Government quiet on rent cuts, says senior RSH figure

Rent rises permitted under the current standard are increasingly under discussion in the sector, as inflation continues to rise.

Mr Walters was asked about whether it was right for providers to increase their rents by the full amount each time, and what would happen if they chose not to.

“I think people should be flexing having those scenarios, it should absolutely be in the stress test,” he said.

The comments come as the sector and its tenants grapple with surging inflation costs, with fears of business cost inflation, such as material sourcing and labour shortages, outweighing the headline CPI figure that is expected to hit eight per cent by April 2021. 

The Bank of England’s Monetary Policy Committee also moved on Thursday to raise its base interest rate by 25 basis points, returning to its pre-pandemic level of 0.75 per cent.

In his speech to the conference (pre-dating the bank’s decision), Mr Walters said that the current inflationary environment and the impact this is having on day-to-day running costs looks a “lot like a stress-testing scenario”.

“Although the CPI-linked rent settlement does provide some protection for landlords, the inflation experienced in September is not the same as the inflation experienced in January and the inflation on materials and labour may be different to the headline CPI figure. The risk from this differential inflation is not a new one for the sector, but it is particularly acute at the moment.

“We know budget-setting and business-planning for the coming year has been exceptionally challenging. It is vital that boards and management teams test their plans for these conditions and consider how they might affect their ability to deliver key services.

“The current situation looks a lot like a stress-testing scenario, and may test the resilience of some providers.”

Elsewhere in the sector, concerns have been raised about the quality of social housing stock following several high-profile media cases. Asked about this, Mr Walters said he does not believe the issues to be “systemic”.

“Clearly, what we have seen has been unacceptable; some of those individual circumstances were completely inappropriate and shouldn’t have been allowed to happen,” he said. “There is always more complexity to any individual case than perhaps will be necessarily shown, but that doesn’t excuse what happened.

“I think often what you’ve got is, I don’t quite like the phrase ‘bad apples’, but what you’ve got is one or two or a small number of isolated failures in particular buildings that the landlord is putting right, but the rest of its stock is in a reasonable place, the rest of its tenants are satisfied. I think it would be disproportionate at that point to downgrade them on the back of one incident that was bad.”

Mr Walters used the regulator’s address to the conference to urge boards to seek assurance that their organisations do not share these problems, and to resolve them where they are found. “That means challenging the data on stock condition and performance”, he said. 

Asked whether the salaries of housing association executives should be scrutinised in the wake of service failures, Mr Walters said boards should “think very hard about what is appropriate”.

“In terms of base salary, performance targets, bonuses, bonus payment, all of those things, I think there will be times when individual boards will want to reflect on whether paying bonuses is the right thing to do in the event of those kind of service failures,” he said.

Mr Walters also emphasised that organisations in the sector must make independent decisions about the balance to strike between competing priorities. On the delivery of new homes, for example, they must take responsibility for the contracts and grant funding they sign up to, he said.

“You are independent organisations and your independence is jealously guarded,” he said.

“It’s clear that government wants you to be independent. Because when you were reclassified to the public sector it took away some really big regulatory levers around the consents regime and our ability to stop sale of stock or stop mergers.

“All of that was taken away to ensure the sector stayed independent. So it’s very clear government wants you as independent organisations.

“It does not need another £86bn on the public sector debt at this precise point… That means you need to work within that framework and make those judgements.”