Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Eighth Report

8 Regulation and Inspection

90. The Housing Corporation's main regulatory role is to ensure that housing associations are properly governed and managed. The success of its regulatory function is demonstrated in that no housing association has become insolvent. The Housing Corporation's regulation is also valued by the banks and building societies which have raised about £30bn since 1988 for housing association development. The Housing Corporation suggests that its regulation has secured lower interest rates for associations.[82]

91. Following the Government's previous review of the Housing Corporation in 2000, it changed the way housing associations were regulated by producing a regulatory code and guidance. This put much stronger emphasis on improving the performance of associations. The Housing Corporation began in 2002 to inspect the quality of services provided by housing associations. In April 2003, the Government transferred the responsibility for inspection to the Audit Commission. The results of the Commission's inspections are reported to the Housing Corporation to inform its overall assessment of the quality of management in an association.

92. The Housing Corporation can bring an association under supervision if its performance is failing. This generally involves making appointments to its board. It can also carry out a statutory inquiry into the association's operation. However, the inquiry process is cumbersome and relatively expensive, and is generally used as a last resort. The Corporation also uses the link between its investment and regulation role to encourage responsible management. If a housing association's management is failing, it would not be granted investment funds.

93. Submissions to the Committee raised concerns that

• Housing associations were subject to several regulation regimes that should be simplified;
• Greater emphasis in inspection and regulation was required on the quality of neighbourhoods created;
• The Corporation needed new intermediate powers to improve the quality of housing management; and
• The distinction between the Housing Corporation's regulatory function and the Audit Commission's inspection function were not clear.

Overregulation

94. The National Housing Federation estimated that housing associations are subject to eight different regulatory regimes.

"Housing associations have an extensive engagement with public sector agencies responsible for regulation and inspection. As well as the Housing Corporation and the Audit Commission, there are relationships variously with the Financial Services Authority, Charity Commission, Registrar of Companies, Care Standards Commission (to be divided from April 2004 into the Commission on Social Care Inspection and the Commission for Health Improvement). In addition for those engaged in Supporting People funded activities, there are relationships with local Administering Authorities. Finally, following the Sharman Report, the National Audit Office now audits the Corporation and, under an inter-departmental protocol, the NAO now has direct access rights to housing associations."[83]

95. The Hyde Housing Association argued that the costs of inspection and regulation were excessive. The association's chief executive, Charlie Adams told the Committee:

"We did a calculation at Hyde to work out what the cost to Hyde was - my own association - of coping with the regulatory regimes of which there are many. We worked out that it was about £800,000. This is an organisation with a turnover of just short of £90 million. We thought that was an excessive amount of money and I would entirely agree that there are far too many organisations with a different regulatory role."[84]

96. The Government must ensure that the costs to housing associations of inspection and regulation are not excessive. It should require the Corporation to produce a plan for the strategic regulation of housing associations which will streamline the regulatory burden. It should consider setting up a single regulatory body or at least aligning the different regimes to streamline the process and avoid duplication.

The Quality of Neighbourhoods

97. The scope of regulation and inspection needs to be broadened to consider the contribution which a housing association makes to a neighbourhood and the local community.

Derek Martin, the head of housing strategy at Manchester city council said:

"How can a housing association affect and change a neighbourhood, make a neighbourhood a nice place to live purely by renting out a few houses? It is their contribution to the whole regeneration of the area which they should be monitored on as well and not just how do they collect the rent."[85]

Peter Dixon, the chairman of the Housing Corporation highlighted the importance of looking at the overall management of mixed tenure housing estates.

"My personal belief is that we have to be much slicker and much sharper around housing management generally in the context of sustainable communities. It is all very well having appropriate building standards and appropriate everything else but if we do not get the housing management of those new developments right, including the mixed development we have a problem. It just as important across a mixed development as it is in a social housing unit."[86]

Intermediate powers

98. The current regulatory regime is heavy handed and was principally designed to address serious financial mismanagement or governance problems in housing associations rather than questions of effective service delivery. These may not be appropriate for the issues arising from inspections which are important but do not affect the overall management of the organisation. The Chartered Institute of Housing argued:

"Where an association is clearly not delivering a good service to its users and has not significantly improved despite being given time and support to do so, there appears to be little the Corporation can do except use its heavyweight powers aimed at the business itself. CIH would like to see the Corporation develop incentives for improving performance and measures to tackle continued poor performance in service delivery."[87]

The CIH proposed:

"Where an association is clearly not delivering a good service to its customers and has not significantly improved despite being given time and support to do so, there should be a wider range of measures open to the Corporation to secure improvement. There are a number of options, for example:

• further restrictions could be imposed in terms of development and diversification; and
• the association could be forced to explore options such as partnering services with other associations or even having to put parts of its service out to tender."[88]

99. The Government needs to review the Housing Corporation's powers to respond to the inspections carried out by the Audit Commission. With the new emphasis on housing associations providing quality services, the Housing Corporation needs intermediate powers to influence how services are delivered without imposing supervision or a statutory inquiry.

The role of the Housing Corporation and the Audit Commission

100. Some submissions highlighted the lack of clarity of roles between the Housing Corporation's function in regulating housing associations and the Audit Commission in inspecting their housing in terms of assessing the management of service delivery.

101. The Local Government Association highlighted possible duplication between the two organisations.

"At the national level the regulatory work of the Corporation and the inspection work of the Audit Commission appear to duplicate and therefore need to be better integrated."[89]

Richard Clark, the chairman of the National Housing Federation called for better guidelines setting out their distinct functions.

"We need to ensure that the guidelines around which the Audit Commission and the Corporation work are perfectly clear and, for example, the policy area clearly belongs to the regulator, the governance area clearly belongs to the regulator, whereas the service inspection role clearly belongs to the inspector."[90]

102. The Audit Commission tried to clarify the distinctive roles. Roy Irwin, its chief inspector of housing told the Committee:

"I think our focus is: how services are delivered; what is the quality of those services; and what are the plans from the association to improve those services even further. The Corporation's focus of their regulatory activity is around financial capacity and security, governance and overall management arrangements, which include service delivery."[91]

103. Jon Rouse, the Housing Corporation's Chief Executive, accepted that there was a need for coordination with the Audit Commission over the assessment of management services.

"Indeed if you think about the overall Housing Corporation Assessment of RSLs it is based on four factors, one of which is the quality of services which flows from inspection. Consistency between us and the Commission on this seems very sensible."[92]

104. There is potential confusion between the roles of the Housing Corporation and the Audit Commission in terms of assessing the quality of management of services by housing association. The ODPM needs to clarify the distinctive regulatory and inspection roles of the Housing Corporation and the Audit Commission.

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82   THC 02 Back

83   THC 03 Back

84   Q 26 Back

85   Q112 Back

86   Q353 Back

87   THC14 Back

88   THC14 Back

89   THC 13 Back

90   Q54 Back

91   Q209 Back

92   Q368 Back

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Prepared 29 June 2004