Main messages
- Systemic failure is now impacting the delivery of homelessness services in some areas of Scotland. Two local authorities are impacted by systemic failure and a further eight are at heightened risk from systemic failure. We will engage with every local authority to gather further information and assurance about their homelessness services.
- Social landlords continue to operate in a complex and difficult context, and many tenants and service users are in financial hardship.
- Social landlords continue to face significant demands to invest in their existing homes, meet the net zero and decarbonisation targets as well as continue to deliver much needed new homes.
- Social landlords face significant costs in maintaining existing homes and in building new homes, as well as in other areas of expenditure but at the same time are working to ensure rents remain affordable for their tenants.
- The financial strength of RSLs is weakening in the face of such tough economic and operating conditions.
About our annual risk assessment
The annual risk assessment is one of the principal ways in which we carry out our statutory functions including how we plan the engagement we need with social landlords. We set out our approach and the risks we would focus on in our annual risk assessment in The risks we will focus on (November 2023).
For both local authorities and RSLs, we monitor, assess, report and intervene (as appropriate) on their performance of housing activities. This means how they deliver housing services to:
- tenants;
- people who are homeless;
- Gypsy/Travellers; and
- factored owners.
For RSLs, we also monitor, assess, report and intervene (as appropriate) on their governance and financial wellbeing. We do not have this role with local authorities.
We publish information on our assessment and planned engagement in an engagement plan for each social landlord, and we publish a regulatory status for every RSL. The regulatory status shows whether an RSL complies with regulatory requirements, is non-compliant and working towards compliance or where the landlord is non-compliant and we are taking statutory action. We also highlight where a regulatory status is under review.
The engagement plan for each landlord is available in our Landlord Directory. You can find out more about our risk assessment process, how we regulate and regulatory status in our recently updated Regulatory Framework.
Key strategic risks
The economic uncertainty and volatility over recent years has resulted in a complex and difficult operating context for social landlords, and hardship for many tenants and service users. This includes:
- a cost of living crisis with significant pressures on households, particularly from increased food and energy prices. The impacts have been especially acute for households with low income;
- the demand for homelessness services in some local authorities exceeding, or getting close to exceeding, their capacity to respond.
- social landlords facing pressures across much of their cost base such as in maintenance, staff costs, debt costs and energy;
- social landlords experiencing high and persistent inflation in the cost of building new homes; and
- increasing obligations for social landlords including those relating to tenant and resident safety, design standards for new build homes and net zero.
While inflation is now reducing, the cost of living crisis remains for many households, and social landlords continue to face significantly higher costs in maintaining existing homes, building new homes and in other areas of expenditure.
Systemic failure impacting the provision of services to homeless households
In our homeless thematic review which we published in February 2023 and updated in December 2023 we highlighted that systemic failure is now impacting the homeless services provided by a number of local authorities.
The latest Scottish Government data shows that the number of homeless applications is rising, there were more people and children than ever before in temporary accommodation and that they were spending longer in such accommodation. Failures by local authorities to meet statutory duties have increased significantly. From our on-going engagement with all local authorities, we anticipate that the position for many will continue to deteriorate in the short to medium term.
For many local authorities the demands in the homelessness system – the number of people who are homeless, and the level of need they have – exceed the capacity in the system to respond. Some local authorities are now at, or are approaching, the limits of their capacity to do more. This is what we mean by systemic failure.
The most acute impact of this is where a local authority does not have suitable temporary accommodation available when someone needs it. This results in the local authority breaching its statutory duties by either having to place the person in temporary accommodation that breaches the Unsuitable Accommodation Order (UAO) or not providing any temporary accommodation at all. These outcomes are becoming more commonplace because there are not enough homes becoming available to meet demand. Social landlords are seeing a lower turnover of homes than they did before the pandemic started in 2020; around 1,700 fewer homes became empty during 2022/23 than in the previous year and nearly 5,000 fewer than in 2019/20.
The rate at which social landlords are building new homes is falling, and that is a trend which is projected to continue in the coming years. The number of new homes RSLs are projecting to build over the next five years is down by 17% compared to the projections last year.
Argyll and Bute Council, City of Edinburgh Council, Glasgow City Council and Fife Council have declared housing emergencies, including in the provision of their homelessness services. Each of the local authorities has its own reasons for calling these emergencies, but they cite common issues around availability of permanent housing, a fundamental imbalance between the demand for homelessness services and the supply of temporary accommodation and pressure on local authority finances.
