George Walker - SHFA's Governing Body Members' Conference - 7 February 2025
Good afternoon everyone. Thank you for inviting me to this important - and very timely - event. At SHR we very much value our positive relationship with the SFHA and our ongoing dialogue. Indeed Sally and I met just last week.
My tenure as Chair of SHR comes to an end in June this year, so I’m particularly pleased to be speaking with you this afternoon as this is likely to be the last opportunity I will have to speak with many of you.
I’ve been asked to explore the many challenges facing the sector and to speak about SHR’s expectations of governing body members in this context.
As I’m sure you know all too well, the list of challenges is long. Perhaps longer than it’s ever been. I’ll start by painting a picture of what we at the Regulator see as the main challenges through our regulatory prism. I’ll then spend a bit of time on the key role you, as governing body members, have in leading your organisation through this complex landscape.
Before I get started though, I want to make a point about the importance we place on engaging with our stakeholders, particularly social landlords and their representatives. Working closely with - and listening to - our stakeholders, is absolutely crucial to our work. In fact it’s one of the four priorities we set ourselves in our three year strategy. It’s an essential way to help us to understand the challenges the sector faces, the concerns, and the emerging risks that may impact on social housing.
We regularly meet and engage with the representative bodies SFHA, ALACHO and GWSF at Board member and officer level.
We also have three groups to act as standing forums of senior people from RSLs to discuss regularly with us important issues in social housing. Some of you here today may be involved in one of these:
- the Rural and Islands Landlord Group
- the Urban Landlord Group
- the Systemically Important Landlord Group
Together, these groups equate to around a third of all RSLs and give us a really important insight into your perspective. And we will soon be starting a refresh of the membership of the first two of these groups, so please look out for that and please do let us know if you would be interested in joining one of the groups.
We also engage with lenders to the sector and other bodies such as the advice agencies to help us ensure we understand the challenges facing the sector from a range of perspectives.
So, to the challenges. All of what follows is set in the global context of an unpredictable and volatile post-pandemic world, the wars in Ukraine and the Middle East, and recent global political changes, with the cost of living crisis closer to home.
Last year the Scottish Parliament declared a national housing emergency. The declaration is clearly significant, although it is largely symbolic. It doesn’t trigger any defined actions or release additional resources. And it sits alongside the declaration of local emergencies in 13 local authority areas.
The Scottish Government is working with its stakeholders to agree an action plan in response to the declaration. In our work, we are seeing acute issues in housing which reflect some of the reasons which have led to the declaration of the housing emergency.
Most significantly, we are seeing a marked increase in failures by local authorities to meet their statutory duties in relation to temporary accommodation.
In many areas of Scotland, 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. For some councils, the increase in capacity that is needed goes beyond anything they can deliver alone. And that is what we mean when we describe some councils as being impacted by systemic failure.
As things stand, there is a real risk of statutory failures becoming endemic in some council areas.
Systemic failure requires a systemic intervention. Over the longer term this is about reducing the demands on the system by preventing homelessness. But for now, the immediate focus has to be about increasing the capacity in the system to meet the current level of demand and need. In particular, with over 10,000 children in temporary accommodation, and the reality that building more permanent homes will take a long time, providing more better quality temporary accommodation is essential in the short to medium term. And we at SHR firmly believe this must happen. So, it’s important that we consider all options to achieve that.
In the context of constrained public finances, it does not feel like there are easy or quick actions that will end the current situation speedily. It looks likely that the next year will be at least as tough as the last one.
We’re clear that the challenges in homelessness are not an exclusively local authority issue. But of course, we also know they also have an acute impact in your own organisations. The housing emergency was the central discussion point of the most recent meeting of our Urban Landlord Group. Members highlighted the increasing proportion of lets they are making to people who are homeless, discussed the scale of the impact that empty homes can make, and expressed an appetite for a policy response focusing on the whole housing system.
Moving on to rents. Keeping rents as affordable as possible for tenants is a primary aim of all social landlords. But we know you do have to balance keeping rents as low as possible with meeting your obligations to deliver on tenant and resident safety, the quality of the homes you provide, and funding the decarbonisation of homes.
And we do recognise that the inflation you are experiencing as social landlords has, and is, generally running well above the headline rate, with significant challenges around increased costs, including those for:
- materials and labour for repairing, maintaining and improving tenants’ homes
- insurance costs
- pay increases for staff, and
- energy costs for offices and costs for other office supplies.
Our evidence is that most landlords have shown restraint when increasing rents in recent years in recognition of the difficult financial position for many of your tenants. I commend you for that. But I also know that as a result, you have received lower income than you have originally planned for, leading to reduced resources for investing in homes and services.
At the same time, we are acutely aware that tenants and their families are still facing an incredibly difficult and worrying time with household finances under real strain. This comes through loud and clear from our work with the National Panel of Tenants and Service Users.
The new emerging political landscape after the US elections brings a potential impact on the UK economy if there are tariffs imposed on imports. This could have a significant impact if these happen and could see inflation rise and interest rates stay put or even rise again.
Sitting alongside all of this, you as landlords are facing uncertainty around future cost increases, many of which are outwith your control. For example, the recent announcement of increases in employers’ National Insurance Contributions brings new and unfunded costs we know you will have to meet. We have estimated that this could cost RSLs in the region of £15 million each year, and will hit RSLs that provide care services particularly hard, given the higher levels of staff employed to deliver such services.
