Helen Shaw - SHARE Annual Conference - 11 March 2022
Thank you for inviting me along this morning to what is my first formal presentation in my new role as Director of Regulation.
I am sure however that I will be a familiar face to many of you, having worked as I have in various roles within the regulator of social housing in Scotland since 2001.
It’s good to see so many people online today and hopefully in the not too distant future we will be able to do these kind of events in person.
The theme for your conference is “Pandemic, Planning and Purpose”. And when I was starting to think about what I would say this morning, it struck me that clearly everyone in our sector – regulated bodies and the regulator – are facing a range of challenges that would have been unthinkable more than a couple of years ago and this makes planning and defining purpose quite tricky.
Despite that it is important to recognise how we have all responded to the Pandemic. As regulator, we have been greatly encouraged by the way that
- people have risen to the challenges of the Pandemic;
- by the open and co-operative way that landlords have engaged with us during the last couple of years; and
- the determination that we have seen across the sector to continue to serve tenants and residents of communities across the country.
And as we were starting to refocus on emerging from the Pandemic, there are a range of other challenges that we also need to consider, including:
- Brexit and the growing problems in supply chains for labour and materials, that are driving up costs;
- the spike in the cost of living increases and in particular the unprecedented rise in energy costs which means the most challenging economic context for a very long time, with many tenants and their families facing increasing financial hardship;
- delivering on the Climate Change and the decarbonisation agenda;
- potential increases in pension deficits and the resulting increase in the contributions that landlords have to fund; and
- most recently the unsettling unfolding events in Ukraine.
It’s almost too easy to become quite overwhelmed by all of these challenges.
But in thinking about the way forward a number of thoughts occurred to me. It’s very clear that there will be no return to the status quo as it was pre March 2020 and everyone is trying to define what the “ new normal” will be. For us at the Regulator, I think whatever the “ new normal” is likely to be, we will have a focus on some familiar topics:
- Rent affordability - and clearly nothing has happened since March 2020 to lessen our concern about this. If anything the last two years has heightened our concern about this. We know that keeping rents affordable for tenants is a principal objective of all social landlords. In a context of rising inflation and significant pressures on household finances, this objective has never been more important. So it will be no surprise to you when I say that we will seek appropriate assurances from all social landlords we engage with on how they have assured themselves that any rent increases keep rents at levels that tenants can afford. The latest COVID -19 dashboard that we published in February shows that aggregate rent arrears have risen to 6.53% of rent due. Social landlords can experience fluctuations in the level of arrears during the year, and it is not unusual for a peak in arrears around Christmas. However, this is the highest level of arrears since we started collecting monthly and quarterly returns from social landlords in April 2020. Early in the pandemic, many in social housing were concerned about a significant adverse impact on household incomes that would result in substantial numbers of tenants struggling to pay their rent. However, the combination of a number of government initiatives to support people financially, and a clear focus by landlords on working with tenants in financial difficulty, went some way to minimise the impact of the pandemic on the level of rent arrears. It is important however that this work continues and that landlords maintain a strong focus on ensuring that rents are affordable.
- Tenant and resident safety was a key priority for us pre pandemic and it will remain a key issue as we move towards the new normal. This year as part of our annual risk assessment we carried out a short survey of all landlords to get some additional, more detailed, information about how landlords gain assurance about their compliance with all of the relevant duties in relation to tenant and resident safety. We already get some information about this from the Annual Assurance Statements that landlords submit to us each year. But the survey gave us some really valuable additional assurance particularly around how landlords gain assurance that their systems, policies, procedures and working practices ensure compliance with health and safety requirements. We had a really good response rate to the survey with only one very small RSL not able to complete the survey. Landlords have provided particularly helpful comments around embedding Health and Safety in organisational values, the different ways they ensure governing body oversight of Health and Safety issues, collaborative working on Health and Safety with other landlords, the importance of a rolling programme of full Health and Safety compliance reviews, going beyond the ‘big 6’ Health and Safety areas and the importance of regular assessment via internal audit. Over three quarters of respondents also gave us comments on their approach to Health and Safety which we’ve found extremely helpful. As well as use the comments to shape our updated Asset Management Recommended Practice we will also seek to engage directly with landlords about Asset Management and Health and Safety issues.
