RSH CEO highlights unprecedented spotlight on housing, as new ‘integrated’ regulation under way

On 1 April, a new era of regulation began in England, with a new set of consumer standards to which landlords must adhere, additional reporting requirements and a new regime of property inspections of the homes of large landlords under way.

 

Referring to the changes, the RSH chief described a new, “integrated approach to regulation, which puts economic and consumer regulation on the same footing”.

 

Likewise, rather than referring to “physical” inspections, Ms MacGregor spoke of “integrated inspections”. These would allow the regulator to continue to evaluate the governance and finances of registered providers, while “at the same time assessing whether a landlord is delivering the outcomes of [the] consumer standards”, she said.  

 

“In short, we expect providers to be able to demonstrate how well they know their stock, tenants and their business and the investment that will need.”

 

Financial pressures

The RSH chief executive referred to the range of pressures facing providers, and said that her organisation’s focus remains “as ever, at landlord level”.

 

“We will always use our analysis and insights to follow up with providers where that’s needed, and to take action, or at least ensure that action is being taken, wherever that’s necessary.”

 

However, the regulator will also continue to analyse the state of play at a sector level and “what that means for the risks that landlords need to be managing – including where those impact on political sentiment or import reputational risk”.

 

Referring to the economic environment, Ms MacGregor said that, for now at least, the return to higher interest rates appears to be a “structural shift”.

 

Indeed, the day after the conference, on Thursday (9 May), the Bank of England Monetary Policy Committee voted once again to maintain interest rates at their current level, of 5.25 per cent.

 

“We know that providers have been carefully considering when they might access the markets… given the pricing of new debt or re-financing”, Ms MacGregor told conference delegates.

 

But, citing figures from the Quarterly Survey for the three months to December 2023, which record £3.7bn of new finance being agreed, she said this showed that social housing “remains attractive to investors”. The figure compared with a three-year average of £2.8bn per quarter. 

 

What’s more, latest intelligence from the quarterly survey for Q4 (which is not yet published) suggests that fundraising “increased again in the last quarter of the year”, Ms MacGregor added.

 

Providers must continue to carefully monitor their finance needs and demonstrate that business and financial plans include “realistic assumptions on interest rates” where new finance or refinancing is needed, the RSH chief added.

 

“For example, when low fixed-rate debt is being refinanced we expect to see realistic, expert forecasts and assumptions in your business plans when you’re looking at that.

 

“And of course, maintaining access to liquidity should be one of the core purposes of your treasury team.”

 

Labour shortages

 

Later in the keynote speech, attention was drawn to the fact that labour shortages continue to be reported to the regulator, including in relation to repairs and maintenance. This has meant that delivery is slowing and forecasts on stock investment are also increasing.

 

“Of course, such investment, driven by building and fire safety requirements; achieving decency; addressing damp and mould, is welcome,” Ms MacGregor said. “But we recognise the pressure that it is placing on landlords’ cash resources, and on interest cover.”

 

Aggregate cash interest cover (excluding sales) was at 71 per cent at the end of December, the lowest on record, as reported in March in the latest Quarterly Survey data, for Q3.

 

This considered, it is “no surprise” that more providers are now graded both at V2 “and also V3”, Ms MacGregor said, while a quarter of providers currently have covenant carve-outs agreed with lenders.

 

The regulator expects providers and their boards to be “absolutely on top of their covenant position and engaging positively with funders at an early stage”, she added.

 

The Social Housing Finance Conference was taking place on the morning that the Levelling Up, Housing and Communities Select Committee published the findings of its inquiry into the sustainability and finances of the sector, with Clive Betts MP addressing delegates on a later session.

 

The report expressed concerns that the regulator’s ability to manage the insolvency of a large housing provider is “limited”.

 

“Although we have been reassured that the sector has confidence that the regulator has the tools to manage the insolvency of a large housing association, these tools are as yet untried and a situation where such tools are employed should be avoided,” the committee said in its report.

It also suggested that in view of the varied levels of financial risk across the sector, the regulator needs to take a “clearer and more proactive approach to regulating individual providers”.

 

It added: “Where registered providers face more financial risk, we recommend that the regulator should engage with them more regularly.”

 

Asked about these observations, Ms MacGregor said that some providers that have been getting into financial difficulty “would say that they get very regular contact” from the regulator.

 

She added: “Whenever we see signs of providers getting a little bit close to the edge, I think we’re pretty strongly engaged. And if you get into V3 territory, we’re kind of ‘all over you’ – it’s very, very regular engagement.”

 

The RSH chief said the fact that the ‘no loss on default’ record continued to be maintained was “a really, really important record for the sector”.  

 

“We’re really proud of that, we work really hard to maintain that,” she said. “But I think we’ll always look to adapt the intensity of our regulation, both according to individual circumstances for individual providers… but also taking into account that wider analysis in the round of where the sector overall is heading: what the future looks like in aggregate, whether we need additional information returns to address new challenges, new pressures and/or reflecting that in things like the Sector Risk Profile.”

 

Inspections

 

Turning to inspections and wider consumer regulation, Ms MacGregor reiterated previous messaging from the regulator that “even the best landlords have got room for improvement”.

 

Registered providers should now have finished collecting the first year of their tenant satisfaction measures (TSM) data, and should be prepared to publish this for tenants and, by 30 June, to submit this to the regulator.

 

“If that’s not the case, we will reflect that very clearly in our published judgement”, Ms MacGregor said.  

 

“We anticipate that for some, possibly many, the TSMs might give some difficult messages, some uncomfortable messages, but they’re a really important source of information for tenants in particular, in being able to hold their landlords accountable.

 

“And for providers and their boards, or councillors, to understand areas where improvement is needed.”

  

Ms MacGregor said that where the RSH found that providers needed to make improvements to deliver the outcomes of its standards, it would take account of a provider’s “capacity and capability” to deliver those improvements. This assessment would be made through its so-named willing-and-able test, and it would apply this when considering whether it needs to intervene.

 

Political and reputational risk

 

Ms MacGregor’s speech also highlighted the fact that the economic pressures impacting providers were playing out at a time that expectations of the sector remain high, including “improving the quality of existing homes and of services; engaging constructively and actively with tenants and listening to their views; and continuing to deliver new affordable homes”.

 

She added: “Those expectations bring both political and reputational risk, particularly in the run-up to a general election.

 

“It is important that the sector engages constructively on the range of consultations from government, which set out proposed policy changes intended to address some of those expectations, and that it works to ensure continued improvement in the face of those increasing political and tenant expectations.”

 

Regardless of the outcome of the election, the sector’s part in contributing to new supply would be “likely to continue to be a government priority”, Ms MacGregor cautioned, adding: “It is also likely that in a fiscally constrained world, there may be a renewed focus on providers delivering value for money.”

 

On both an individual and a collective level, providers would need to demonstrate that they have the governance required to manage their risks, and that they are “resilient and effective”.

 

This would be necessary, Ms MacGregor urged, not only to meet regulatory requirements, but also in order to “maintain their attractiveness to investors” and to retain – or, she posited, “gain?” –  the confidence of current and future governments and stakeholders.

 

She concluded: “It’s for the board of individualised landlords to ensure that their organisation knows how they want to navigate this complex world, and that they’re clear sighted about how they’re managing risk.”