Andrew Watson - SHARE corporate governance conference - 25 November 2020
Good morning. Thank you so much for inviting me to join you today. I am delighted to be with you today, albeit virtually rather than in person. This is my second SHARE Event – I spoke at your conference at Peebles in March last year. That seems like a long time ago now, in more ways than one. I recollect that I was asked at that conference how we evaluated the risks to Landlords of interest rates rising significantly; now a more pertinent question might be how landlords should approach negative interest rates – paying the bank to deposit money with it – just imagine.
By way of background for people who haven’t met me, I joined the Board of the Regulator in July 2017, having previously been Chair of Berwickshire Housing Association. So I have some experience of being regulated, as well as regulating.
I’ll focus today on three main things:
- a few words on the impact of the pandemic on landlords and tenants
- how we – SHR – have refocused our activities since March and what this means for the sector and for you as governing body members and staff who support governing bodies
- and what’s on the horizon.
Before doing that though, I thought it might be worthwhile spending just a moment on the basics – our objective and our functions – to set the scene.
We have one statutory objective: it’s about safeguarding and promoting the interests of tenants and other service users – people who are homeless, Gypsy/Travellers and factored owners. You may be familiar with this. But it’s worth highlighting at the top of the session, because it really does drive all we do.
Sitting below our objective, again set out in legislation, are our functions. These are slightly more specific than our objective, and they shape how we regulate. Our functions are about monitoring and assessing landlords, and - only where we need to - intervening to safeguard and promote tenants’ interests. We have a range of specific powers and duties – these are the tools we use to carry out our functions and meet our objective.
When I spoke with you just over a year and a half ago my main topic was our (then) new Regulatory Framework, which was just about to go live. At that point none of us had any idea that a year later the world would be turned upside down.
The impact of the pandemic on landlords - and on tenants - has been hugely challenging. We appreciate that, as landlords, you are having to respond to what for most organisations will be one of the most difficult set of circumstances you have had to face.
We understand the logistical and practical difficulties the pandemic has brought, many of which bring costs. These include things like equipping staff to work remotely, making offices safe for staff to return, and the provision of PPE. And on top of these, we are likely to see impacts on landlords supply chains in the short and longer term that may lead to increased costs.
Some of you will know that we are collecting data monthly from all landlords and publishing it to help us understand the impact of the pandemic. We know from this that most landlords are carrying a higher than normal level of empty homes, and so will have higher levels of lost rent than expected. Rent arrears have increased too – for example between April and August this year the level of arrears increased by around £15m.
We know too, and this I’m sure is something that will resonate with many people here today, that lockdown and the inability to meet in the normal way has brought challenges from a governance perspective to individual organisations. I know from my own experience as a Board member that it’s difficult to maintain relationships in the same way, contribute to meetings and make collective decisions remotely.
And we are well aware that social landlords have been on the frontline supporting their tenants, residents and local communities through the challenges of the pandemic, including those in financial hardship. There may be an appetite to keep some of those services running beyond this phase of the pandemic, and that may bring costs with it.
So, a hugely challenging set of financial and operational situations, including significant increases in costs and serious reductions in income. We don’t underestimate what this means for you.
From what we have seen, the sector moved at pace to adapt to the new and challenging environment. And landlords did so in a way that provided a good level of protection for their tenants and service users. That is to your credit. Clearly challenges remain in all of these areas, particularly now as the level of restrictions ramp back up again in many parts of the country.
So I think we are all aware that there are difficult days that still lie ahead.
I wanted to touch on how we have responded as a regulator since March, and in particular explain how we have temporarily changed our focus to take account of the pandemic.
We made an immediate move back in March to shift our regulatory focus to monitoring the impact of COVID-19 upon social landlords. This slide sets out some of the statement we made back on 18 March, signalling that we would be pulling back from much of our routine regulatory activities to concentrate on monitoring the impact and to work with others.
So, that was March. Beyond that immediate refocusing, what have we done?
We’ve worked as a member of the Social Housing Resilience Group, which was formed specifically to provide a strategic social housing response to the pandemic. Its members include all of the landlord representative bodies, the Scottish Government and ourselves.