- Similarly the provision of services for homeless people has always been a priority for us. Last year however we changed our approach to homelessness and in light of the challenges that we know the pandemic presented to those who were faced with/ or were experiencing homelessness, we engaged with all 32 Local authorities to understand the impact of the pandemic for those tasked with delivering homelessness services and on the outcomes for people who are homeless or at risk of homelessness. That was time consuming for both us and the local authorities but we believe it has been mutually beneficial. We have a greater insight into homelessness services across the country and local authorities have a clearer idea of our regulatory requirements. We have also seen through the quarterly COVID -19 returns, how RSLs have been able to support local authorities in delivering their statutory duties in relation to homelessness. We know however that there is still work to be done for example to address the backlog of people in temporary accommodation. We will also consider landlord compliance with the Unsuitable Accommodation Order which was originally introduced in 2014 to prevent local authorities placing homeless households with pregnant women and/or children in unsuitable accommodation. Following a recommendation from the Homelessness and Rough Sleeping Action Group and a consultation exercise on improving temporary accommodation standards, in 2019 the Scottish Government announced that the Order would be extended to cover all homeless households. The introduction of this however was paused in light of the pandemic but the temporary exceptions ended on 30 September 2021 and the Order now applies to all homeless households from 30 September 2021 so we will be seeking assurance about landlords compliance with this.
- We previously talked about the importance of contingency planning in the context of Brexit. Little did we know that our contingency planning would face a much tougher test in such a short time. During the pandemic we issued some supplementary guidance on Business Planning and we would encourage landlords to continue to assess the impact of the pandemic and the resultant economic shifts upon their existing business model and consider what the next couple of years and beyond are likely to bring. The assumptions underlying any revised business plan will be critical and whilst the sector faces many challenges, RSLs need to be open to considering opportunities – for example we know that a number of landlords have been considering their digital strategies and are speaking to their tenants about what that could mean for how services are delivered in the future. And landlords need to be considering their contingency plans closely – the “what ifs”.
- And we have also talked about Cybersecurity and we know that that continues to be a priority as landlords face frequent cyber attacks and attempts at fraud. And in light of recent events in Ukraine, we wrote again to landlords last week to remind them about the importance of ensuring that their cyber security is as robust as possible.
We have been having a lot of internal discussions within SHR about the impact of the Pandemic and we are keen to work closely with all landlords to develop the best possible understanding of the issues and the challenges that you are facing.
And we are keen to have a constructive dialogue with each landlord to ensure that we understand your risks and your issues and we have the opportunity to share our regulatory perspective with you.
From our perspective we are very keen to hear from all of our stakeholders as to what they see as the main issues that they will face as we look to move towards the new normal.
In particular, we will continue to put tenants at the heart of all we do. One of the recent ways we have been doing that is through an exercise to recruit new Tenant Advisors. This is an exciting opportunity for tenants of social landlords to inform our work and bring a tenant perspective to our scrutiny of landlords’ services.
We hope to appoint 12 independent Tenant Advisors who volunteer to participate in regulation work and support our work by:
- Testing landlord services by acting for example as mystery shoppers, and assessing information and materials produced by landlords for their tenants.
- Reviewing our draft publications and website facilities, and helping us to make sure material is both accessible and user friendly for tenants.
- Asking other service users for their views when we assess the quality of service provided by social landlords to give us a direct, user perspective to add to other regulatory evidence.
This year’s annual risk assessment also sees us moving back to a more traditional comprehensive risk assessment. In March 2021, for the first time, we attached a regulatory status to each RSL following a comprehensive risk assessment. This was the final part of our revised regulatory framework to be implemented. We had planned to do this in 2020. But the pandemic meant that we had to shift our focus to the impact of the lockdown on landlords. So we were pleased to complete the process last year. And while our risk assessment last year focussed on a smaller number of risks as a result of the pandemic, the outcome was that around 94% of landlords were judged to be compliant with regulatory standards. And we have been impressed by the way in which, for the most part, landlords who were not judged to be compliant or have had their compliant status put under review have engaged with us. For me this highlights the strength of the regulatory framework and how it can help landlords to improve outcomes for tenants and residents. We published a summary of the risks we will focus on in this year’s risk assessment in November and as I said this sees a return to a more traditional risk assessment with a strong focus on asset management and health and safety in particular. We are currently finalising the risk assessment as we speak and discussing any potential changes to the regulatory status for individual RSLs. And we will publish the outcomes at the end of March this year.
I’ve mentioned already the importance of business planning and underpinning business plans with robust financial projections and good quality information particularly on the condition of the stock that landlords own.
