The Social Housing Green Paper

The merry-go-round of Social Housing Regulation

14/08/2018

The long-awaited Social Housing Green Paper was published today and is accompanied by a consultation on the future shape of social housing regulation (the Consultation).

Both documents pose questions to the sector and its stakeholders about the future of social housing. The Consultation itself marks the third significant review of how private registered providers (PRPs) are regulated in four years, although, significantly, this is the first major review which includes consumer (as well as economic) regulation since the Tenant Services Authority (TSA) became part of the Homes and Communities Agency. It will therefore also have an impact on local authority landlords.

The Consultation does not include areas where the Government has recently set policy or legislated – we can therefore assume that it will not result in any roll-back on any of the de-regulatory measures that were introduced in the Housing and Planning Act 2016; the Government is particularly mindful that the Office of National Statistics has only recently reversed its decision to classify PRPs as 'Public Non-Financial Corporations'.

However, what is clear from the Consultation objectives is that there will be a revised Regulatory Framework, and potentially a new legislative framework upon which this will be built. We set out below a summary of key points arising from both documents, and our initial view on the likely targets for regulatory reform.

1.  Co-regulation

The principle that responsibility for compliance with the standards lies with the board of a PRP / Councillors is the bedrock of the Regulator's current approach. This is borne out of the legislation underpinning the Regulator's role, which requires it to exercise its functions in a way that minimises interference. 

The consultation specifically seeks feedback on whether this approach to regulation should continue and, in particular, the Green Paper envisages a much more active role for the Regulator in relation to consumer regulation. Interestingly, the co-regulatory approach was originally proposed in 2007 review of social housing regulation, "Every Tenant Matters" which ultimately led to the establishment of the TSA as the 'champion of tenants'. The 2007 review draws many similar conclusions to that of the Green Paper; at that time, the TSA was formed to address 'the imbalance of bargaining power between provider and tenant'

2.  Consumer regulation and complaints handling

The Regulator's most recent Consumer Regulation Review states that its 'consumer regulation role is reactive which means that we do not routinely monitor or seek assurance of compliance with the consumer standards. 'At the moment, the Regulator can only use its regulatory powers in relation to consumer regulation where there has been a breach of a standard which has caused, or could cause, 'serious detriment' (i.e. harm). The Regulator relies on direct feedback from customers or other stakeholders in this regard, but will usually only investigate concerns/complaints where these are corroborated by other information available, or where the seriousness of the concern indicates that the problem may be systemic. Otherwise, complaints are dealt with by the Housing Ombudsman.

The Green Paper itself focuses on a 'new deal' for social tenants in light of the Grenfell tragedy, moving the regulatory focus away from reactive engagement based on risk of harm, to regulation of social landlords as 'service providers', reminiscent of the TSA's approach. This includes proposals around reporting against key performance indicators (KPIs), and the introduction of league tables.

For most social landlords, customers are already at the heart of their business and therefore they will not be concerned at the opportunity to publicly showcase this. However, there is a risk that KPIs lead to a 'tick box' approach that does not accurately reflect how engagement is embedded within an organisation. In a sector which is becoming increasingly diverse in its approach to housing management and resident engagement, it will be challenging to set benchmarks that will enable landlords to be compared in a meaningful way.

Other key points in the Green Paper around customer engagement include: 

  • A new stock transfer programme to transfer local authority housing to community-based PRPs
  • Review of the 'Decent Homes Standard'
  • Proposed Code of Practice to sit alongside the Consumer Standards to demonstrate best practice (which may hint at the possibility of a 'lighter touch' approach to the review)
  • Potentially more prescriptive complaints-handling processes and set forms of tenant engagement in governance structures
  • Increasing resident power over service provision – to reflect the shift to landlords as 'service providers'
  • Review of the 'Right to Manage' and effectiveness of Tenant Management Organisations.

3.  Economic Standards

The Regulator has focused on larger providers who would be difficult or even impossible to rescue, as well as those providers exposed to market sales risk. However, recent events have highlighted the vulnerability of smaller providers (less than 1,000 units). The current light-touch approach means that nearly 80% of the sector is not subject to proactive regulation. A revised Regulatory Framework may therefore see proposals to increase regulation of smaller PRPs.The gradual increase in the number of for-profit landlords entering the sector may also lead to a more robust approach in regulating such providers, and the Green Paper proposes to link access to the Affordable Homes Programme to achievement of KPIs. The 'league tables' may therefore offer not-for-profits the opportunity to differentiate themselves in terms of level of service. 

4.  Enforcement powers

The Green Paper suggests that the Regulator will be given 'sharper teeth' in relation to consumer regulation. At the moment, a high bar would need to be met to result in enforcement powers being used here; likely a serious detriment that results in a downgrade to a non-compliant regulatory grading. It is likely that any new regulatory regime will lower this bar to enable more immediate action to be taken where there is "consistently inadequate level of service to residents". It is not clear what form this could take, although the Government has indicated that it will consider financial penalties and rewards (see the comment above relating to the Affordable Homes Programme, and below relating to funding certainty). 

Further key points: 

  1. An independent Regulator - it is not clear whether this review will lead to a further delay in the spin out of the Regulator from Homes England, previously scheduled for October.
  2. Funding certainty - the Green Paper re-iterates the Government's commitment to a revised rent settlement of CPI +1% to 2025, but also states that it will actively investigate the benefits of 'going further by providing funding certainty to some landlords' over an even longer period.
  3. Right to Buy receipts – the Green Paper is also accompanied by a consultation on the Use of receipts from right to buy sales aimed at understanding how to make it easier for local authorities to build more homes.
  4. Housing companies – although housing companies are highlighted as a useful tool for local authorities to contribute to housing supply, the Government has expressed concern in the past about them being used as a tool to 'avoid' the right to buy. The Paper indicates that local authorities will now be expected to evidence home ownership opportunities within housing companies where they are seeking consent to transfer properties.
  5. Focus on home ownership – the Paper refers briefly to the Government's on-going commitment to the voluntary right to buy scheme, and proposals to introduce flexibility for shared ownership tenants to staircase through purchasing smaller increments of equity (as little as 1%).
  6. Fixed term tenancies – proposals in the Housing and Planning Act 2016 requiring local authorities to offer fixed term tenancies have been dropped.
  7. Strategic partnerships – Homes England and the Greater London Authority will continue to enter into strategic partnerships for the delivery of new homes.

The challenge for the sector is how to use this opportunity to engage in a positive way that enables the Government to address residents' concerns whilst setting a new Regulatory Framework that is 'fit for the future'.

The review is open until 6 November 2018.  Bevan Brittan will be gathering feedback from clients to contribute a collaborative response to the consultation - please get in touch with our team if you would like to feed-in.

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