Helen Shaw - SHARE Annual Conference - 15 March 2024
Good morning everyone and thank you for asking me along today.
I’ve been asked to give an update from our perspective as a Regulator so I wanted to cover two areas today.
Firstly I wanted to say a few words about our revised Regulatory Framework and then I wanted to talk about what we at the Regulator see as the key challenges for the social housing sector in the coming year.
So firstly in terms of our Regulatory Framework, as you will know we have recently published a revised Regulatory Framework following extensive discussion and consultation with stakeholders including tenants and the organisations we regulate.
In our early discussions with regulated bodies, the clear message we got was that given all of the other challenges that social landlords were facing, there was not an appetite to make substantial changes to the Regulatory Framework. And generally the feedback we got was that the current Framework worked well and was fit for purpose.
So that was the basis on which we took forward our review of the Regulatory Framework last year. Our focus in the review was very much on making changes which reflected our experience of regulating under the current framework and taking into account social landlords’ views on how this was implemented.
So what you will see in the revised Framework is not something which is radically different from the current Framework.
We will continue to focus on how landlords are:
- Listening and responding effectively to tenants
- Providing good quality and safe homes
- Keeping homes as affordable as possible
- Doing all they can to reduce the number of people experiencing homelessness
In terms of the changes we have made:
Annual assurance statements
- Here we have amended our statutory guidance to enable us each year to highlight specific issues in the statement. This will not ask landlords to tell us new information which they aren’t already collecting but instead we will identify areas where we require specific assurance for example in relation to tenant and resident safety.
- We have also said we will give as much advance notice of what these specific requirements will be by the end of March and at the latest by the end of April each year.
- We will also aim to have each specific assurance requirement for one year only, unless there is a good reason to maintain the requirement.
Significant Performance Failures
- We have shifted the language around this to call these “serious concerns". We have also enhanced clarity on when and what tenants can bring to us and how this fits with the other routes for tenants to complain to their landlord and the Scottish Public Services Ombudsman. And we have used more concise language in this.
- And we are shortly about to update our factsheet for tenants to reflect this approach and to include illustrations of what is a complaint and what should be brought to us.
Review of charter indicators
- We had initially planned to consult on a revised set of ARC indicators last year but it quickly became apparent in our conversations with the sector that we need to take more time to develop a comprehensive review of the Annual Return on the Charter (ARC) involving relevant experts and people from the social housing sector. So we will shortly establish an appropriate working group, or groups, to work with us to consider all of the indicators in the ARC and we will set out our more detailed timelines for this work.
- We will feed into this work, some of the responses we got in our consultation on the current indicators we collect. Comments on some of the customer satisfaction indicators and repairs right first time for example featured in the responses we got.
- We will also work with these groups to develop appropriate indicators for tenants and resident safety, including on damp and mould. Again we got some comments on this in our consultation and we are keen to work with the sector to develop meaningful indicators on this.
- We will also aim to include in this exercise the development of appropriate indicators for the Social Housing Net Zero Standard following the conclusion of the Scottish Government’s consultation on the proposed Standard.
- We will then consult formally on the revised ARC indicators later this year, with the new ARC being in place for collection year 2025/26 and landlords providing us with the first revised return in May 2026. We will continue with the existing ARC for collection years 2023/24 and 2024/25.
Notifiable events
- In response to feedback from the sector, we have provided greater clarity on our approach to Notifiable Events and emphasised that only the most significant and critical events require to be notified to us and we have emphasised in our updated guidance the importance of landlords being able to discuss any potential Notifiable Events with their Regulation Manager.
- We will publish an annual report on the type of Notifiable Events we receive and what we do with them to give landlords and others visibility on how we deal with these.
Regulatory status
- We have retained the three regulatory statuses and amended the second regulatory status (previously referred to as working towards compliance) to make it clearer this is and always has been a non compliant status.
We are now finalising our annual risk assessment of all social landlords. We set out in November last year the key risks that we have focussed on this year and we will publish the outcomes from this at the start of April to align with the implementation of the new regulatory framework.
