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Social Housing Speed Read – social housing risk profile

The Homes and Communities Agency has published the “Sector Risk Profile 2017” (“SRP”), which focuses on financial risks that may cause a social housing provider to fail to comply with the regulator's economic standards.

The SRP details the main risks facing the social housing sector and some of the actions registered providers should be taking to manage those risks.

Fundamentally, the SRP highlights how the Homes and Communities Agency will seek assurance that boards are managing those risks effectively. The SRP may be found by clicking here.

Sector risks

The Homes and Communities Agency forecasts an accelerating level of change in policy for registered providers and anticipates new risks to arise as a result of increased development activity and diversification into building for sale and other non-social housing activity.

Specifically highlighted in the report is the potential impact of any future increase in interest rates and the resulting effect the same will have on business plans and with loan covenants.

This is to be considered alongside the impact of the rising of inflation and ongoing rent cuts, which are likely to affect a registered provider’s overall business plan and delivery of forecasted cost savings.

Fiona MacGregor, Executive Director of Regulation at the Homes and Communities Agency, states that the regulator will have an “increased focus on the quality of stress testing” and wants to see “that boards have a clear idea of the early warning signs or triggers that would lead to their carefully thought through mitigation plans being put into effect”.

Obligations of social housing boards

Boards of registered providers must continue to ensure that they meet the requirements of the regulator’s consumer standards, including the obligation under 1.2(b) of the Home Standard (the requirement that a registered provider must meet all applicable statutory requirements that provide for the health and safety of the occupants in their homes).

While diversified activities can support registered providers’ core activities, boards must assure themselves that this is the case and it does not come at the expense of their fundamental role.

Governance structures must evolve and boards must recruit the skills required of a diversified portfolio as the sector continues to enter into a range of new commercial ventures and relationships.

It was regarded as “essential” in the SRP that registered providers stress-test a wide range of potential scenarios that are inherent to their business, particularly as regards potential economic risks and risks to rental income.

As the adoption of Universal Credit builds up steam, preparations are to be taken to minimise any risk of cash flow problems as tenants are switched over to the new system.

What next?

The SRP is particularly concerned that:

  • The finances/cash flow of registered providers are stress-tested to ensure that mitigation plans are developed;
  • Whilst planned de-regulation will grant certain freedoms upon registered providers, boards are to ensure that they are in full control of decisions around constitutional changes and disposals;
  • All applicable statutory requirements that provide for the health and safety of the occupants in their homes are met.

The sector is under particular scrutiny and under this climate, the Homes and Communities Agency has a clear aim to promote a viable, efficient and well-governed social housing sector able to deliver homes that meet a range of needs.

Recently published statistics from the National House Building Council have shown that, during Q2 of 2017 (April-June), 11,220 new affordable homes have been registered, representing a 19% increase against figures for last year.

During the same period, 29,123 new private sector homes were registered, a fall of around 7% when compared to the figures for the same period last year.

The sector is clearly experiencing a favourable environment in terms of raw numbers; with demand for housing as strong as ever, the growth seen in the affordable sector is particularly encouraging, but the risks at all levels must be managed carefully with the accountability of boards being at the forefront of the regulator’s concerns.

If you have any questions on the above and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact John Murray or a member of our expert Social Housing Team.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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