Housing regulator looks to refocus VfM on accountability

Holding housing providers to account on meeting their core objectives looks set to form a more central focus of the new social housing regulator in England.

The statement of intent came as a sector-led working group hones its own set of proposed efficiency metrics, complete with a ‘scorecard’ and plans for a year-long pilot. The Efficiency Working Group scorecard covers five key areas; business health, development capacity and supply, outcomes, effective asset management and operating efficiencies.

The regulator may integrate some of those findings into its own assessments, alongside a rebalancing of a focus from transparency around value for money (VfM) to accountability, putting it ‘higher up the value chain’ and in ‘strategic conversations with boards’. It may include assessing outputs such as supply, but will depend wholly on the objectives of the provider in question.

The regulation leadership team at the Homes and Communities Agency (HCA) set out their views to Social Housing after a government review of the HCA recommended the separation of its regulatory and investments functions.

Registered providers look set to be charged regulatory fees from April 2017, which is also the implementation date for deregulatory measures set out in the Housing and Planning Act - such as the removal of merger and disposal consents and a new administration regime.

‘We genuinely think there’s more to be done on VfM’

Housing association boards must be ‘really honest with themselves’ over whether they are best delivering their objectives through their existing structures and operations, the English social housing regulator has said.

Organisational make-up, asset management, cost sharing groups and mergers should all be considered, according to Jonathan Walters, the HCA’s deputy director for performance and strategy and Fiona MacGregor, executive director of regulation, who set out their stance following the UK government’s review recommending a new standalone regulator.

While not a direct result of plans for its new status - set to come into effect in April 2018 - the regulator is planning to hone its approach to value for money (VfM). It is conscious the focus has been on the ‘transparency’ aspect of VfM in recent years, rather than accountability.

A number of associations have been downgraded over the way they display VfM, for example.

Ms MacGregor said there are ‘clear signs’ already that a lot of providers are taking VfM seriously, but the four-year social and affordable rent cut was a ‘wake-up call’ for many. She said the sector’s reputation should not be impacted ‘by a few who are just not stepping up to the mark’.

‘Reaching judgements to make examples of people is not necessarily the type of space we’d be in. But if we come to that judgement for all the right reasons, then we wouldn’t be afraid to make it public.

‘We genuinely think there’s more to be done on VfM and we can and probably will go further.’

Mr Walters said boards ‘need to be really honest with themselves about whether they are best delivering their objectives’.

He said: ‘We want [boards] to be thinking ‘we hold this range of assets, we’re organised in this structure, is that the best way to deliver our objectives? Should we be thinking about cost sharing groups? Should we be thinkingabout constitutional changes, mergers or simplifying group structures?’

Boards need to be really honest with themselves about whether they are best delivering their objectives

‘I think we started off on that conversation four years ago but very quickly you get stuck in the transparency bit. And as a regulator it’s better to be higher up the value chain, in that strategic conversation with boards.

‘Sometimes boards really get that and can articulate it. Sometimes boards and executives can’t. Where we’re finding that to be a problem is exactly where we should be downgrading people and saying the board is not doing its job as trustees of these assets - often charitable trustees of these assets.’

Mr Walters added that for some organisations it will ‘quite rightly be about supply’, given the communities they serve. But in some parts of the country, net additional supply ‘is probably not what the housing market needs’ and the focus could be regeneration, investment in communities, skills and employment, or other services.

He stressed: ‘We’re absolutely not saying, ‘build homes in every part of the country’, because that’s not always going to be the answer.

‘And nor are we saying there should be 1500, 500, 20 housing associations.’

The pair added that their position is dictated by the regulator’s own fundamental objectives and its accountability to Parliament.

‘Parliament recognises that this is a sector without those commercial pressures. And without a regulator to hold people to account, you can as boards sometimes not ask yourselves those difficult questions,’ added Mr Walters.

That is why the sector should ‘own its own set of metrics’ on outputs, which can be ‘genuinely helpful for transparency’, said Ms MacGregor.

She welcomed the Efficiency Working Group, led by Home Group chief executive Mark Henderson and made up of associations from all regions and of all sizes. The working group, which has support from the Department forCommunities and Local Government and the National Housing Federation, has proposed a ‘sector scorecard’ of efficiency indicators.

Ms MacGregor said the regulator may think about stipulating a ‘relatively low number’ of output metrics to complement those it already collects on costs, while asking the working group to give them some numbers to publish.

‘Lift and shift’

Ms MacGregor said plans for the regulator to become a non-departmental public body will see a straight ‘lift and shift’ of regulatory functions, including a move from a regulation committee to a board.

Despite talk about the demise of social housing, it is set to be called the Social Housing Regulator, to reflect the tenure that it is legally there to regulate.

Ms MacGregor conceded that the ‘irony is not lost’ with the government review saying the HCA should consider merger and re-think how it shows best value. There were interviews with comparator bodies, such as the Charity Commission and Housing Ombudsman, but they found ‘a clear lack of synergies’.

The review concluded that the current focus on economic regulation ‘provides assurance in a sector with around £67bn of private debt and underpins the preferential lending rates available to registered providers which are crucial in supporting housing supply’.

The secretary of state’s foreword focused on the HCA’s role in housing delivery. But Ms MacGregor said the future of the regulator and HCA were looked at separately but ‘mutually reinforced’ when taken together.

One concern was a potential conflict of interest as the HCA investments arm becomes more of a secured creditor. The change aims to eradicate any perception of ‘inside trading’ on both sides, for example, should a housing association fall into financial difficulty.

Mr Walters added: ‘Once you have secured investment in there and the regulator is trying to broker the deal with secured creditors, but one of the secured creditors is the same organisation…[funders] cannot go back to their own credit committees and say ‘it’ll be fine’.’