In our most recent programme of annual structured conversations with all local authorities we found that:
- most saw an increase in demand for homelessness services;
- around half advised that they were not able to always fully comply with statutory duties to provide suitable temporary accommodation when someone needed it; and
- most had fewer permanent homes becoming available to let to people in housing need, including people who are homeless.
Overall, many local authorities describe system wide issues severely restricting their capacity to manage homelessness.
Balancing investment with rent affordability
Keeping rents as affordable as possible for tenants is a principal objective of all social landlords. Despite inflation reducing in recent months, social landlords continue to have to balance keeping rents as low as possible with meeting their obligations to deliver on tenant and resident safety, the quality of the homes they provide and decarbonisation.
The Scottish Government will soon publish the new Social Housing Net Zero Standard (SHNZS) to replace the Energy Efficiency Standard for Social Housing (EESSH). Most landlords have yet to include in their financial plans the investment that will be needed to meet the new standard, and it remains unclear what level of financial support will be available to landlords to meet these potentially very substantial costs. This remains a significant uncertainty and risk for social landlords.
Many social landlords undertake a range of optional activities, such as welfare and energy, employment advice which help tenants to stay in their homes and sustain their tenancies. But these are not core housing services, and while a relatively small area of expenditure for most social landlords, we see from our analysis of RSL financial projections that RSLs as a whole plan to almost halve expenditure on these other activities in the next five years.
Interest rates remain at 5.25%, their highest level for more than 15 years. This has reduced many social landlords’ financial headroom and therefore their capacity to manage any additional financial shocks. RSL liquidity remains strong despite these challenging conditions.
Development of new affordable homes
Social landlords make a significant contribution to the number of affordable homes being built. However, this is increasingly more challenging given issues including:
- higher construction costs;
- higher borrowing costs;
- tender price uncertainty; and
- contractor insolvency.
This highlights the importance of effective oversight and management of development risk by social landlords. Our 2015 development thematic is an important reference for social landlords when they are making decisions about whether to undertake a new build project, and how they should manage risk when they decide to build new homes. The information provided to us by RSLs shows that some have reviewed their plans in the light of the challenging economic outlook, including the Scottish Government’s recent decision to reduce the budget for Affordable Supply Programme, and in the year ahead fewer RSLs will be building new homes.
RSLs must have an up to date and robust business plan, be alive to all the risks they may face and have adequate risk management and mitigation measures in place to help ensure that their viability and the interests of tenants and other service users are protected.
We outline additional strategic risk areas in Section 6. When taken together the scale and range of risks are significant. Nevertheless, as our National Report on the Charter shows, most social landlords continue to perform well in delivering services to their tenants.
Our engagement with RSLs
Regulatory status
We publish an engagement plan with a regulatory status for each RSL to provide a single view of the RSL’s governance, financial well-being and performance.
This year:
- 129 RSLs are Compliant, meaning they meet regulatory requirements, including the Standards of Governance and Financial Management, with an additional 3 RSLs under review (131 last year with an additional 3 under review); and
- 7 RSLs are Non-compliant: working towards compliance, meaning they do not meet regulatory requirements including the Standards of Governance and Financial Management, and are working to achieve compliance (5 last year were working towards compliance).
We are not currently using statutory powers in any RSLs. We did not use statutory powers last year.
The main reasons for our engagement with RSLs
We are engaging with:
- 5 RSLs about tenant and resident safety (9 last year);
- 18 RSLs about governance (19 last year) of which 8 are about planned organisational changes or transfers of engagements (5 last year);
- 32 RSLs about finance (19 last year);
- 5 RSLs about service quality (7 last year);
- 10 RSLs about the quality of homes they provide (5 last year);
- 31 RSLs about development (23 last year); and
- 24 RSLs because they are systemically important (unchanged).
We are engaging with a number of RSLs for more than one reason.
Where we are engaging with an RSL about finance and considering its business plan, we will also discuss with the RSL how it has satisfied itself that its rents are affordable for its tenants.
We have not determined a regulatory status for Copperworks Housing Association which transferred its engagements (or its homes) to Spire View Housing Association during the year.
We also removed three RSLs from the Register of Social landlords, following transfers to other RSLs. These were:
- Copperworks Housing Association;
- Strathclyde Camphill; and
- West Lothian Housing Partnership.
Our engagement with local authorities
The main reasons for our engagement with local authorities
In February 2023 we reported in Homelessness services in Scotland: A thematic review that some local authorities are finding it increasingly difficult to fully meet their statutory duties on homelessness, particularly providing temporary accommodation to people experiencing homelessness, and that there was an emerging risk of systemic failure in homelessness services. We updated our report in December 2023 to highlight that systemic failure is now impacting the delivery of homelessness services in some areas of Scotland.
