Written evidence submitted by the Regulator of Social Housing [EXA 078]

Introduction

As Regulator of Social Housing, 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 defined by the Housing and Regeneration Act 2008 (the Act)[1]. It is accommodation that is provided below market rate and 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 financially viable landlords are essential for providing good quality accommodation and services to tenants as well as wider society.

We regulate providers registered with us. All Local Authorities who are landlords of social housing are automatically registered with us. The Act mandates that registration is voluntary for housing associations and other private providers of social housing. The Act also sets out that we must register anyone who is eligible, and meets our registration criteria.

We have 1,624 providers registered with us (including private registered providers and local authorities), who provide 4.4 million units of social housing. The size of different registered providers as well as the activities they carry out can differ significantly. Registered providers can provide a wide range of housing and other related activities, not all of which is social housing.

Exempt Accommodation in the Social Housing Sector

Exempt accommodation is defined by housing benefit regulations [2]; and refers to accommodation which is exempt from restrictions on housing benefit[3]. The increased housing benefit available covers the housing related costs, but not the cost of any care or support. Care and support may be commissioned by the local authority or may be non-commissioned. Our regulatory remit does not extend to any care or support provided.

Exempt accommodation is often a form of supported housing. It is provided both by organisations that are registered with us and by organisations that are not registered with us, including Charities and Community Interest Companies. The Act states that we can only register those organisations who provide social housing. Exempt accommodation rents are not always below market rate meaning they do not always meet the definition of social housing in the Act.

Our role in relation to governance and financial viability, applies to the whole organisation. This allows us to understand the risks to the social housing posed by other parts of the provider’s business. Our consumer standards and the rent standard however only apply to social housing. This means that whilst an organisation might be registered with us, not all of their stock will fall within the scope of our consumer and rent standards, meaning our powers and regulatory remit over these homes or the services provided to the tenants in them are more limited. In recent years, we have seen a small number of registered providers who provide exempt accommodation which have a very small number of social housing units but a large number of non-social housing units. Where exempt accommodation is social housing, we regulate across the range of our standards. In managing their accommodation, we expect registered providers to take into account the needs of their tenants, particularly where those tenants are vulnerable. This is a particular focus for our regulation of non-compliant providers as demonstrated by our recent casework.

Most of the social housing delivered by registered providers (including much exempt accommodation) meets our standards and is well managed. However, since 2017, we have been concerned about a small but growing sub-set of providers operating a lease-based model of provision. Under this model the registered provider typically does not own any housing stock but leases accommodation either from individual private landlords (i.e. the property owner) or from landlords (typically owners of portfolios of properties) backed by private investors. Providers who operate a lease-based model tend to focus their provision around forms of temporary and supported housing, including non-commissioned exempt accommodation. We have found 23 providers who operate a lease-based model to be non-compliant with our regulatory standards and have issued 16 regulatory notices and 7 regulatory judgements[4]. 

One area of concern we have identified in our casework relates to non-commissioned exempt accommodation, which tends to be ‘move on’ accommodation for groups such as homeless people, victims of abuse or those leaving institutions. When delivered by registered providers this accommodation can meet the exempt accommodation criteria and thus benefit from higher levels of Housing Benefit. However, the housing benefit criteria do not take into account whether the accommodation provided is social housing or set any expectation on the level of rent that can be charged. This creates an incentive for private sector landlords to lease portfolios to existing registered providers in order to access higher rent and housing benefit levels which wouldn’t be achieved in the private rented sector. As a consequence it also means that accommodation which would have been covered by for example, HMO licencing in the private rented sector is no longer covered.

The problems that we see with non-commissioned exempt accommodation are significant, and we have identified some common themes. Where we have found non-compliance, our concerns include:

• lack of oversight by the registered provider around the activities undertaken by third parties and managing agents, such as the provision of support, property management and applications for housing benefit claims
• conflicts of interests between the registered provider’s board members and third-party head landlords or managing agents,
• lack of internal controls leading to, for example, poor quality accommodation and poor health and safety compliance outcomes and
• reliance on continuing to receive housing benefit at exempt levels, or high levels of service charges, for continued viability.

