Helen Shaw and Nicola Harcus - Scottish Housing Network's Annual Gathering - 27 October 2022

Helen Shaw and Nicola Harcus - Scottish Housing Network's Annual Gathering - 27 October 2022

Helen Shaw, Director of Regulation 

Thank you for inviting Nicola and myself along to speak to you today.

It’s good to see so many people here in person this morning and I hope that you find the day informative and of value.

I’ve been asked to give an update on the challenges we as regulator see facing the social housing sector. And I have to say given the dynamic and volatile world that we are all living in at the moment, that is a challenge in itself!

We have talked frequently as regulator about the challenges facing the sector;

• Brexit
• The impact of the pandemic and the ongoing recovery from it;
• The war in Ukraine and the uncertainty in the national and global economy which has contributed to the cost of living crisis;
• And rising costs, interest rates and inflation now at over 10% and all of the consequences of this for landlords and their tenants.

And most recently we have had the Scottish Government’s unprecedented intervention in the social rented sector with the introduction of the emergency legislation on rents and evictions which will freeze rents and place a moratorium on evictions until at least the end of March 2023.

So, I was going to talk about what we see as some of the big challenges facing the sector and what that means for us as regulator and then Nicola is going to talk in a bit more detail about some of the key pieces of work we have been doing around, annual risk assessment, asset management, tenant and resident safety and data accuracy as we work with the sector through these difficult times.

From a policy perspective, the key issue at the moment is the fact that the Scottish Government has introduced emergency legislation to bring in a freeze on increases in rents until at least the end of March 2023 for homes provided by social and private landlords.  The emergency legislation also gives Scottish Ministers the power to continue this intervention beyond March.  This is part of a package of measures the Scottish Government is introducing in response to the cost-of-living crisis.  We still don’t have certainty about what will happen beyond March 2023, although Scottish Ministers must advise landlords of what the position will be no later than the middle of January. 

While the rent freeze as it stands will have no immediate impact on almost all social landlords, I think it is clear how critical the Scottish Government views the role of rents in tackling the cost-of-living crisis and its willingness to intervene on rent policy.  And the Scottish Government has indicated that it wants to work with social landlords to agree what happens beyond March 2023. As regulator, we are involved in what is called the Task and Finish Group, which the government has established to take this work forward. The Group also includes representatives from the sector including SFHA, GWSF, ALACHO and COSLA.  

We recently published a rent increase thematic which confirmed that over the last six years, the average compound increase in rents has been 16.2%. This equates to an annualised rate of about 2.5%. This illustrates that social landlords have made significant efforts to minimise the level of rent increases, especially in the last couple of years, with many applying increases below those assumed in their business plans.

We know that a rent freeze or rent cap post 1 April 2023 will have consequences for landlords’ business plans and the services they deliver for tenants. We have written to landlords to remind them of the critical importance of reviewing their business plans. Carrying out an urgent and comprehensive review of business plans, and keeping these under review, will be critical to ensure landlords fully understand and factor in the current and developing context to understand the impact of this on their rent levels and their ability to deliver effectively for tenants and other service users.

It will be important that RSLs stress test their business plans around a range of assumptions, including increasing interest rates, above-inflation cost increases, increasing levels of arrears, sustained high inflation, and sub-inflation rent increases.

We are also encouraging RSLs to have an open dialogue with their lenders about the impact of the developments on rent increases, and the wider cost crisis, on their business plans. And to contact your Engagement Plan Lead Officer at SHR as soon as possible if you have any concerns about the matters including if you identify any potential financial viability concerns through the review of your business plan.

And we also understand the other pressures on landlords to

• meet the demands around net zero and the decarbonisation agenda;
• continue to invest in building new homes;
• and manage the significant cost pressures from;
• materials and labour for repairing, maintaining and improving existing tenants’ homes;
• pressure for pay increases for staff and other staff costs;
• energy costs for offices, costs for other office supplies, and vehicle fleet costs.

None of this is easy and the degree of uncertainty which the sector faces on a number of fronts makes for some really difficult decisions which landlords will need to take.

I’ll now handover to Nicola who will talk through some of the key pieces of work which we have been doing as we work with landlords through all of this.  

Nicola Harcus, Assistant Director of Regulation  

As Helen mentioned I will talk you through some of the some of the key pieces of work which we have been doing to support landlords as you navigate your way through uncertain times.

So, I’ll touch on the revised asset management recommended practice, data accuracy, the annual risk assessment and our tenant and resident safety survey. And of course, we are happy to take questions after that. 

