Ian Brennan - Social Housing Scottish Annual Conference - 15 September 2020
You may not believe this but today it has been 176 days since the start of the national lockdown on 23 March.
Almost 6 months.
And we still have no certainty about when things might start to return to normal.
Or indeed what that normal might look like.
So I wanted to use my time today to do a couple of things.
First of all I want to give a regulatory perspective on what we have taken from the past six months
And secondly I want to share our thoughts about the areas that we will be considering over the next six months and beyond.
So, the story so far.
On 18 March we moved our regulatory focus to monitoring the impact of COVID-19 upon social landlords.
And 5 days later came the national lockdown.
Around that time the Social Housing Resilience Group was formed.
And this brings together a number of organisations including all of the landlord representative bodies, the Scottish Government and ourselves.
Our view is that the sector moved at pace to adapt to the new and challenging environment in which landlords found themselves operating.
From our perspective it was clear that we also had to move at pace.
We wanted to ensure that our regulatory activities continued to protect the interests of tenants and residents.
But we also recognised the unprecedented difficulties that landlords were facing in working in lockdown conditions.
Striking the right balance in this was at the forefront of our thinking when we carried out our consultation on temporary changes to the regulatory framework.
We decided not to go ahead with the publication of Engagement Plans on 31 March.
I know that this was disappointing for many landlords and probably all lenders.
It wasn’t a decision that we took lightly.
But we recognised that shifting our focus to monitoring the impact of the pandemic was essential.
And that inevitably meant shifting away from the engagement that we had planned.
We then carried out a review of our regulatory framework.
And we concluded that there were some things that we wished to change in recognition of the circumstances of the pandemic.
And, of course changing the framework means carrying out a statutory consultation.
Now I don’t think anyone would wish to carry out a statutory consultation during a national health emergency.
It meant additional work for landlords and stakeholders and also for ourselves.
We are very grateful for the many thoughtful and constructive responses that we received to the consultation.
And as George Walker, the Chair of SHR said, the consultation helped us to develop a fuller understanding of the challenges being experienced by the people whose interests we protect.
And also to appreciate the work being done by landlords in order to continue to serve their tenants and residents.
And we ended up with some temporary changes to the framework.
So, a regulatory perspective on the story so far:
We recognise and acknowledge the efforts that landlords have made to continue to serve tenants and residents during the national emergency.
Clearly there are a range of challenges that would have been quite unthinkable prior to the pandemic.
And we welcome the fact that many regulated bodies have kept in close contact with us about these challenges and their plans to deal with them.
We are grateful for the help and support that we are getting from representative bodies and for the work of the Social Housing Resilience Group in providing a forum for the exchange of information and views.
We have had good engagement with tenants and tenants’ representative bodies.
Clearly tenants are concerned about the current economic uncertainties.
And for many there is concern around rents and future rent affordability and I will come on to that shortly.
Finally we appreciate the constructive approach that has been taken by lenders and investors.
Since the start of the pandemic we have been in regular contact with UK Finance and with individual lenders and investors.
It’s clear that lenders are taking a pragmatic approach and looking for common sense solutions to issues as they arise.
One lender put it quite well to me when he said that they are keen to ensure that the business drives the loan agreement and not the other way around.
So the clear message from lenders is to talk to them if you anticipate any issues.
Last month we published temporary changes to the framework.
And we also issued a COVID-19 supplement to our Business Planning Recommended Practice
Those of you who have worked with us over the past few years know that when we are developing guidance we are keen to work as closely as possible with landlords and representative bodies.
In the circumstances of COVID-19 we thought that was particularly important.
So our advisory guidance on business planning is probably the most collegiate and co-operative piece of guidance that we have ever issued.
We started out with a number of ideas of what we thought were important for landlords to be considering.
And we shared our thinking with the three landlord representative bodies as well as a large number of individual regulated bodies.
We got excellent engagement on this and I would commend the advisory guidance to everyone.
And of course we welcome feedback on the extent to which it is helping landlords to manage through the pandemic.
And because the guidance took account of the views of so many regulated bodies we can say with some confidence that the guidance describes what many landlords are already doing to aid the recovery.
So what does the guidance ask of landlords?
In simple terms the guidance says that RSLs should be looking to assess the impact of the pandemic upon their existing business model and business plan.
We think it’s likely that many, perhaps most RSLs will wish to develop and implement a revised business plan.
And, because the operating environment is changing so profoundly, all RSLs will be wanting to revisit the assumptions underlying their business plan.
Prior to the pandemic we would not have said that our sector lacks challenges.