Given this, during 2024/25 we will speak to every local authority to gather further information and assurance about their homelessness services. Our conversations with local authorities will have a particular focus on how they are delivering appropriate temporary accommodation for people experiencing homelessness.
We will engage with two local authorities who we regard as being impacted by systemic failure, and a further eight who are at heightened risk of being impacted by systemic failure.
We will engage with 25 local authorities about specific aspects of their homelessness service (17 last year). We will engage with:
- 9 local authorities about access (4 last year);
- 5 about assessment (10 last year);
- 18 about temporary accommodation (9 last year); and
- 15 about outcomes (15 last year).
We are engaging with some local authorities in more than one specific area of their services to people experiencing homelessness.
We are also engaging with local authorities on the following basis:
- 2 local authorities about progress with ensuring that Gypsy/Travellers sites meet the Scottish Government Minimum Site Standards and/or requirements in relation to fire safety (4 last year);
- 17 local authorities about tenant and resident safety (12 last year);
- 6 local authorities about service quality (6 last year); and
- 10 local authorities about stock quality (3 last year).
We are engaging with some local authorities in more than one of these areas.
Other strategic risk areas
Our annual risk assessment identified a number of notable risk areas, some of which have been evident for a while and others which have arisen more recently.
Financial management
The aggregate financial position of RSLs is weaker than it has been for some time. While RSLs withstood the difficult economic and operating conditions in 2022/23 and overall liquidity remains strong, some RSLs have reduced financial headroom and their financial capacity to respond to further challenges is diminished. The scale of the financial challenges faced by RSLs since March 2023 remained significant, reflecting the continuing difficulties and volatility in their operating environment. The increasing financial pressures of building safety, decarbonisation and investment in current homes also reduces the financial capacity of RSLs to respond to any further unforeseen events.
Quality of homes, and tenant and resident safety
Most homes provided by social landlords meet the Scottish Housing Quality Standard (SHQS) and statutory requirements on tenant and resident safety. We also considered the extent to which landlords were complying with requirements in relation to electrical safety testing and the installation of linked heat and smoke detectors which came into force in early 2022.
Some homes provided by some social landlords are failing or are in abeyance from the SHQS. Landlords report that this is mainly due to some homes not yet fully complying with requirements in relation to electrical safety testing and the installation of linked heat and smoke detectors. For some social landlords, local authorities in particular, there are still a significant number of their tenants’ homes where these requirements remain outstanding. We will engage with these social landlords to seek assurance that they address the backlog as a matter of priority and have regular and clear communication with their tenants about the importance of providing access for this work.
We wrote to all social landlords in December 2022 about mould and damp. We are engaging with one landlord about their management of mould and damp.
We also wrote to all social landlords in October 2023 to request information about reinforced autoclaved aerated concrete (RAAC). We requested this information to help provide a clear national assessment of RAAC in social housing in Scotland and to assist in the development of an appropriate policy response. We published updates in December 2023 and March 2024. We will engage with social landlords who have RAAC in some of their homes to seek assurance about their management of that RAAC.
Data accuracy
It is critical that social landlords have good quality data on their performance, their compliance with obligations and on the condition of their homes. We continue to find that some social landlords had not accurately reported their compliance with the SHQS in the Annual Return on the Charter or have a clear record of their compliance with their tenant and resident safety obligations To enable social landlords to make the best decisions for their tenants and other service users, it is essential that they have robust and accurate data.
Governance
We reviewed all social landlords’ Annual Assurance Statements and found that the vast majority of social landlords reported compliance with regulatory requirements and other obligations, and we agreed with those assessments on the basis of other information we consider in our risk assessment.
In Annual Assurance Statements, social landlords should continue to:
- set out any areas of material non-compliance, and describe briefly how it is planning to improve in those areas and the timeframe for improvement;
- confirm it has seen and considered appropriate evidence to support the level of assurance it has;
- confirm the date of the governing body meeting at which it considered and agreed the statement; and
- notify us during the year if anything happens which materially changes the level of assurance in its statement.
This was the third consecutive year we had considered the governing body minutes for all RSLs. We did this because it is a regulatory requirement for RSLs to make their minutes publicly available, including online, and to be open and accountable to tenants and other stakeholders. We continue to see on-going improvement in the availability and quality of minutes. Scope for further improvement remains for a small number of social landlords and these are in the following areas:
- publishing in a timely manner;
- managing attendance at meetings and ensuring meetings are quorate;
- ensuring published minutes have the optimal level of detail to ensure they are useful to tenants and other stakeholders; and
- ensuring effective scrutiny and constructive challenge.
