Written evidence submitted by the Regulator of Social Housing [RSH 065]

Introduction

We regulate registered providers of social housing to promote a viable, efficient and well-governed social housing sector able to deliver homes that meet a range of needs. Social housing is made available to those whose needs are not adequately met by the housing market. Regulation of social housing plays an important role in protecting those who have limited choice in who their landlord is. Well governed and viable landlords are essential for providing benefits to tenants as well as wider society.

The Regulator of Social Housing (RSH) is one part of the framework of social housing regulation, landlord scrutiny and tenant protection along with the Housing Ombudsman Service (HOS) and, in time, the Building Safety Regulator. Our role is in addressing any systemic failure to meet the regulatory standards at the landlord level. We do not have a statutory mandate to address individual complaints or mediate in disputes between landlords and tenants.

We regulate providers registered with us. All Local Authorities who provide social housing are automatically registered with us. The Housing and Regeneration Act 2008 (the Act) mandates that registration is voluntary for housing associations and other private providers of social housing. Our objectives are set out in the Act and cover economic and consumer regulation. Under our economic regulation we set standards for governance, financial viability, rents and value for money which apply primarily to private registered providers. Our consumer standards cover the safety and quality of social housing, as well as protecting tenants, and apply to both private and local authority registered providers. The Act also requires us to exercise our functions in a way that minimises interference, and (so far as is possible) is proportionate, consistent, transparent, and accountable.

Our approach is co-regulatory. This means the boards and councillors of registered providers are responsible for ensuring providers meet the regulatory standards and for putting things right when they go wrong. When failures occur, as they inevitably will from time to time, registered providers should not only put matters right for the affected tenants but look at the related wider improvements they could make to their services. Registered providers are expected to report to us any breach (or potential breach) of the economic and consumer standards. We take (graduated) enforcement action where providers do not or cannot act themselves.

Economic regulation

Our economic regulation continues to deliver security and stability for the sector and tenants. Our role ensures that the social housing sector as a whole continues to be financially viable and well governed, and tenants are protected from the risk of losing their home should their provider become unviable. Our work has ensured that no secured creditor has made a loss from investing in social housing, and to date we have successfully resolved all cases of financial distress without tenants losing their homes. This security and stability also enables delivery of key government policy aims, including building new homes and improving the quality of existing homes. Lenders continue to have confidence in the social housing sector, allowing it to benefit from borrowing at favourable rates. Since 2018 over £10bn[1] of new facilities have been agreed. This demonstrates that, despite changes in the wider economic environment, the social housing sector continues to grow with good availability of finance. At the end of September 2021, the sector had a total of £115 billion[2] facilities, not all of which is currently drawn, and in 2020/21, it agreed the highest level of new facilities recorded in a single year at £15.1 billion[3]. These facilities support investment in existing homes as well as the provision of new social housing. Government has invested over £50 billion of capital grant in private registered providers. Given this historic public investment and that a significant proportion of social housing tenants rents are supported by housing benefit payments, our regulation also plays an important role in protecting public funds. Confidence in our economic regulation is reflected in feedback from our stakeholders. Our 2020 stakeholder survey reported that 94% of respondents agreed that we take action where possible to ensure that confidence in the sector is maintained, and access to finance on competitive terms continues.

Current consumer regulation

Our consumer regulation role sets the expectations, via our consumer standards, that landlords must meet. Our role is to intervene in the most serious cases where there is evidence of systemic failure which we consider to be a breach of our standards. While the 2010 review of social housing limited our role to regulating consumer standards reactively (that is, based on referrals to us) and introduced the serious detriment test (which must be met where there is a breach of standards before we can take any enforcement action), our consumer regulation provides an important existing safeguard for tenants.

We consider all referrals to us regardless of the source. Referrals can come from a range of sources including from providers, tenants and other bodies such as HOS. The overall number of consumer standards referrals to us have been broadly consistent from year to year (591 in 2020-21, 597 in 2019-20, 502 in 2018-19). We are preparing for these to grow as tenant expectations have been rightly increased following the Grenfell fire and publication of The Charter for Social Housing Residents: Social Housing White Paper (SHWP).[4]

Our annual Consumer Regulation Review[5] shows that just over half of all referrals we considered were in relation to the Home Standard which relates to the quality and safety of homes. This proportion has remained consistent over several years. Where we find evidence that a provider has breached our standards, we work with them to ensure that they take the appropriate actions to improve. The information we publish about registered providers’ compliance with our standards – including our gradings under review list, regulatory notices, regulatory judgements, and our consumer regulation review – enables providers to learn from our casework. Our regulation helps providers focus on key risk areas and contributes to preventing serious failures from happening. Our regulation has changed how the sector is performing in important areas such as gas safety. We have seen improvements in registered providers’ approach to health and safety compliance, for example in 2020/21 our findings of serious detriment in relation to gas safety reduced to zero.