We are currently finalising our analysis of this and will share the updated engagement plans that we intend to publish with landlords ahead of publication. We will also publish a summary of the outcomes from this. But ahead of this I wanted to talk about some of the key themes we are seeing emerging from our analysis:
Homelessness – just before Christmas we published an update to our thematic study on homelessness. Our original study in February 2023 highlighted that some councils were finding it increasingly difficult to fully meet their statutory duties on homelessness, particularly providing temporary accommodation to people experiencing homelessness.
The report further highlighted that councils are making considerable efforts in very challenging circumstances to deliver effective services but that there was an emerging risk of systemic failure in their homelessness services.
Our update in December found that this risk has materialised in some councils and that there is now systemic failure in the delivery of homelessness services in some areas of Scotland. We subsequently confirmed in updated engagement plans that there is systemic failure in Glasgow and Edinburgh. We are also acutely aware of the substantial pressures across the country and as part of our annual risk assessment have been engaging with all councils. The latest Scottish Government statistics show – and this is consistent with the challenges local authorities have been describing to us – that the number of homeless applications rose, there were more people and children than ever before in temporary accommodation, and those in temporary accommodation are spending longer in such accommodation.
Through our ongoing engagement with councils about their delivery of services for people who are homeless, and analysis of the Scottish Government data, we have found that breaches of statutory duties are now a regular occurrence in some councils. In their recently submitted Annual Assurance Statements 14 councils stated that they do not always fully comply with their duties to house people who are homeless; indeed, some councils now regularly acknowledge that they are not able to fully meet all of their statutory duties to people who are homeless and are planning service delivery with the assumption that they will not be able to fully meet all of these duties all of the time.
We are seeing a reduction in new homes being built at the same time as there is significant additional demand for homelessness services including for example from the Home Office’s initiative on streamlining asylum processing; one council has estimated that this is likely to result in more than 1,000 additional applications to the council for homeless assistance from people granted leave to remain by the end of this financial year.
Taking all of this together, it is clear that the demands on some councils now exceed their capacity to respond and in others it soon will; given this, we are of the view that there is systemic failure in the services provided to people who are homeless by some councils and that there is a heightened risk in other councils.
And what we have said is that systemic failure requires a systemic intervention. Over the longer term this will be about reducing the demands on the system by preventing homelessness. And the Scottish Government is proposing to introduce new duties around prevention but these will take some time to come in and may take even longer to impact on the number of people experiencing homelessness. We also know that there are some concerns that the new duties around prevention may actually result in increased demand on homelessness services.
We also know that local authorities work closely with RSLs to support the prevention of homelessness.
As well as building new homes, many RSLs undertake a range of activities, such as welfare and energy 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 RSLs, we see from our analysis of financial projections that RSLs plan to almost halve expenditure on these other activities in the coming five years. This is likely to reduce RSLs’ capacity to prevent homelessness and is another worrying indicator of the strains in the system.
So we recognise that for now the immediate focus needs to be about increasing the capacity in the system to meet the current level of demand and need. And there are a number of challenges for social landlords in doing this. For example, social landlords are seeing a lower turnover of homes than was the case before the pandemic, - around 1,700 fewer homes became empty during 2022/23 than in the previous year and nearly 5,000 fewer than in 2019/20.
Of course, this may reflect the success of work that landlords do to help people sustain their tenancies, or it may be that existing tenants are less keen to move home during a cost of living crisis. Whatever the reasons, this means that social landlords have fewer homes available to let to people in need, including those who are experiencing homelessness.
Financial strength – We have just published our analysis of RSLs’ audited financial statements this week. In this we have highlighted that RSLs’ financial position is now weaker than it has been for several years as a result of the tough economic and operating conditions.
RSL liquidity does however remain strong despite these challenging conditions but what we are seeing is reduced financial headroom and reduced capacity to respond to further new or unforeseen circumstances becomes more challenging.
We know that RSLs are facing continued uncertainty and volatility with the ongoing cost of living crisis, alongside significant and sustained cost increase, higher energy costs, higher borrowing costs and continuing supply chain disruption and labour scarcity.
This means that governing bodies could face difficult trade offs as finances tighten and as new challenges for example such as the presence of RAAC in social housing emerges.
Stock quality and new supply - Against this background, RSLs are facing the increasing financial pressures of building safety, decarbonisation and investment in existing homes at the same time as they are looking to build new homes and maintain service levels.
