go under the radar impairing the quality of housing provision to their customer base.

This requirement begs the question, how would ‘social landlords’ be defined for this purpose?  We would not want to see a situation where this was based on rent levels, where it would compel individuals or organisations renting properties at sub-market rents to register.  Rather, we suggest it could be based upon whether a landlord explicitly charges rents in line with the rent formula; or, preferably, where a landlord receives the benefits of being a registered social landlord, such as government grant/subsidy to build houses and enhanced housing benefit.  The term ‘social landlord’ should be reserved for such providers. 

We are also of the view that for an organisation to register as a social landlord, 60-70 per cent of their turnover should be in this area.

What challenges does the diversification of social housing providers pose for the Regulatory system?

This is a key issue for the sector and the Regulatory system.  As a social landlord, we have taken the view that we should focus on our core business of building and managing social housing.  We have divested what CQC-registered care we did provide, as it was taking an increasing amount of our time to scrutinise this part of the business.  We have also purposely not developed houses for outright market sale, as this is not why we exist as a business. 

Firstly, in our view, it is highly likely that many of the service and quality issues we are seeing in the sector have been caused by some landlords diversifying, overstretching themselves and their ability to scrutinise their operations. 

Secondly, the costs of providing registered care are relatively high, whilst the rates paid by local authorities are low.  Our view is that some, if not most, landlords providing care are doing so by subsidising the care side of the business from their rental income from tenants.  We therefore think that the Regulator should have ‘see through’ powers to scrutinise care arms.  There should also be scope for proper segmented reporting, so that there is transparency and clarity about funding.  The suggestion above for an annual conversation between the Regulator and the CEO and chair, alongside a review of the FFR, would also support more robust regulation.

December 2021