A brief history of regulation

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

2. 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

3. 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)

4. 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

5. 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.

6. 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:

7. 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 )

8. Roles and responsibilities – key players in private sector • Housing Associations • New “for-profit” entrants • Lenders • Representative bodies (NHF, Northern Housing Consortium, PlaceShapers’, CIH)

9. The rationale for regulation Theory • 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

10. 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

11. 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

12. 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%

13. 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

14. 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