House of Commons - The work of the Regulation Committee of the Homes and Communities Agency - Communities and Local Government Committee

The work of the Regulation Committee of the Homes and Communities Agency - Communities and Local Government Committee Contents

1 Introduction

The social housing sector

1. There are some 1,500 social housing providers in England. Although collectively they undertake a diverse range of activities, such as provision of community services, regeneration, market rent tenures and housing sales, for most of them being a social housing provider has been, and is still, the predominant activity. Historically the main players have been non-for-profit housing associations. As local authorities stopped building houses in the 1980s, housing associations became the main providers of social housing for rent to people in need of housing. In addition, from the 1980s onwards many local authorities set up, and transferred their stock to, housing associations. Together the providers manage around 2.6 million homes with around 60% of that stock held by just 5% of providers, while approximately 1,100 providers hold fewer than 1,000 homes each.[1]

2. The Homes and Communities Agency (HCA) is the national housing and regeneration agency in England. It provides investment for new affordable housing and to improve existing social housing, as well as for regenerating land.[2] The 2010 Spending Review announced reform of affordable housing, including a "continuing, but more modest" capital investment.[3] The Department for Communities and Local Government, through the HCA and the Greater London Authority, will invest £4.5 billion in affordable housing in 2011-15, which, according to the National Housing Federation, represents a 63% real terms reduction on the previous spending review period.[4] To offset smaller capital grants, housing providers can charge increased rents for new lettings up to 80% of market rent. This is creating a move from capital subsidy to revenue support paid through benefits supporting increased debt.[5] The HCA has stated that "the traditional social housing model that has existed for the past 25 years is in flux and the key issue for boards [of registered providers] is how they respond to that change and how they position their organisations".[6] Reduced levels of grant have meant that providers need to incur debt to a greater extent than previously if they wish to fund development. This brings increased risk, which some providers have sought to mitigate by diversifying into other housing tenures such as temporary accommodation, student accommodation, market rent and housing for sale. Providers are also looking to new business opportunities to cross-subsidise their social housing.[7] In addition, the Government is implementing an ambitious programme of welfare reform: housing benefit is being subsumed into Universal Credit, which will be paid direct to tenants rather than as currently to landlords. (We examined the implementation of these changes in a recent Report.[8]) The impact of these changes are not yet clear, but is likely at least to be felt in a perception of greater risk to income flows, in increased tenant arrears and in increased costs of debt collection for providers.

Regulation

3. The Regulation Committee of the HCA currently regulates social housing providers in England. The rationale for state intervention through regulation in the provision of social housing rests on three main factors:

a) limited competitive pressures towards the provision of good, efficient service;

b) the presence of substantial public subsidy; and

c) regulation helps to underpin the provision and terms of provision of private sector lending to the sector (providers are currently holding long term loans of around £48 billion).[9]

4. Until 2008 the regulation of social housing had remained broadly unchanged for over thirty years. Different types of providers were regulated by different bodies: the Government, through the Department of Communities and Local Government (DCLG) and its predecessors, was responsible for regulating local authorities; arms length management organisations (ALMOs) were regulated by local authorities and the Housing Corporation (the predecessor of the HCA) regulated housing associations. On top of this, all local authorities, ALMOs and housing associations were subject to scrutiny by the Audit Commission. The Cave Review, published in 2007, criticised the system for being overly strict on some providers.[10] In response to the Review's key recommendation that there should be a single, independent regulator, the Tenant Services Authority (TSA) was set up to cover all social housing providers. The scope of TSA regulation covered consumer and economic regulation. It set standards covering consumer and economic issues and had a range of monitoring and enforcement powers to ensure that providers met those standards.[11]

5. By 2010 the situation had changed: the Coalition Government had a commitment to much greater localism, and there was an imperative to make significant savings across government, including through a reduction in the number of quangos. The TSA was abolished in April 2012[12] when regulation of the social housing sector in England passed to the HCA, which discharges its regulatory functions through its Regulation Committee. The Committee is chaired by Julian Ashby. (Mr Ashby entered the social housing sector in 1974 following a career in international merchant banking. He has been Chief Executive and Chair of many associations and as a consultant he specialised in trouble-shooting, governance, mergers, strategy reviews, organisation and structure, risk management and personnel issues. He conducted four Statutory Inquiries and previously was Deputy Chair of the TSA.)[13] Chair of the Regulation Committee is a three year appointment, with the possibility of renewal, and with a commitment to work up to 2.5 days per week.[14] The Regulation Committee is supported by about 110 regulation staff (henceforth referred to as 'the Regulator'). There are two regulatory objectives, similar to those of the TSA, set out in statute:

a) economic regulation—to ensure that registered providers of social housing are financially viable and properly managed; and

b) consumer regulation—to ensure that tenants of social housing have an appropriate degree of protection by setting consumer standards and performing a backstop role in this area.[15]

6. The system that has evolved is co-regulatory. The social housing providers are responsible for managing their own business, including their own risks. The role of the Regulator is to set standards and seek assurance that those standards are being met and risks are being managed. The Regulator has powers to:

a) set, revise or withdraw standards related to both consumer and economic matters;

b) undertake statutory inquiries; and

c) take action following a statutory inquiry including suspending or removing officers, ordering restrictions on dealings, making the decision to amalgamate non-profit registered providers and requiring private registered providers to transfer land.[16]

To ensure regulatory independence, the Secretary of State's formal powers are limited, but he can, and has, made directions on specific standards to the Regulator.[17]

Our inquiry

7. Since 2011 we have embarked on a programme of reviews of the work of the ombudsmen and regulators covering the areas for which DCLG has responsibility. We carried out a pre-appointment hearing for Julian Ashby as the Regulator on 31 August 2011, and we recommend that the Secretary of State proceed with his appointment.[18] We decided to give the new regulatory arrangements, which came into operation in April 2012 about a year to settle before we examined the performance of the Regulator. As preparation for our inquiry we invited written submissions and we had a background briefing on the sector from the National Housing Federation. We took oral evidence from the Regulator on 15 July 2013.

8. Many of those who responded to our call for written submissions were broadly positive about the Regulator's performance since April 2012,[19] though the HCA Regulation Committee's proposals for change, which we cover in chapter 3, were not so well received.[20] We were not carrying out an inquiry into the regulation of the social rented sector. The remit we set ourselves was narrower. We focussed on the work of the Regulator since 2012 and in particular on his two primary responsibilities: (i) his economic regulation objective, which is to ensure that registered providers of social housing are financially viable and properly managed, and (ii) his consumer regulation objective, which is to ensure that tenants of social housing have an appropriate degree of protection. Having heard the Regulator's oral evidence we had concerns about what we were told on financial viability ratings (part of economic regulation) and we wrote to the Secretary of State on 18 July to draw his attention to the transcript.[21] He replied on 25 July saying that he took our "points very seriously", and was "grateful" to us for drawing the matter to his attention. He asked officials to write to the Regulator asking him to "clarify certain points from his evidence and provide assurance that these important regulatory powers are being used effectively".[22] Subsequently, the Regulator supplied us with a supplementary memorandum.[23] We have used this report to expand upon our concerns. The Regulator's performance against the economic objective is covered in chapter 2 and against the consumer objective at chapter 4. In chapter 3 we consider the Regulator's discussion paper on proposals to revise the financial viability and governance standards, which is part of the economic objective.