Landlords are also facing significant and new costs for investing in existing homes to meet increasing standards for energy efficiency and to achieve the decarbonisation of heating. Alongside that, many landlords continue to invest in building new homes.
All of this adds to the pressure to increase rents.
Taking all of this together, it is clear that the current annual rent setting exercise, and potentially those for some years to come, will be the most challenging that you will have faced, in which you will need to consider rising and new costs while recognising the financial hardship that is a reality for many of your tenants.
We recently published our annual summary of RSLs’ financial projections. Overall, the sector’s financial position is weaker than it has been for several years.
In order to deal with the financial headwinds caused by significant and sustained cost increases, many of which have been even higher for RSLs, one of the options RSLs have taken is to cut the amount they plan to spend on building new social homes.
Whilst this reduction in new building has been necessary for some RSLs to remain financially secure, it unfortunately comes at a time when the country needs to build significantly more social housing.
The final challenge I’ll cover this afternoon is tenant and resident safety. This remains a key focus for us, including RAAC, cladding and damp and mould.
Damp and mould is a serious problem for some tenants, and it’s often a challenge with multiple complex layers. In recent years we have worked with others - including the SFHA - to publish a briefing note for landlords. And we have added a specific reference on compliance with tenant safety duties, including damp and mould, in your Annual Assurance Statements. You will be aware I’m sure that we have recently introduced new specific indicators on damp and mould in our Annual Return on the Charter. Our aim in doing this is to provide meaningful information on this complex problem, and to gain assurance on how landlords are dealing with it. We’re committed to reviewing the indicators after the first year to ensure they’re focusing on the right things.
Taken together, that is a sobering and long list of significant challenges for the RSL sector.
You’ll doubtless have heard me or my SHR colleagues on similar platforms over the years talk about the importance of good governance. Never has that been truer than today. As governing body members, you have a crucial role to play in navigating your organisation through what are very choppy waters.
We set out in our Regulatory Framework our risk -based, proportionate and assurance-based approach to regulation. Landlord self-assurance is key to our approach to regulation. This is about you, as RSLs, assuring yourself, your tenants, and then us.
As governing body members you play a lead role in ensuring your organisation is self-aware, analytical, open and honest about its performance, and are able to identify and drive improvement. So, it will be no surprise that when we engage with landlords, we look first at what you have done to assure yourselves that you are meeting regulatory requirements.
For example, looking closely at how you can manage your businesses efficiently, before passing costs on to tenants, remains a very important discipline. In the current context it is vital that landlords vigorously challenge every element of expenditure to ensure that it is necessary, it is focused on delivery of outcomes for tenants and others who use their services, and that it represents value for money. And it is important that landlords are able to demonstrate to their tenants that they have done this.
It also remains important you are having meaningful and effective ongoing dialogue with tenants around what’s important to them and what they want, and can afford, to pay for.
Our requirement for Annual Assurance Statements from landlords is now firmly embedded as a key strand of assurance, and I’m particularly pleased about that. The Statements support openness and a culture of continuous assurance and improvement. This, rightly, places responsibility firmly on you as landlords to firstly assure yourselves and then to confirm to your tenants, and then to us, that you are meeting regulatory requirements and that the information you provide to us is accurate. I’d like to thank everyone in the room today for the way the RSL sector has embraced the concept of Annual Assurance Statements and helped make it work effectively.
We have also worked with the SFHA, ALACHO and GWSF to develop an extensive toolkit to help landlords to get the assurance that they need across the full range of their activities. For anyone who isn’t yet taking advantage of this I’d commend it to you as a valuable, sector-led resource.
The Assurance Statements underpin our published engagement plans for all landlords and a clear regulatory status for every RSL. I believe governance in the sector is better for it. And I am grateful to landlords – to governing body members in particular - for helping to deliver this.
We also encourage landlords to talk to us as soon as possible when they identify challenges. In most cases well-run landlords take swift and effective action to tackle any problems they find. They tell us when they find a problem and tell us what they are doing to fix the problem. And that’s exactly what we want to see.
Where an RSL faces challenges, we will in the first instance seek assurance that it has the capacity and capability to address these issues. Where that is not the case, we will work with the organisation to ensure that it has the right support.
For a few years now we have been encouraging the SFHA, and GWSF, to think about developing a sector-led improvement service – independent from the Regulator – to provide support to landlords which may be struggling with serious issues.
Until now, it has really only been SHR that provides such support to landlords in difficulty. And I’m pleased that the SFHA has established a list of volunteers who can provide peer support to RSLs which may need it and the GWSF has announced that it has established a volunteer support panel as a source of help for RSLs facing difficulties and unforeseen challenges. We very much welcome these initiatives and would be keen to see ideas like these developed further as an alternative to statutory intervention.
I’ve covered a lot of ground this afternoon. I’m conscious that describing the challenges has taken up a good part of my time. That, unfortunately, is reflective of the landscape we are in.
My time as chair of the Regulator is coming to an end. My second and final term ends in June. In my time in this role I have been mightily impressed with the commitment, passion and knowledge of the people involved in social housing in Scotland – tenants, governing body members and staff alike, and supported by the leadership of bodies like the SFHA.
Social landlords are community anchors, providing key services for a significant part of Scotland’s population right across the country. Working together, we all have a shared interest in supporting tenants and sustaining thriving communities and you as governing body members are at the forefront of that work. The challenges are real, but it is worth reflecting that social landlords in Scotland have weathered many storms over the years in which they have been building homes and sustaining communities, so that’s a track record we should take some comfort from and of course be proud of.
Thank you all.