Regulator of Social Housing Value for Money Annex 2021

The Value for Money Annex to the 2021 Global Accounts, published in February, reiterates many of the Regulator’s recent messages to the sector and provides valuable pointers to Boards as they finalise Business Plans and work on the VFM reporting for their annual accounts.

Value for Money has a chequered history in the sector: from the Regulator’s ill-fated effort to compare housing providers’ performance via the Operating Cost Index, the flexible regime of the Annual Efficiency Statements, time-consuming Best Value Reviews, through to the challenges of the 2012 Value for Money Statement and the downgrading of providers for sometimes minor breaches, to the seemingly gentler regime of the 2018 Standard.

The Annex provides a timely reminder to the sector that Value for Money is as much about value (what providers deliver) as it is about money (how much they cost). Stripped to its core, the 2018 Standard asks the following questions of providers:

• Do you know what you’re trying to achieve?
• Are you clear how much you’re trying to do and when you want to do it?
• How are you performing against what you’re trying to achieve?
• How does your performance compare with your peers?

Relatively few providers have had Value for Money cited in regulatory downgrades since the publication of the 2018 Standard, but there is a “sleeping tiger” quality to VFM in the sector. The Annex references “rising expectations of Government” for the sector, and it is not difficult to imagine scenarios where the Department for Levelling Up and Communities, or more likely, the Treasury, is reminded that the housing sector receives billions of pounds a year in housing benefit. The last time they did this was in 2015, and for a while after the rent cut meant that VFM was suddenly on everyone’s agenda. The cost-of-living crisis will put enormous pressure on tenant’s household finances and demonstrating value for money will become even more important than it is already. Providers’ choices about rent increases will come under increasing and potentially very critical scrutiny.

Looking into the detail of the Annex quickly shows the regulator reiterating some familiar themes:

1. Covid disruption together with imminent “cost pressures” mean providers Boards need to ensure their strategies remain fit for purpose. The regulator reiterates the importance of up-to-date solid evidence being key to strategic decision making. In practice this means robust stock condition surveys, and increasingly data about tenants and their needs and expectations. One of the “coming storms” on the sector’s horizon is the funding of net zero decarbonisation. increasingly “understanding stock” means providers need to understand the costs and viability of making homes as energy efficient as possible. The Annex talks about “difficult decisions about investment choices” and for some providers, those difficult decisions may involve the loss of parts of their portfolio of homes. The regulator also has concerns about commercial investment by the sector, specifically the lack of transparency as to whether such investment is generating an appropriate level of returns.
   
   
2. Covid disrupted both new build and capital investment in existing homes in the sector, but evidence from providers’ business plans, suggest that it will be “business as usual” very soon. Covid disruption means many providers need to review and potentially reprofile their planned development and capital investment programmes. The regulator’s gently worded message about the technicalities of the gearing ratio is a nudge to the sector that it can borrow more and, by extension, can contribute even more to the government’s new homes target.
   
   
3. The regulator is concerned about the likelihood of increasing costs in the sector. The upward movement in the Headline Social Housing cost metric hasn’t generated significant regulatory interest in recent years but the potential scale of increase is likely to generate closer scrutiny and an expectation that providers will optimise their procurement arrangements, ensure their strategies remain fit for purpose and they make some of the difficult resource allocation choices in the context of their stated missions.
   
   
4. Performance reporting in the sector needs to improve. The regulator cites stock quality and service delivery. The implicit expectation is that Boards are on top of this data, use it in their strategy development and report it externally so stakeholders can assess how successful providers are and how they compare to peers. The focus on service delivery performance information is also growing as the result of the new Consumer Regulation framework.

To make sure you are meeting the regulators reporting requirements, a best practice action plan would include the following:

1. Ensuring stock data is up to date and can help answer the questions Boards will ask.
2. Ensuring you have a good understanding of decarbonisation: the requirements, the timeline, the implications for your stock as well as on your business plan.
3. Reviewing strategies using the most up to date stock information, data from tenant expectations and experience, with a keen understanding of the needs you are seeking to address together with an understanding of what peers can achieve, in the context of a rapidly changing external environment.
4. The day job is always with us! The safety of tenant’s homes and compliance with building safety requirements is and will remain paramount. Are you assured you have what you need?
5. Confirming that procurement is delivering for you and your tenants in the context of the cost-of-living crisis and unprecedented cost increases.
6. Ensuring there are appropriate internal and external reporting frameworks which operationalise strategies and enable both them and external stakeholders to monitor performance.
7. Embedding continuous improvement either in the form of enhancing the quality of services or reducing the cost of delivering them.
8. Rooting development plans on solid data about local housing needs and markets and make certain new homes are procured in the most effective way.
9. Where providers’ strategies include commercial investment, including a clear reason for the investment, an appropriate level of return and performance management processes up to the job of ensuring the investment is performing to plan.

With providers facing multiple and competing pressures on resources, and increasing scrutiny, Pennington Choices can help provide assurance to Boards that you are delivering the most from your resources. For further information on how we can help, please get in touch.