Ewan Fraser - Share Corporate Governance Event - 28 November 2019

Ewan Fraser - SHARE Corporate Governance Event - 28 November 2019

Good morning and thank you for inviting me to speak with you today.

And I’m delighted to be here. I know that many of you play a part in overseeing your RSL’s governance. So I hope that what I’ll cover today will be of interest to you in your role.

I’d like to focus on two topics:

  • updating you on our new regulatory framework, specifically the new annual assurance statements, and
  • highlighting issues that are particularly important to the Regulator right now.

We have time for a conversation after I finish, so we can also cover anything else you might want to raise.

I should start by introducing myself...

I spent 33 years in housing starting in 1983 with Castle Rock, forming and running Dunedin Housing in 1998 and merging with Canmore in 2005 to form Dunedin Canmore where I was the Chief Executive.
I did this until my retirement at the end of 2016. As some of you may be aware Dunedin Canmore joined the Wheatley Group in 2015.

So I have a lot of experience in developing and running an RSL. From Development and Maintenance to also developing homeless services with a hostel and focusing on Pathways out of Homelessness, with ongoing support the key here, I have a fairly broad depth of housing services.

Another thing is that I have always been really involved with Governance and worked closely with the Regulator. In fact I have seen the regulator develop over the years and I believe they really have made a positive contribution as they’ve evolved, particularly in the early years of private finance.

So I know little of the history of regulation in the housing sector.

The question is, so why did I join the Regulator?

The SHR Board were very keen to have a range and a balance of skills around the Board room table. I really thought I could bring something as a practitioner and make a positive contribution. So I applied and here I am.

But I have only been a member since April this year ….so still learning.

Anyway enough about me….

As I’m sure you’ll know, one of the main changes introduced by our new Regulatory Framework this year is the requirement for all social landlords to submit assurance statements to us by the end of October. Annual assurance statements support a culture of openness and continuous assurance.

We published landlords’ Assurance Statements on our website on 7 November. We’re now engaging with the small number of landlords we have not yet received statements from.

We’ll assess each Statement as part of our regulatory risk assessment and publish an engagement plan for each landlord at the end of March 2020. For RSLs, the engagement plan will include a “regulatory status”. This is another new aspect of our regulatory framework, and it will be the first time we have done this for every RSL. This will be our judgment on whether the RSL complies with regulatory standards and requirements.

Given the focus of today’s event, I expect that many of the RSL staff in the room would have been involved in working with colleagues and governing bodies to prepare for submitting your organisation’s first annual assurance statement.

I’ll say a little about what happens next on assurance statements, but before I do that I want to pick up on one point that has been a feature of some of our discussions with landlords and with tenants in the run-up to the submission date.

The Statements are made by the board or committee; it is their statement that they are assured. We’ve been asked about the place of tenants in all of this and whether landlords need to get sign off from tenants for the Annual Assurance Statement.

It’s the governing body’s responsibility to make the Annual Assurance Statement, and to make this available to tenants. Of course it will be important that boards and committees understand the views of tenants and other customers when they are getting assurance or making decisions that affect them.

So, getting tenants’ views on your organisation’s performance is a critical part of your board or committee’s monitoring of performance.

So, looking ahead to future assurance statements, it is important that you embed ways to get tenant feedback and for your board or committee to use that feedback when getting assurance. In that way they will already have that assurance about tenants’ views when they make the Annual Assurance Statement.

We are also keen that we are all able to pause…. and reflect… upon what has gone well and what might have gone better in this first year of Annual Assurance Statements.

We want to support landlords to effectively embed the new regulatory requirements. One way we’ll do this is by providing feedback to landlords on their submitted statements.

Also, we announced earlier this month that we will shortly begin a project to capture the lessons from this first round and publish a Lessons Learned report by March next year.

We’ll visit 10 landlords over December and January to find out more about how they produced their Annual Assurance Statement. We selected the landlords to achieve a geographical mix, a range of sizes and types of landlords, and of different types of Assurance Statements.

During the visits we’ll be asking landlords about their experience in producing the first Annual Assurance Statements, the approach they took and how they gained self-assurance, particularly around rent affordability and tenant safety.

We’ll publish the results of the visits to share positive practice and lessons learned.

All of this is to help embed assurance by landlords and to promote openness and transparency.

I suspect one of the main lessons may be the importance of boards and committees getting the assurance they need across the year, rather than at the point in the year when they make the Annual Assurance Statement.

