Responsible behaviour

In my last column, I noted that it was still too early to judge the impact of the Brexit vote on the housing market. Since then we have seen a flurry of data, eagerly pored over in the media to try and discern the emerging trends. Of the housing market indicators which contribute to the picture such as mortgage approvals, house prices and new housing registrations, some indicators are up, while others are down. The truth is that, the overall picture remains fuzzy and out of focus.

As housing association boards take stock and consider what the result and other changes, including direction of government policy might mean for their businesses what is clear is that in this uncertain environment it remains crucial for boards to keep on top of the risks to their organisations. They will need to stress-test against a broad range of possible outcomes, so that they are fully prepared when the true picture does begin to come into focus. So last week felt like an appropriate moment for us to publish this year’s Sector Risk Profile.

The publication sets out our view of the financial risks that are likely to be relevant to most providers. The challenges that the sector faced before June 23 have not gone away. Providers will still need to manage the impact of the rent cuts; adjust to the next stages of welfare reform as measures such as the reduced benefit cap come into force; and deliver ambitious forecast cost savings.

“In a world that is changing more rapidly than ever, the need for strong and effective governance remains a constant.”

Our June Quarterly Survey showed that in the run-up to the referendum vote, appetite for development for sale remained strong, with increases in the pipeline for both shared ownership and outright market sale. With greater reliance on sales income, boards need to recognise the extent of the specific risks associated with sale activity and ensure that they can effectively manage any slowdown in sales, or reduction in prices, should either, or both of these materialise. 

Similarly, although the sector has seen further falls in the cost of new debt, from already historic lows the potential for market volatility highlights the continued importance of robust treasury management.

Once the de-regulation measures in the Housing and Planning Act have been enacted boards will face these challenges equipped with new flexibilities. No longer will providers need our consent to dispose of properties, nor our agreement to constitutional changes. These changes could support providers’ ability to harness the financial capacity in their existing housing stock to deliver more new homes. Notwithstanding the recent spate of proposed mergers falling through, there will be opportunities to forge new alliances and exploit potential synergies. 

“We have seen cases where tenants were not meaningfully consulted on the proposed sale.”

However, responsibility for these decisions, and their implications, will rest squarely with boards. In the future, we will no longer scrutinise your consent application and spot any issues. The majority of disposal consent applications have been trouble-free in the past. However, over the years we have seen cases where we would have refused consent if the provider had not first withdrawn or amended its application in the light of issues we have uncovered. These have usually involved applications to dispose of tenanted properties outside the regulated sector. We have seen cases where tenants were not meaningfully consulted on the proposed sale. In other cases, they were given little information about implications of leaving the regulated sector such as the potential for rent rises. In a few cases, tenants were not consulted at all. I must emphasise that such applications have been rare, but had any of them proceeded there could have been long-lasting reputational damage to the landlord and wider sector. While our consent will no longer be required, we will take appropriate action if poor governance and non-compliance with standards leads to such reputational damage.

The other main issue has been disposals at less than best consideration. We have seen examples where providers had not taken sufficient account of their charitable status in developing their proposals. The disposals either did not go ahead or they had to change before we were in a position to consent. Again, while our consent won’t be required, charities and exempt charities still have to comply with charity law. Breaches of the law will always give us governance concerns.

The same is true of constitutional changes, including mergers. Even without the need for regulatory consent, boards need to fully understand the drivers for any merger and ensure both that it makes strategic and financial sense and that cultural differences can be resolved, early in the process. 

What do these changes mean for us? We highlighted to registered providers at last week’s National Housing Federation conference that our remit to support a sector that is viable, efficient, well-governed and able to deliver homes to meet a range of needs is unchanged. These new freedoms bring with them new responsibilities and risks. We expect boards to have strong and appropriate oversight of decisions, which takes into account stakeholders’ expectations and other regulators’ requirements. In a world that is changing more rapidly than ever, the need for strong and effective governance remains a constant.

Julian Ashby, chair, Homes and Communities Agency’s Regulation Committee