Where the provision is social housing, we have also seen a lack of assurance from many of these providers in relation to their compliance with the rent and consumer standards. These factors lead to a concentration of risk, and a business model that may not be able to withstand downside risk. In order to communicate some of the risks we are seeing, we have published addendums to our sector risk profile about lease-based providers[5], as well as the setting of rents[6], drawing on our casework and other sources of information.

In 2015 we revised our registration criteria[7] to reflect wider changes to our standards. The changes to our standards strengthened our expectations of registered providers and put in place additional protections for social housing assets which we considered necessary as the sector evolves and new types of registered provider enter the social housing sector. Since then we have registered a minimal number of providers operating a lease model[8], as the majority of applications we have received from this type of provider have been unable to demonstrate that they meet our registration criteria meaning we are not able to register them.

While there has been a recent and rapid growth of existing registered providers who operate a lease-based model providing forms of supported housing, we are also seeing existing conventional providers of supported housing – including non-commissioned exempt accommodation - are typically not expanding their provision or are even withdrawing from providing supported housing, in the main due to the financial risks associated with it.

Casework relating to exempt accommodation

We have identified the lease-based model as presenting particular risks, and have been doing considerable work with this cohort of providers, working with them to gain assurance about how they are managing those risks (this work includes providers of different sizes). Through our casework, we have done a considerable amount of work with non-compliant providers to resolve the underlying causes of any failures and strengthen their capacity to manage the risks they face. For example, we have made statutory appointments to the boards of 3 registered providers that provide exempt accommodation. We are clear that if a provider is not able to be compliant with our standards then our role is to, so far as is possible, protect the interests of tenants.

Whilst the risks presented with lease-based providers are not geographically specific we have seen rapid growth of existing registered providers taking on or significantly expanding into a lease-based model of provision in particular large local authority areas. A significant amount of our casework are providers operating non-commissioned exempt accommodation through short term leases based in Birmingham. We recognise the importance of taking a joined-up approach with the various agencies involved with the provision of exempt accommodation, as the issues faced are multifaceted and require strong multi-agency response. As a result, we have been working closely with Birmingham City Council as well as other registered providers and key stakeholders such as the Charity Commission with regards to our casework. For example, we have met with Birmingham City Council on a number of occasions and had constructive discussions regarding the respective roles of our organisations and how we can take a co-ordinated approach. We have engaged positively with Birmingham City Council on their development of quality standards and welcome this work as a positive step to work towards preventing the escalation of poor-quality non-commissioned exempt accommodation in the area.

The work we and others are doing in Birmingham is having an impact. We have seen some providers announce that they will halt expansion in specific areas of the city. In other cases, we have seen providers taking the decision to cease trading and wind down their provision of this type of accommodation because they consider that they cannot meet our governance and rent standards and remain solvent over the medium to long term. Where this is the case we are actively working with those providers, the Council and other organisations to help protect tenants’ interests.

The government has also launched five supported housing pilots to help local authorities target local quality and value for money issues and to use this insight to inform potential future policy to improve oversight of supported housing. We support the work of the pilots and have been liaising with the pilot local authorities to develop a greater understanding about the roles of respective organisations and how we can work together to tackle the common themes we are seeing in our casework.

Conclusion

Ensuring that exempt accommodation is fit for purpose and offers value for money inherently requires a range of public sector organisations to work together. We have a specific regulatory role to play in relation to providers registered with us and we are committed to carrying it out effectively. We have already investigated a number of providers where we have had concerns, and we will continue to take action against providers who cannot or will not comply with our standards.

About the Regulator of Social Housing

Our objectives are set out in the Act and cover economic and consumer regulation. Under our economic regulation role we set standards for governance, financial viability, rents and value for money which apply primarily to private registered providers. Policy on rents is set by government, and we are directed by government on a number of areas of our standards including rents.

Our consumer standards relate to the provision of social housing and cover the safety and quality of social housing, as well as protecting tenants, and apply to both private and local authority registered providers. Currently our consumer role is limited; 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 and where, as a result, there is evidence that the serious detriment test has been met. Following the Grenfell fire, the government published The Charter for Social Housing Residents: Social Housing White Paper (SHWP).[9] The SHWP gives us an enhanced consumer regulation role; in particular allowing us to proactively seek assurance from registered providers about how they are complying with our standards, and removing the serious detriment test. We welcome this change in our role and look forward to the legislation which will enable this to be progressed.

January 2022