The English Housing Survey 2020 to 2021[6] results show that the social rented sector compares favourably with other tenures on some key metrics of quality. For example, the lowest proportion of non-decent homes were found in the social rented sector (13% vs 21% private rented and 16% of owner-occupied homes). However, there is always more work for registered providers to do. In cases where we do not find a breach of our standards which meets the serious detriment test there are often still things that providers need to put right. We work with registered providers to ensure they work to resolve issues.

Following the fire at Grenfell, the government published its SHWP. We welcome the reforms set out in the SHWP and in particular the enhanced consumer regulation role it gives us. We consider that a move to proactive consumer regulation, once implemented, will provide a good balance with our economic regulation role. It will give us a holistic view of providers, their finances, governance and operational delivery and so help us drive providers to improve the quality of homes and services and achieve better outcomes for tenants.

Future consumer regulation and other changes

The SHWP expects us to review and revise the consumer standards that registered providers must meet, proactively seek assurance on how they are meeting those standards and take action where they are not. Our document Reshaping Consumer regulation: our principles and approach[7], sets out some important principles that will inform the development of the new regulatory regime. As set out above, some of these principles stem from statute. As we move to proactive regulation, we will target our engagement and actions on providers that represent the greatest risk – taking into account the impact on tenants. Ultimately this will improve providers’ delivery of landlord services for tenants.

Whilst we need a change in legislation and Directions from government to facilitate the full change in our remit, we are already preparing for the future where we can. We are building our new consumer regulation directorate. We have begun our work to revise our consumer standards, which provide the foundations of our consumer regulation. In some areas, such as decent homes and tenancy, we are Directed by the Secretary of State, and will progress these when we receive Direction. We are also starting work on how we will gather assurance from registered providers, and to consider how we might use new powers such as requiring performance improvement plans from providers. On 9 December we published our tenant satisfaction measures consultation which includes draft guidance on how they are defined, collected and reported to us[8]. The consultation closes on 3 March.

We are engaging with a range of stakeholders, including tenants, landlords and others, about our enhanced consumer regulation role and have committed to doing so throughout the design process. This includes engaging with over 650 tenants to-date; we will continue to engage with tenants as we progress our work. We will be carrying out extensive statutory consultation on our proposed standards once legislation is passed. Our work will build on our existing approach to economic regulation where appropriate and learn lessons from previous regulators and from social housing regulation in other parts of the UK as well as in other regulated sectors.

The sector needs to change to deliver the improved outcomes to tenants that the SHWP sets out. For example, providers need better quality data about their tenants and their homes to inform how they are performing and where action needs to be taken, and to improve how they talk to and take account of the views of tenants. Our continued message to registered providers is clear: don’t wait for regulation, start acting now; challenge yourselves as to how well you meet current consumer standards and what you should be improving. Once our proactive consumer regulation role is in place, we look forward to being able to proactively ask them for evidence which demonstrates their compliance with our standards.

The review of regulation carried out alongside the SHWP concluded that our economic role is working well. It also recognised that the sector is diversifying. We have seen an increase in for-profit providers registering with us as well as an increase in providers with different business models, and therefore different risks, to the traditional housing sector. For example, our Sector Risk Profile 2021[9], describes providers who are structured in such a way that they have very few or no staff, with most business functions outsourced, and our addendum to the Sector Risk Profile 2018[10] covered the particular risks associated with business models predicated on taking certain long-term leases from property funds. We are, however, clear that the relevant standards apply to providers regardless of structure or operating model.

In light of these developments, the SHWP proposed strengthening our economic powers. These include introducing a new ‘look through’ power to enable us to follow money paid to bodies outside of the regulated sector. We welcome these new powers which will strengthen our ability to act across a range of different risks and scenarios. In addition, we have been working closely with the Department for Levelling Up Housing and Communities (DLUHC) to agree what else might be needed to manage some of these risks. It has been agreed to reduce the notice period for us to appoint a manager so we can act more quickly, and we are working with DLUHC to engage the sector on proposals to extend our enforcement powers, where appropriate, to for-profit registered providers. We consider these changes important in giving us the right tools to be able to continue to meet our fundamental objectives now and in the future. We are working with DLUHC to deliver these through the forthcoming legislation.