As you might be aware, we are working on a recommended practice guide for landlords on integrated asset management. We commissioned Arneil Johnston to support us with this. Arneil Johnston facilitated two workshop sessions in the spring: one with a group of RSLs and one with a group of local authorities. These were to test the principles-based approach which the recommended practice will be focused around, and there seems to have been some really useful discussions and suggestions during them which have been fed into the draft.

The final document will be a practitioner’s perspective; so, it will be Arneil Johnston setting out how they would deliver an integrated approach to asset management. They’ve done this across Scotland for a range of both RSLs and local authorities, in terms of size, location and type. We think that this will be of real value to the sector once it’s out. A key message from the workshops was that any guidance shouldn’t be too prescriptive, and so we do want this to be beneficial across the wide spectrum of RSLs and local authorities in the sector. 

We took a similar approach in our recent advisory guidance on conducting compliance reviews against the regulatory standards, with Paul Rydquist setting out the lessons he had learned from carrying out these types of reviews.  We are just finalising the Asset Management Guidance and hope to publish it by the end of the year. 

We are currently in in the midst of our annual risk assessment and are determining the risks we will focus on, taking into account what information we currently have and what further information we might need to be able to deliver an effective risk assessment. This year our risk assessment will remain focussed on the following broad areas:

• Performance in the delivery of services to tenants;
• RSL Governance;
• Services for people who are or could become homeless;
• Financial health in RSLs;
• Development plans;
• Tenant and resident safety; and
• Stock quality.

We have just finalised the various strands earlier this week and will then take this to our board for approval and then publish the risks we will be focusing on in November.

We are very conscious of the timing of our risk assessment and when we seek further information from Landlords. We want to give you sufficient time to provide information or assurance, and time for us to consider what it means for our engagement and wider risk assessment ahead of finalising new engagement plans in March.   

As part of our risk assessment for last year, we asked landlords to complete a short Tenant and Resident Survey. This provided useful information to support our risk assessment and our planned engagement with landlords for 2022/23.

As you are aware social landlords submit an Annual Assurance Statement to us each year providing assurance that their organisation meets the Regulatory Standards of Governance and Financial Management and regulatory requirements.  This includes confirmation that they meet all of their legal duties and responsibilities in relation to health and safety. The purpose of the Tenant and Resident Safety Survey is to provide us with some additional, more detailed information about how landlords gain this assurance. We are particularly interested in understanding how landlords continue to gain assurance that their systems, policies, procedures and working practices ensure compliance with health and safety requirements.

We intend to issue a survey again this year to support the 2022/23 risk assessment and are currently consulting with representative bodies on the content of the survey. Following feedback on the timing of last year’s survey, we intend to bring the survey forward and issue in November this year. 

We will use the findings of the survey to help inform our annual risk assessment and our planned engagement with landlords in 2023/24.

You may also be aware SHN and Housemark have been working with the sector to develop sector led Tenant Health and Safety indicators. We are currently assessing how these may fit with the Charter with a view to potentially including these as future measures However this will require us to consult with you.

We use the ARC information to support the Risk Assessment; I'm sure many of you were involved in checking figures and submitting any corrections required, so thanks for your co-operation with this.  

This year data accuracy for SHQS compliance was by far the highest number of checks we have made in relation to data integrity, and one of the reasons behind this change in SHQS compliance figures does seem to have been carrying out electrical safety inspections.

We wrote out to RSL senior officers and local authority heads of housing to remind them that electrical safety inspections should have been considered as part of the most recent ARC return, as they now form part of the SHQS. A number of landlords have been in touch with us as they have been experiencing difficulty in carrying these inspections out, and we are engaging with those landlords as they address this. In our letter, we’ve asked those who didn't include any outstanding EICRs in their SHQS data to submit a correction. We’ll be considering the position with EICRs and SHQS compliance overall as part of our annual risk assessment. 

We also know that landlords are keen to understand the outcome of the Scottish Social Housing Charter review, and this is hot of the press from the Scottish Government earlier this week. SHR’s role is to monitor, assess and report on landlord’s compliance with the outcomes and standards of the Charter.  As we have now received the finalised document, we will have to assess our current indicators and ensure they are still fit for purpose. If changes to the indicators are required, then we will have to consult on the proposed changes. 

That’s a quick overview of some of the pieces of work for us at the moment. We can open up for wider discussion on these and any other questions you have.