We also identified some instances where RSLs had not met our statutory guidance on Notifiable Events or had failed to adhere to constitutional requirements in managing their governing bodies. We took steps to engage with RSLs to seek assurance where we identified concerns.
Cyber security
It is important that social landlords consider what security they need to put in place to protect their digital systems, including the personal data of tenants, other service users and staff. The National Cyber Security Centre has a wealth of material and tools on its website to help organisations defend themselves against the increasing cyber threat. Landlords should make proper provision for the costs associated with cyber security in business plans and financial forecasts.
Annex – risk assessment methodology
About the information we use
We use a range of information to inform our risk assessment. You can read more on this information in parts five and six of The risks we will focus on.
For all social landlords we gather information from past or current engagements, complaints, significant performance failures and whistleblowing. We also ask all social landlords to tell us about any tenant and resident safety matter which has been reported to or is being investigated by the Health and Safety Executive or reports from regulatory or statutory authorities or insurance providers, relating to safety concerns.
RSLs
As our statutory remit is broader for RSLs than our remit for local authorities, we also consider a range of financial information including their Annual Financial Statements, financial forecasts and loan portfolio details, and information from their auditors.
Each year governance is a key focus of our risk assessment. We consider a range of information in our assessment including:
- quantitative information from ARC submissions received by May 2023;
- notifiable events;
- any reports by auditors under S72 of the Housing (Scotland) Act 2010;
- Annual Financial Statements;
- a review of governing body minutes from RSL websites;
- a review of Annual Assurance Statements received by 31 October; and
- regulatory intelligence from current engagement.
We also used the quantitative and qualitative information we gather from social landlords in relation to:
- group structures (number of subsidiaries, complexity of arrangements and nature of subsidiary activity); and
- qualitative information including complaints about social landlords’ whistleblowing and significant performance failures.
As in previous years, we also considered:
- staff turnover and absence rates;
- how frequently the RSL rotates the appointment of its external auditor; and
- the RSL’s internal audit arrangements.
Systemically important RSLs
The measures we use to determine systemic importance have been chosen as indicators of the level of difficulty for us to fulfil our statutory objective of protecting tenants and other service users if the relevant RSLs were to experience financial difficulty. They are not an indication of the likelihood of that occurring.
The measures used this year for measuring systemic importance are:
- number of units owned;
- total turnover;
- peak debt; and
- debt per unit.
These measures are ranked and combined to give an overall score which is compared with the scores for other RSLs and a threshold we determine based upon the scores achieved. We also include any RSL that ranks highly in the first three measures and RSLs which have a strong geographic dependency.
We will engage with 24 RSLs on that basis in 2024/25 which is unchanged from the previous year. See which social landlords are systemically important. Loretto Housing Association becomes systemically important in 2024/25 while West of Scotland Housing Association is no longer systemically important.
Local authorities
We use the Scottish Government’s official statistics on homelessness, and the outcomes of a programme of structured conversations that we undertake each year with all local authorities. We also work through the risk assessment process with our partner scrutiny bodies, participating in the Strategic Scrutiny Group (SSG) led by Audit Scotland, to consider the full range of scrutiny activity for each local authority.
For 26 of the 32 local authorities, we assess both their landlord and homelessness services. We assess the homelessness service only for the six local authorities who have transferred their homes to RSLs.
Our focus on homelessness has a strong emphasis on social landlords’ discharge of their statutory duties. We seek assurance that people who are homeless, or who may become homeless, are able to access the statutory homelessness process, and that local authorities are complying with statutory duties. We monitor and assess the outcomes for people at the following key stages of the homelessness process:
- Access: whether local authorities comply with their statutory duties to take homeless applications from people who they have reason to believe are homeless or potentially homeless, ensure services are well publicised and that people can access the service easily;
- Assessment: how long it takes to complete homelessness assessments and the decisions made;
- Temporary accommodation: whether local authorities are complying with duties to offer temporary or emergency accommodation to people when they need it, whether they comply with the UAO, and ensure people do not spend too long in temporary accommodation; and
- Outcomes: whether people are housed quickly enough, how many homes social landlords let to people who are homeless and whether people sustain their tenancies.
How we review our engagement
We will review the engagement we will have with all social landlords in our next annual risk assessment. We may review our engagement with a landlord during the year if circumstances change or new information becomes available. If we do, we may publish an updated engagement plan for that landlord, and an updated Regulatory status for RSLs. We will set out the reasons for reviewing an RSL’s Regulatory status in an updated engagement plan.