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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