Ashby calls on sector to devise efficiency performance metrics

It came alongside news that the HCA is looking to introduce regulatory fees based on stock size, and at around £5 per social unit.

Speaking at the Social Housing Annual Conference yesterday (10 November 2016), Julian Ashby stressed the importance of ‘stepping up to the plate’ on both housing supply and the efficiency agenda.

He warned that ‘increasing surpluses will go on attracting attention if they’re not accompanied by an increase in build rates’.

‘In the government’s mind, supply and efficiency go together. If the sector makes a strong contribution to the supply agenda, then it will be well-placed to counter value for money and other criticisms. It will also help in what happens post-2020 to rents.

‘But if the sector is perceived not to have stepped up to the plate, then its position on these issues may be much less secure. So sitting on your hands might seem superficially risk averse, but it could have a much more damaging impact on your viability in the longer term.’

Mr Ashby said performance data is a ‘tricky space’ and that proving efficiency is a difficult task, which is ‘made significantly harder by a lack of agreed metrics and definitions’.

He drew on the example of the past failures seen in the housing association market in the Netherlands, which he said led to the Dutch government taking action to rebuild the sector while demanding 20 per cent efficiency savings.

As such, the Dutch sector realised it needed to establish metrics and performance measures so it could demonstrate progress.

Mr Ashby said their benchmarking system was developed quickly ‘by the sector for the sector’, and covered not just costs but also outcome measures. They also kept it relatively simple and as a result it has been widely adopted and taken up by 90 per cent of sector.

‘It’d make your relationship with government and future governments much easier if you developed a set of performance metrics that enable you to demonstrate your efficiency to them,’ he added

He said the HCA will publish its updated unit costs regression analysis early next year and intends to publish full data set by RPs ‘so you can make full use of the potential in there’, but added it is only focused on costs and not outcomes measures.

He said: ‘To win and sustain political support, you’ll need a compelling narrative about the resulting public benefit. My personal view is that the issue of supply will define this sector’s relationship with government.

‘Be very clear, that as a regulator, it is not our role [to be] discouraging you from taking risks – it is to insist that you manage them effectively.’

Risk

Mr Ashby also said that driving greater efficiency and active asset management remains essential, but he drew a ‘very sharp distinction’ between the disposal of tenanted and untenanted stock.

He said taking existing tenants outside the protection of a social landlord could cause ‘huge reputational damage’ for the sector and that RPs need to be very careful about it.

But he also said the regulator has been impressed with the speed of response to change, particularly on in-depth assessments (IDAs) and stress testing. The HCA is currently taking stock of about 60 IDAs and is reassured by the positive reception.

However, he pointed out that it is ‘obvious’ where people have been ‘coached’ by advisers, adding that such a practice does not ‘enhance confidence’.

‘By all means take advice, but we also expect you to know how to manage your business when your hand isn’t being held,’ he said.

Mr Ashby said the biggest challenges and changes relate to income risks, and that while the regulator is generally impressed with the determination to maintain margins through efficiencies in light of the social and affordable housing rent reduction and benefit cap, the local housing allowance cap brings another significant element that has already meant a drop in investment in supported housing.

He also flagged the roll out of Universal Credit on rent arrears, along with the impact of inflation on both tenants’ cost of living and achieving business plans.

He said the HCA ‘absolutely understands’ the pressures driving cross-subsidy from sales, saying it inevitably introduces a different range of risks and need for more sophisticated arrangements to manage them.

The increased variety of funding and delivery structures ‘gives us concerns in number of areas’ in ensuring ramifications are understood, he said, adding that it would ‘make life easier for yourself and us if you keep life simple where you can’.

He said it is also important to communicate activities to investors.

‘Investors tell us that your status as a regulated credit is something they prize highly, and carries weight with credit committees and rating agencies and others. So we have a mutual interest in maintaining its integrity.

‘As providers, you need to be clear with investors when you’re raising money secured on regulated assets, and when doing so off the regulated balance sheet.

‘Those looking at intermediate products between you and the investor need to be very careful that they do not misrepresent the protection their investment would have in any eventual ‘work-out’ or other regulatory intervention’.