The regulator: understanding the sector’s biggest risks

We know that landlords are investing billions into much-needed improvements in existing homes, including tackling damp and mould, remediating fire safety issues, and improving energy efficiency. This investment is even higher in certain parts of the country where challenges are more acute, such as London and other urban areas with higher proportions of flats.  

On top of this, all landlords are grappling with an increased cost of debt, a trickier housing market, labour cost inflation and continued labour market shortages – all of which are contributing to weaker viability and a low-headroom environment.     

“Governance remains paramount to achieving that dual ambition of more and better homes, particularly in this difficult environment”

In a changing, often uncertain, economic and policy landscape, it’s essential that boards and councillors have a strong grip on what their risks are and how they plan to manage them. Our Sector Risk Profile, which was published last week, aims to help governing bodies navigate these challenges, and make strategic, informed decisions about where they will invest time and resources, as they update their business plans for the next year.  

First and foremost, governance remains paramount to achieving that dual ambition of more and better homes, particularly in this difficult environment.  

We have seen through our regulatory engagement that weak governance – such as a lack of oversight or poor internal controls – has often been at fault when things have gone wrong, resulting in landlords’ failure to manage risks.   

The sector has come a long way on stress testing to make sure it can deal with external shocks as well as risks with tenants’ homes, which could lead to financial issues over the longer term. This has served it well when dealing with recent uncertainty. 

However, it also needs a culture that is open and honest, which welcomes robust challenge and uses data to drive continuous improvement.  

And, of course, the sector needs to think imaginatively about how it can be more efficient and use value for money to deliver more, with less. 

Poor data is often a key cause of weakening landlords’ performance. It is impossible for governing bodies and executive teams to assess their current position, let alone make decisions and plan for the future, if they don’t have robust, accurate data to understand their homes, tenants or financial position properly.  

It has been encouraging to see more landlords investing time and resources into filling in their data gaps and understanding their stock better. This will lay the foundation for better decisions for homes and tenants, even as risks intensify. 

The good news is that, despite these pressures, investor confidence and liquidity remains strong – and much of our work is focused on helping bolster these strengths, as well as building social landlords’ resilience against future shocks.   

“There is no one-size-fits-all approach on how to tackle these challenges. There is a broad spectrum of how exposed social landlords are to risks”

The sector has welcomed £39bn of new grant funding, together with a £2.5bn loan scheme settlement, which was announced in the July Spending Review. This substantial investment, including £7bn for local mayors, which was announced by the housing secretary last week, has given a significant boost to social landlords at a crucial time. 

The sector also has 10 years of certainty on the rent settlement, allowing it to take long-term, strategic decisions about where to invest and making the government’s ambitious housing targets more achievable.  

A final reminder: there is no one-size-fits-all approach on how to tackle these challenges. There is a broad spectrum of how exposed social landlords are to risks, coupled with specific geographical circumstances (such as being in London), which must not be overlooked. 

Some landlords are already outlining development plans for the next decade, while others will have taken the decision to scale back their new supply ambitions – for now. Trade-offs are inevitable.  

That said, we hope the insights outlined in the Sector Risk Profile will give boards food for thought, and that they will take action now to avoid potential crises later down the line. It is only by thinking strategically and taking a proactive approach to managing risks that social landlords will build the resilience they need for the challenges ahead.  

Kate Dodsworth, chief of regulatory engagement, Regulator of Social Housing