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Regulation: The Journey 13 th November 2013 John O’Mahony Assistant Director Regulatory Framework & Performance Homes & Communities Agency. A brief history of regulation. The Housing Corporation’s compliance based approach The TSA’s move to an assurance based approach

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Regulation: The Journey13th November 2013John O’MahonyAssistant Director Regulatory Framework & PerformanceHomes & Communities Agency

A brief history of regulation
A brief history of regulation

  • The Housing Corporation’s compliance based approach

  • The TSA’s move to an assurance based approach

  • TSA strong focus on consumer regulation role

  • A very low tolerance of failure on viability issues

The current model
The Current Model

  • A progression from previous approaches, recognising the regulatory inheritance and the skills and capabilities at our disposal

  • Designed to focus on obtaining assurance about compliance with economic standards and in particular on governance and viability

  • Designed to enable the regulator to spot issues before they become unmanageable problems

  • Predicated on protecting social housing assets (and associated debt)

Types of provider
Types of provider

  • Long-tailed market in transition

    • 1,200 stock-owning PRPs

    • 900 <1,000 units (RASA): 4% stock & falling

    • 300 >1,000 units: 96% stock

    • 67 >10,000+ units: 51% stock & growing

  • For-profitsown negligible stock

  • 350 providers in groups: 74% units

Key financials
Key financials

  • Sector assets: £119bn

    • Funded by £48bn private finance, £44bn grant

  • Social housing turnover: £11.6bn (up 8%)

  • Operating costs: £9.8bn (£3.9k/unit, up 1.9%)

  • Surplus after tax: £1.8bn – up £700m due to:

  • Sector-wide interest cover = 116% (up from 106%)

    • Recent Stock transfers normally <100%

  • Maturing stock transfer sub-sector is a driver

    * All figures 2011/12 Global Accounts of Housing Associations. Figures in brackets 2010/11 Global Accounts.

Our view
Our view

  • Sector adapting to challenging times

    • Operating margins strengthening since 2008/09

    • Falling real operating cost/unit since 2008/09

  • Governance and Financial Viability Judgements

    • 4 strap-lines: G1 to G4 and V1 to V4

    • Since December 2012 published 180 judgements for RPs:

Roles and responsibilities key players in government
Roles and responsibilities – key players in Government

  • DCLG on housing policy framework

  • HCA grant-funds new homes / stock transfer / regeneration; except in London – GLA

  • HMT interest in capital funding, macro-economy

  • HMT/DWP on welfare

  • Local Authorities

    • Planning

    • Allocations etc.

    • Funder (SP etc.)

    • As provider (with a self-financing HRA )

Roles and responsibilities key players in private sector
Roles and responsibilities – key players in private sector

  • Housing Associations

  • New “for-profit” entrants

  • Lenders

  • Representative bodies (NHF, Northern Housing Consortium, PlaceShapers’, CIH)

The rationale for regulation
The rationale for regulation


  • Absence of market levers for tenants

  • Weak incentives to deliver VFM / optimise market structure

    Bottom line

  • Government has invested £44bn, and wants that money to protect stock and deliver HB savings

  • Lenders take comfort from regulation / tacit Government support – reflected in cost debt and therefore cost of grant

A bespoke regulatory settlement
A bespoke regulatory settlement

  • Evolved alongside grant arrangements

  • Key role to provide lenders comfort

  • Limited role on consumer protection

  • Price controls lie with Government

  • Majority of providers are not-for-profit and will recycle surpluses

  • New entrants can now include for-profit providers

Role of hca regulation regulatory controls and powers
Role of HCA Regulation – regulatory controls and powers

  • The regulator has four main controls:

    • It sets registration criteria that aspiring entrants have to meet

    • It sets standards that all providers have to meet and publishes judgements

    • It has a disposal consents regime that controls the disposal and charging of social housing assets

    • It has a constitutional consents regime that controls the restructuring of not for profit providers

  • It also a range of intervention powers that it can use to ensure its standards are being met

  • These range from enforcement notices through to the ability to remove stock from providers after a statutory inquiry

How has the model changed
How has the model changed

  • Private Finance….historic debt is “under-water”; margins, longevity, capital market

  • Welfare reform….cuts (under-occupation, dependants), Universal credit and direct payment……new caps in Spending Round 2015/16

  • Indexation of rents…traditionally RPI+1/2%; Spending Round 2015/16: moved to CPI +1% per year from 2015-16 for 10 years.

  • Grant…were once c.50% costs, now c.15%

How has the model changed cont
How has the model changed (cont.)

  • S106….market development limited and contribution not returning to pre-credit crunch levels

  • Diversificationwithin the sector (activities, business structures, for profits entrants, commercialisation of traditional sector)

  • Regulation….period of transition over the past 5 years……. the Regulation Committee …..…changes to the Regulatory Framework……….Fees and link to VfM announcement in Spending Round 2015/16

Success to date
Success to date

  • The sector and the regulator have successfully navigated the economic slowdown despite some close calls

  • The regulator has maintained core focus on viability throughout the other upheavals

  • The regulator has found an operating model that has dealt with the governance failures that have occurred but without often using formal powers

  • The sector is still able to access funding at highly competitive rates