All of this planned activity could result in further reductions in RSLs’ capacity to manage any additional financial shocks
Based on the five year financial projections which RSLs gave us last May, we have also seen the total number of new homes RSLs forecast to build over the next five years reduce to 26,000 (down around 17% on the previous year’s projections). This potentially reduces rental income to the RSL as well as supply. But despite that fall, costs are only marginally down and we are also seeing an increased risk associated with development due to high inflation, labour shortages, supply chain issues and contractor insolvencies all of which is delaying and impacting RSL developments.
And that is before RSLs consider the impact of the reduction in the funding for the affordable supply programme which the government announced just before Christmas.
We are also seeing RSL expenditure on repairs and maintenance at a record levels as RSLs continue to contend with the recovery from the backlog from the pandemic but also more recently to reflect the ongoing impact of cost inflation. In some cases we have even seen some RSLs deciding to pause routine repairs to tackle for example a backlog of voids or catchup on tenant and resident safety requirements such as Electrical Installation and Condition Report (EICR) checks.
As well as routine cyclical maintenance and a component replacement programme, RSLs can expect additional significant and costly future investment in meeting the Social Housing Net Zero Standard (SHNZS). The SG’s consultation on the new standard which will replace the second Energy Efficiency Standard for Social Housing (EESSH2) has recently closed. The outcome of this consultation should help RSLs plan what investment will be needed and will be a key driver of RSLs medium to long term investment requirements.
It is important that RSLs fully understand the condition of their stock and what ongoing investment is needed for its upkeep Significant future investment will be required to de-carbonise stock towards the SG’s 2045 net zero carbon target. To achieve this, targeted investment in existing stock will be essential; to improve energy efficiency but also to aid the move away from fossil fuel-based heating.
In the most recent 5 year financial projections, fewer RSLs told us they had considered decarbonisation costs as part of their business planning (down to 19% of all RSLs) and those that did make provision recognised that this fell well short of the funding needed to decarbonise their homes.
While this position is understandable, it does mean one of the key risks to the sector is not currently being adequately covered within their financial projections and there is significant work and debate required to consider how the sector can address this.
Rents – a key question that we hear RSLs ask is how they can meet their obligations in relation to tenant and resident safety, decarbonisation and investment in their current and new homes while at the same time keeping rents affordable for their tenants. And this is at a time when costs continue to go up ; interest rates reached over 5% in August last year, inflation went up to 11% in October 2022 and while inflation has fallen since then it remains high and is continuing to put pressure on landlords and their tenants.
We have seen RSLs show considerable restraint when increasing their rents in recent years not surprisingly as they have worked to support their tenants through the pandemic and more recently the cost of living crisis. But we are seeing RSLs increase their rents this year often at around 7/8% or more and it is important that they continue to vigorously challenge every element of their cost base to ensure it is necessary, is focussed on the delivery of outcomes for tenants and represents value for money.
With increased costs and below inflation rent increases, RSLs have a reduced financial flexibility to respond to further challenges. This could have many implications for RSLs, tenants, and the SG, including a reduction in housebuilding, restrictions on maintenance expenditure and further reductions in expenditure on some of the wider role activities that support tenants and communities.
Conclusions: conscious that all of that paints a rather bleak picture. And in all of the time that I have worked in housing, I can’t recall quite such a challenging context.
We are very conscious that this context will challenge the resilience, capacity and confidence of social landlords as they continue to work to serve their tenants and service users. The ability to adapt and evolve to these challenges is critical not least to protect the positive contributions that RSLs have made across Scotland over the decades.
We recognise that the current context means that social landlords are likely to have to prioritise their attention and resources on the most critical and immediate issues, including tackling the acute problems in homelessness, decarbonising homes and alleviating fuel poverty, and maintaining tenant and resident safety.
To do this, it will be critical that RSLs continue to keep a clear focus on their business plans. We absolutely understand that this might also mean that governing bodies have to make some difficult decisions about rents or services or planned investment. But making these decisions in an informed way, has never been as important as it is now in a rapidly changing context to understand what are achievable priorities and how can they be delivered at the pace required.