As I’m sure you’ll know, this group plays an important part in supporting landlords to continue to provide the services and support that their tenants and communities need. It also has a role as a forum to consider national policy response issues. The recently-updated guide to restarting services is a good example of its work. And we share with the Group our data from monthly returns on key aspects of landlords’ operations including arrears, lets and homelessness.
As you will know, we carried out a review of our regulatory framework.
Our view was that there were some things that we wished to change to recognise the circumstances and impact of the pandemic.
We consulted on proposals, made some adjustments to take account of feedback, and published some temporary changes to our Regulatory Framework. These adjustments were aimed at helping us to meet our statutory objective and to support landlords to plan and manage the impact of the pandemic.
As I’m sure you’ll know, we have given landlords more time to complete your annual assurance statements – with the deadline extended from October to the end of November. For those of you involved in this task, I hope it’s gone – or is going – well.
In line with our decision earlier in the year to extend the deadline for landlords to submit Charter returns to us, we also lengthened the timeframe for landlords to report on Charter performance to tenants – the end of the year rather than October.
To accompany these changes, we published two pieces of guidance to assist landlords. The first of these is practical advice to help landlords consider how to complete the annual assurance statement in the context of Covid.
The second was supplementary advice to our existing business planning guidance. The focus of this additional advice is to assist each RSL to manage through the pandemic including the return to full service provision.
We know that many landlords will now be starting the process of reviewing their business plan and associated assumptions, to understand the impact of the pandemic on those plans and what that might mean for services and for rent levels in the coming years. Given the level of uncertainty and volatility in the world, that’s not a straightforward task.
I expect that given the nature of this event some of you will have considered this advice as you start to review your business plans. I would be interested to hear your thoughts on it and your own experiences.
So, that’s a quick run through how we’ve adjusted. I’ll finish by saying something about what’s on the horizon.
Of course, while the pandemic has a huge influence on the focus of our work this year, we continue to carry out a range of responsive regulatory activities such as notifiable events, significant performance failures and overseeing the small number of statutory intervention cases. We also continue to engage with our stakeholders. For example today, alongside speaking with you, our chair and chief executive are meeting with the Scottish Parliament’s local government and communities committee to discuss our work over the last year.
We also continue with a range of tasks and duties that we need to undertake to be an effective public body.
In terms of ‘what’s next’, I’ve highlighted four specific activities on this slide. The first of these points – consultation on EESSH2 – or the Energy Efficiency Standard in Social Housing to give it its full title – began earlier this month. Last year the Scottish Government confirmed that the second EESSH milestone for social rented houses is to be met by 31 December 2032. EESSH plays a big part in in ensuring tenants and their families have warm, affordable homes. We’re currently consulting on proposed indicators we will use to monitor landlords’ progress. We’ve committed to keep the number of indicators to a minimum. If this isn’t on your radar, I’d urge you to consider it in your organisation. Consultation is open until 15 January.
Each year, we assess risk in each social landlord to determine what assurance we need and what the landlord may need to do to improve. Before the end of this month we’ll publish a summary of the risks that we will focus on this year. Our regulatory risk assessment is one important way in which we carry out our statutory function. We will continue to carry out our risk assessment this year, although given the unique circumstances we find ourselves in, the focus will be a bit different. When we published the adjustments to our regulatory framework back in August we made a commitment that our risk assessment would take account of the unprecedented and demanding circumstances in which landlords are operating. Look out for our summary over the next few days.
Our regulatory risk assessment culminates in the publication of engagement plans for each social landlord. We will begin publishing updated engagement plans for landlords at the end of March 2021. For RSLs, these will include a regulatory status, which we put on hold earlier this year as a result of the pandemic.
So, to summarise. Our work as a regulator continues, with some adjustments. I can assure you that at SHR we understand the challenges you face as landlords and the very significant contribution you are making to support your tenants and local communities up and down the country. Your ability to operate effectively is challenging for sure, but never has it been more important.
SHR and landlords may have different roles, but we have a common sense of purpose in wanting to see a social rented sector that rides the storm of Covid and emerges strong out the other side.