English social housing regulator unveils new value for money standard
The Regulator of Social Housing (RSH) has unveiled an overhauled value for money (VfM) regime for the sector, including a new set of metrics against which associations will be assessed.
Under the new code of practice, social landlords will no longer be required to produce a VfM self-assessment. Instead, they will publish performance evidence in their annual accounts against the seven key metrics agreed with the regulator.
The metrics are: reinvestment, new supply delivered; gearing; earnings before interest, tax, depreciation, amortization, major repairs included (EBITDA MRI) interest cover; headline social housing cost per unit; operating margin; return on capital employed (ROCE).
The new VfM standard will require associations to report in their accounts how they have performed against their own metrics and “how that performance compares to peers”.
The new VfM standard and the supporting code of practice were developed following consultation with the sector. The regulator received 174 consultation responses overall, with 84 responses to a technical note it put out describing the metrics. It said these responses were “broadly favourable” to the proposals.
Simon Dow, interim chair of the regulation committee, said: “Overall, the responses have been very positive and the strengthened standard now sets out a clear expectation that VfM should be a key strategic consideration for boards.
“The new approach will assist with scrutiny and consistency over the information reported, enable a greater focus on outcomes, and help continue to drive improvements in value for money in the sector. As is already our practice, we will seek assurance through in depth assessments that registered providers are putting the standard in practice.”
The new VfM standard updates the measures introduced in 2012. In updating the standard, the regulator said it sought to “ensure a strategic approach to delivering value for money is embedded within businesses” and “encourage investment in existing homes and new housing supply”.
It added that the updated standard “would move the focus of our regulatory approach away from the primarily narrative self-assessment to include focused monitoring and reporting by providers”.
Four VfM Metrics have been refined. They are:
- New Supply Delivered % - The denominator of the new supply metric has now been changed to units owned rather than managed so that the outputs provide a fairer reflection of a provider’s delivery in the context of their existing asset base.
- Gearing % - Recognising a wide variety of different gearing measures in use across the sector, the regulator intends to change the measure so it is done on a net debt basis.
- Headline social housing cost per unit: The headline social housing cost per unit was previously calculated on the basis of units in management at period end. The denominator of headline social housing cost per unit metric has now changed and will be based on a measure of units owned and/or managed.
- Operating Margin %: In line with the reporting requirements to FRS102, the Operating Margin metric will now include an adjustment that requires providers to deduct the gain/(loss) on disposal of fixed assets from the operating surplus.
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