The somewhat chastening thought is that all of these challenges remain.
But we will have to address them against the background of the most challenging economic context in a generation.
So we hope that the Advisory Guidance will provide some help in facing the risks and issues ahead. And we know that in responding to the pandemic many landlords are reporting considerable progress in advancing digital strategies and operational efficiencies.
At the end of November we will publish details of the risks that we will focus on in our annual risk assessment.
But I thought this might be an opportune time to set out some of our early thinking.
I suspect that the priority areas for us will be the priority areas for most landlords.
First of all we will be looking for landlords to assure themselves and their tenants about tenant and resident safety.
Current circumstances have made compliance with safety laws and regulations in some areas more challenging.
As landlords are working through their annual assurance processes we know that they are paying close attention to the safety of their tenants and residents.
And, in particular, landlords are telling us that they are looking at how this might have been impacted by COVID-19.
There have been a number of occasions - the statutory interventions and in other engagements – when we have looked closely at the evidence around compliance with health and safety regulations and legislation and found some quite serious issues that had hitherto escaped the attention of the landlord concerned.
We know that landlords are taking this very seriously as they go about assuring themselves in this area and we will be looking to engage with any RSL where there are issues.
We will be looking closely at landlord performance in relation to homelessness.
Our latest survey of Scotland’s landlords showed that more than 3,000 people presented to local authorities as homeless during the month of July.
And there were more than 14,000 households in temporary accommodation at the end of the month.
So this will be a formidable challenge.
In terms of financial sustainability we will focus on all of the usual indicators.
But clearly this year we will have a keen eye on factors that might have been adversely impacted by COVID-19.
And the information that we are getting from the monthly returns will give us a more up to date position on voids and arrears than we have had in the past.
It’s essential that landlords continue to do their utmost to deal with arrears in the coming months.
From our latest analysis it’s clear that finances remain robust.
Sector wide cash balances have increased since the beginning of the pandemic.
Our view is that there is no need for concern at sector level or with individual landlords.
But we are engaging with a small number of RSLs where we feel that we need more information to fully understand the impact of COVID-19 on their financial health.
We always have a very clear focus on rent affordability.
And I don’t think anyone will be surprised to learn the current economic circumstances mean that we will pay particular attention this year to rent affordability.
Regulatory Standard 3 requires RSLs to maintain rents at a level that tenants can afford.
Given the current and likely future economic context that will be much more challenging than before.
Before passing costs onto tenants we think it’s incumbent upon all RSLs to look closely at how they can manage their businesses efficiently to ensure that rent levels are kept as affordable as possible.
Finally, on governance, we will be looking to form a view on how landlords have managed to adapt their governance as a result of the demands of COVID-19.
We know that COVID -19 has tested the resilience of organisations’ governance arrangements.
And now more than ever strong governance is required.
For my part a large part of good governance in this context is for management and governing bodies understanding the full range of new risks and issues for tenants and other services users.
During the consultation a number of landlords made the point that the work required to deliver the Annual Assurance Statement will be an integral part of recovery planning for regulated bodies.
I thought that was an excellent point.
And in considering their approach to this year’s submission each landlord should consider any areas highlighted last year as needing action or improvement.
And also consider the specific areas of the business which are most likely to be affected by COVID-19 and on which the landlord and its governing body or committee are likely to need particular information and assurance.
We recognise the severe difficulties that landlords are facing as a result of COVID-19 and the continuing uncertainty about how, and how quickly, things might change.
We appreciate that the pandemic is likely to have affected each landlord’s ability to comply fully with all regulatory requirements.
We want to understand where a landlord is unable to comply with regulatory requirements, as a consequence of the pandemic.
We also want to be able to take account of this when we assess each landlord’s performance and risk.
This will allow us to judge our level of engagement with each landlord and we will engage where required.
And you may have noticed that I’ve managed to get this far without even mentioning Brexit.
But from our engagement with landlords we know that the scenario and contingency planning that you are doing around COVID-19 has also covered scenarios and contingencies in relation to Brexit.
And I would encourage any landlord who wants to talk about issues arising from Brexit to come and talk to their lead regulator.
So challenges everywhere we look.
But I want to end on a positive note.
The social housing sector is arguably the most successful and enduring public/private partnership in the UK.
And possibly the world.
And, supported by effective regulation, social landlords and their tenants have benefitted from access to low cost finance.
Simply put, our sector has proven adept at solving problems as they have emerged.
The pandemic has challenged organisational resilience as never before.
But a pragmatic approach to problem solving and a culture which emphasises candour and realism, offers a way forward.