Effective year-round, ongoing assurance is what should enable your board or committee to make the Statement, and avoid the need to do a major exercise each autumn.

Another possible lesson will be the realisation that it is not possible for board or committee members to have absolute knowledge of all aspects of compliance with every regulatory requirement and standard. The important thing is that they have enough assurance to have confidence to sign the Statement. So, they have seen enough evidence and have confidence in the frameworks in place to oversee performance and the internal control systems the organisation relies on.

I’d be interested in hearing your thoughts and experiences of producing your first assurance statement.

I want to spend a few minutes on two current issues that are high on our agenda: rent affordability and tenant safety.

We know that many tenants are finding it harder to afford their rent.

That’s the clear message from our National Panel of Tenants and Service Users. During August we published four reports from the Panel.
The report on Rent Consultation set out that over a third of Panel members have experienced difficulties in affording their rent. More than two thirds are concerned about the future affordability of their rent. They’re worried about rent increases by landlords and future changes to income, particularly through changes in benefits.

Many of the Panel members told us that they have experienced difficulties with their wider household finances. Nearly a third felt they are not managing their finances well and more than half are worried about their future financial circumstances.

I suspect that won’t come as much of a surprise to those of you who work with tenants. But it is important to recognise the challenge many tenants are facing, not least as this is at a time when social landlords are increasing rent by levels above inflation.

As you’ll know, every year we analyse landlords’ data from their annual returns on the Social Housing Charter. That analysis shows that last year the average rent increase for all social landlords in Scotland was 3.7%. That’s up on the previous year’s level of 2.4%. And it’s the highest level since current monitoring began in 2013.

Eighty percent of landlords increased rent at a rate above the Consumer Price Index measure of inflation.

We also know that more than four fifths of all landlords plan rent rises above inflation in the coming year. The average planned rent increase for 2019 is 3.0%. Only four landlords plan to keep rents at the same level and none plan to cut rents.

We also see that rent arrears are edging upwards. Last year total arrears across all landlords increased to 5.7% of the rent due. The increase in arrears last year was the largest in the last five years, and the rate of increase is accelerating. This means that more tenants are getting in to debt or those in arrears are getting further into debt, or perhaps both of these are happening.

Of course, rising arrears may not be a direct consequence of rising rents. It is likely that the roll out of Universal Credit is a big factor in rising arrears.

What is an affordable rent is a complex matter. Local context and markets, the interaction with benefits and tax credits, trade-offs with fuel costs all add to that complexity. And all landlords are not starting from the same position on rent levels, so some may be able increase rents at a higher level and keep them affordable.

But the simple arithmetic is that, no matter the starting point, rents that increase above inflation are likely to become less affordable.

The drivers of rent increases can be many and complex. And the current political and economic reality is increasing volatility and uncertainty. Market pressures are intensifying and adding to more familiar pressures, such as pension affordability and reduction in local authority funding for care and support. All of this comes at a time when there are increasing expectations on landlords from customers and government.

Some of the pressures to increase rents will be beyond the control of landlords. That only makes it all the more important for landlords to vigorously pursue cost efficiency and value for money.

It’s important that landlords demonstrate to their tenants that their rents will remain affordable and that they are having effective dialogue with their tenants on rent increases.

For our part, the level of rent increase will feature prominently in our assessment of the risk each landlord presents.

So, landlords should be asking themselves whether they are doing everything possible to be efficient and drive costs from their business before passing costs on to tenants.

The safety of tenants and residents is the most important responsibility on landlords, and it is important that they are proactive in meeting these responsibilities. Most are.

But, we are engaging with a number of landlords who have been unable to demonstrate that they meet these duties, including on the management of asbestos and electrical safety.

The governing bodies of these landlords did not seek or get the necessary assurance that their organisation was meeting its legal duties on tenant and resident safety.

Last month we wrote to landlords about this, and we highlighted this critical responsibility more widely in the media.

We will continue to highlight the importance of tenant and resident safety, and that landlords give tenants a clear way to raise any concerns with them.

We will be talking to landlords on how they are obtaining assurance in this area as part of our follow up work on the Annual Assurance Statements. And tenants and their families can be assured that we will act when we need to.

It’s also important that tenants are vigilant on safety and to report to their landlord if they have any concerns or spot anything untoward. And of course, tenants can come to us if they are worried they are not being listened to.

Tenants deserve nothing less.