Complaints and redress

While the roles of RSH and HOS are distinct, they complement each other to ensure that tenants have a means of redress (through HOS) and that systemic issues revealed by complaints can be addressed (by RSH). The roles of the two organisations are defined in legislation.[11]

Our memorandum of understanding (MOU) with HOS sets out the roles of the two bodies and how we will cooperate and communicate with each other. As agreed in the MOU, where we receive referrals which we consider indicates an individual dispute (and therefore is in the remit of HOS), we will signpost the individual to HOS and explain why that is the appropriate organisation. Likewise, HOS can signpost and refer issues to us where appropriate. This includes referring investigation findings to us where there may be evidence of a systemic failing. To help support our respective roles, we have published information for tenants on our website. This sets out our role, how to complain about a registered provider and what we do when we receive a complaint.

We review the MOU with HOS on a periodic basis, to ensure that it reflects any developments and changes in working practices or remit. The MOU was most recently reviewed by RSH and HOS; we concluded that arrangements for co-operation and communications between the two organisations were working well and decided to amend the MOU to reflect changes to the Housing Ombudsman scheme (including introduction of the new complaint handling code). The new MOU was agreed on 1 September 2020.

The SHWP recognised that social housing residents who want to formally escalate unresolved complaints to HOS face an additional hurdle (the “democratic filter”) compared to other redress schemes. Government is seeking to remove this hurdle through provisions in the Building Safety Bill.

Taking the above into account – whilst there are no obvious gaps in the architecture for how tenant complaints are dealt with and issues regarding the performance of registered providers are resolved – stakeholders’ (especially tenants’) understanding and awareness of roles and responsibilities is important. We are aware that some stakeholders, including tenants, have called for an organisation specifically to advocate for and represent the views of tenants. Decisions about whether to introduce a tenant voice body and what form it could take are a consideration for government.

Impact of the pandemic, building safety and decarbonisation costs

The coronavirus pandemic and changing economic climate have significantly affected the sector. The closure of most construction sites during the lockdowns and other restrictions, inevitably resulted in delays to capital investment programmes, both in terms of new homes and major reinvestment in existing stock. In 2020/21 total spend on maintenance and repairs decreased by 5% on the previous year. Capitalised investment in existing stock dropped by 19% from £1.9bn in 2020 to £1.6bn in 2021.

The most recent forecasts from providers (submitted in June 2021) include increased investment in existing stock. Forecast expenditure on major repairs is 12% higher in these forecasts than those submitted in June 2019 as a result of significant levels of investment in building safety in the next five years.

Increasingly, forecasts are also being adapted for decarbonisation costs. Whilst many registered providers have included some costs in relation to carbon reduction in their 2021 forecasts, the full costs of achieving net zero by 2050 are still unclear. Forecast investment in existing stock contributes, in lower projected operating margins and more reliance on debt: in time it may also feed through into reduced new development. Despite these challenges, financial performance is generally robust and the sector’s ‘underlying surplus’ (excluding movements in fair value) only fell slightly from £2.7 billion to £2.6 billion in 2020/21.

The Decent Homes Standard (DHS) is an area of our regulation where we are Directed by the Secretary of State. The content of the Standard is a matter for government policy. We welcome the government’s review of the DHS which recognises it is important that the Standard meets modern expectations. We are feeding into the government’s review. As part of that, our interest lies with ensuring that, should we continue to be directed by government to include areas of a new DHS in our consumer standards, the requirements of the Standard are able to be delivered by landlords, and that the future Standard sets a clear minimum expectation which we are able to regulate against.

Conclusion

Our economic regulation has contributed to the overall robust position of the sector through the current operational and economic challenges. We are firmly of the view that well governed and viable landlords are essential for delivering good quality homes and services to social housing tenants. Specific strengthening of our economic regulation powers will support our ability to maintain confidence in the face of diversification so that the sector can continue to grow and deliver more good quality affordable homes.

On consumer regulation, we welcome the expanded remit that the government will be giving us when it legislates. In the meantime, we will continue to apply our current consumer powers robustly, encourage providers to improve their services and engagement with tenants in advance of new consumer regulation and progress implementation of our new consumer remit as far and as fast as we are able.

December 2021