Landlords need to have all of this to hand to enable them to start to think about how they deal with challenges such as the decarbonisation agenda. We have commissioned Arneil Johnston to work with us to update our Recommended Practice on asset management. And I know some of you will be involved in some round table discussions about this over the next couple of weeks. We are really looking forward to getting some valuable insights from these sessions.
In the meantime and in anticipation of the government’s response to the recommendations from the Zest report, we have reviewed the EESSH data that we will collect in this year’s Annual Return on the Charter. We will collect a smaller number of indicators on EESSH this year and will then review the data we will collect after the government has confirmed its approach.
If I had to pick one key thing that would help organisation’s deal with all of these challenges, I would stress the importance of good governance. There is no doubt that the last couple of years have been tough and the sector faces a number of other big challenges. Ensuring that your governance is as robust as it can be will be critical in managing these challenges. In this year’s risk assessment we have continued with a focus on governance and have looked at some additional areas as part of this assessment. So for example we have reviewed the governing body minutes of all RSLs for their last three meetings. This again was a significant piece of work. And while we have previously considered this for some RSLs, this is the first time that we have done this for all RSLs. This has given us more valuable intelligence about governance and the resilience of governing bodies over the last couple of years to ensure that they continue to comply with the Regulatory Standards of Governance and Financial Management. But it is also important that governing bodies themselves are thinking about how they can build their resilience to manage all of the challenges. It’s not easy and sometimes things do go wrong. We recently published our account of our statutory intervention at Thistle. We publish these reports to be accountable for our use of our statutory powers but also to help landlords think about what went wrong in these cases and consider what they do to make sure that wouldn’t happen in their organisations.
It is also important to bear in mind some key strengths which the sector has.
Our National Report on the Charter which we published last year highlighted that despite all of the challenges landlords faced in delivering services, especially in the first lockdown, almost 9 out of 10 tenants were satisfied with the homes and services their landlord provides. We know that locally social landlords in Scotland were amongst the first to respond to the challenges of COVID-19 and support their tenants through the public health crisis. That support often included responses that went well beyond the usual core landlord activities, but they were needed to protect the wellbeing of individuals, households and communities. Landlords also put in place new services or expanded existing services to respond to the impact of the pandemic on their communities, including tackling loneliness and digital exclusion and to ensure people had access to basic supplies. And they are to be commended for that.
Finally, I wanted to touch on the sector’s finances. Just before Christmas we published our analysis of RSLs annual loan portfolio returns. Our report highlights that lending and investment to the sector now exceeds £6.4 billion – up 3.8% from 2019/20. Lender investment in RSLs clearly therefore remains high and signals a vote of confidence in the sector. And a critical part of this is confidence is effective regulation which helps protects funds. Despite all of the challenges of the pandemic, RSLs have still generally been reporting strong financial performance.
- Liquidity has remained robust and RSLs have continued to raise significant levels of new private finance from banks and the capital markets.
- RSLs reported an aggregate surplus of £251.1m for the year to 31 March 2020 showing a continuation of the upward trend of recent years. The net margin increased from 12.8% in 2018/19 to 14% in 2019/20.
- RSLs increased cash balances by £102.2m during 2019/20, reaching £835.6m at 31 March 2020. Our COVID-19 returns submitted during 2020/21 showed cash balances continuing to increase, reaching £1.03bn at 31 March 2021.
That said, as I have already highlighted, our financial risk assessment is being carried out against a background of the most challenging economic context in a generation, with many tenants and their families facing increasing financial hardship. So on top of the recovery from the pandemic, we know that landlords will have some difficult choices to make to address the new and emerging financial challenges, including the issues I have spoken about already in relation to:
- the climate emergency and the drive to decarbonise heating in homes;
- growing problems in supply chains for materials and labour, that are driving up costs;
- potential increases in pension deficits, and the resulting increases in the contributions that landlords have to fund; and
- the need to invest to protect from increasing incidents of cyber-attack.
In light of these current and emerging financial challenges it is likely we will be engaging with more RSLs this year in relation to financial management
The scale of the future challenge exceeds anything we have faced in the past and RSLs will need to make some tough choices to prioritise what to do. Building and testing organisational resilience and capacity will be vital in supporting RSLs as they continue to work on their recovery plans and continue to work to deliver on wider Scottish Government priorities to deliver affordable, warm and safe homes for tenants and service users
So I am really keen to hear from everyone this morning your responses to 3 questions:
- What has changed as a result of the pandemic?
- What do you see as your biggest risks – 2 or maybe 3 issues – as we transition to the new normal?
- And how do we – landlords and regulator – work best together in these unprecedented times?