Local Government and Communities Committee

Meeting date: Wednesday, January 11, 2017

Official Report 529KB pdf

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“Scottish Housing Regulator Annual Report and Accounts 2015/16”

We move to agenda item 2. The committee will take evidence from the Scottish Housing Regulator on its annual report and accounts for 2015-16. I welcome from the Scottish Housing Regulator Kay Blair, who is the chair, and Michael Cameron, who is the chief executive. I invite Kay Blair to make a brief opening statement.

Good morning, everyone. Thank you for giving us this further opportunity to present our work to the committee. As I said previously to the Infrastructure and Capital Investment Committee, we welcome parliamentary scrutiny of our work. We are a listening organisation and we are keen to hear feedback. We are also keen, wherever possible, to act on that feedback and to reflect those views in how we regulate.

I am delighted to present our annual report and accounts, which we laid before Parliament in September. I am also here, along with Michael Cameron, to answer any questions that the committee may have on the work that is detailed in our annual report or, indeed, the work that we have done to date. Our annual report highlights our work to protect the interests of tenants, homeless people and other customers of social landlord services. Since we started, we have had continued focus on good governance, financial health and good service delivery. We see, when we come to look at organisations, that those issues are often intertwined, because we look not just at financial health issues but across the board. I am proud to say that we met all our objectives in 2015-16. We were within budget and we delivered, we believe, good outcomes for tenants and others. Another important role that we play is that we have given lenders confidence in the housing sector.

During 2015-16, we brought accessible new information on landlord performance to tenants and landlords, mostly through the charter, which members will have seen and—I hope—use. Last year, we published an individual performance report for every landlord, and our national report on the charter showed that landlords were performing well overall; there are some inconsistencies, but overall the sector is strong and healthy. Given the targets that have been set for new homes, it is really important that we have a sector that is strong and that has the confidence of the lenders.

As part of our digital transformation, we have provided tenants with even more performance information that helps them to compare their landlord. It is important that they look not just at their own landlord but at other similar landlords in the area to see how they are performing, what their tenants think of them and how they engage with their tenants.

I have been told to keep my opening statement short, so I will. You will be pleased to know that I am coming to the end of it.

We have had to use our statutory powers with a small number of landlords, which we have not had to do before. We used those powers proportionately but decisively to protect tenants’ interests. We intervened only when we could not get the necessary assurance from the registered social landlords that they were able or willing to resolve their problems on their own. Poor governance was—again—at the root of the problems in each of the four cases. By “governance”, I am talking about good leadership, good management and good implementation of services. I am pleased to tell you that we have now ended our statutory intervention in two of the organisations, because they have successfully resolved the main problems that they faced.

Safeguarding and promoting the interests of tenants and other customers drives everything that we do, and we are very proud of our 500-strong national panel of tenants, homeless people and other customers of the services, from whom we receive feedback. We also have a tenant panel that we regularly engage with to get feedback, whose members tell us that rent affordability and value for money are at the top of their agenda. We will therefore keep a real focus on those areas.

That ends my opening statement. Michael and I will be delighted to answer any questions that you have. So—over to you.

Thank you very much. That was very helpful.

In your report, you refer to a 10 per cent cut in your budget, which has gone from £4.1 million to £3.7 million. Given what you have just said about the potential increase in work that you face, how is that cut in budget going to affect the service that you provide?

That is a very pertinent question. We have been concerned about our budget. We face increased demand with reduced resources. We have gone down from about 79 people five years ago to just over 50 people and a budget of £3.7 million, and we have suffered 40 per cent cuts in costs over that time. However, that has made us work smarter and has given us an opportunity to reassess our priorities and our focus. This year, we were fortunate in getting a small increase in our budget—I think that that was because of messages about the value that we add to the sector and the confidence that we give lenders, which is critical. We estimate that we save the sector about £40 million in borrowing costs through lower interest rates, and that is what the sector tells us.

Do you want to say anything about that, Michael?

No—other than that we are extremely grateful for the proposed increase to £3.8 million in our budget in the next financial year. That will certainly help us in our work to maintain effective regulation. It is still challenging in the context of the overall budget settlement for any public body to continue to deliver effectively and efficiently, but that is the objective that we will set out with.

Okay. That is interesting.

Would you like to follow that up, Graham?

I have a question on a slightly different subject, which I can ask now or later.

We will take it later, if that is okay.

Yes.

Good morning and thanks for being here. In your annual report, you state that

“The operating environment for social landlords is characterised by new demands, new and increasing risks, new uncertainties and new opportunities.”

Can you expand on what those are?

It is safe to say that the social housing sector faces a range of challenges and potential risks, and that it faces a very different operating environment to the one that it faced five, six or seven years ago. We see a range of challenges.

One of the most obvious challenges is in social landlords stepping up to the target that the Scottish Government has set to deliver about 35,000 new homes for social renting over the next few years. That brings a range of opportunities, challenges and risks. Many landlords are considering getting back into building houses, which brings financial challenges and risks. Directors routinely talk about the range of risks that landlords face from the wider economic environment. There is probably not a conversation that goes on in this building without some reference to Brexit: landlords face challenges around some of the implications of Brexit—both finance and people risks. There is quite an array of challenges and risks for social landlords.

Every year we review the risks and seek to understand how each landlord is placed to handle them. We form our engagement with the landlords in accordance with that annual risk assessment.

I am interested to hear what specific things you will be doing to help landlords to operate effectively. You talked about financial and people risks around Brexit. Can you speak more about that?

The people risks can take some time to play out. However, we are conscious that many social landlords rely on labour that is provided by European Union nationals, and that many landlords have EU nationals residing in their homes. There is a range of uncertainties around both the availability of labour to social landlords and the potential impact on social landlords of not being certain whether people will remain in those homes or of people not being able to avail themselves of the kind of support from the state that is currently available. There is a range of uncertainties.

The implications of the United Kingdom leaving the EU are also affecting the finance markets. We are already seeing cost pressures emerge, in particular in relation to materials for construction of new houses, and we are seeing cost pressures build in the supply chain, which are principally consequences of the impact on the pound and the exchange rate.

What is the regulator doing to support landlords through that?

It is not our role to support landlords. Our role is to ensure that landlords protect the interests of tenants and other customers.

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Through a risk assessment, we identify and publish the range of risks that we think exists. We encourage landlords to consider those risks and to reflect on their business plans to ensure that they accommodate those risks. We also put out guidance around business planning for social landlords to ensure that they are best placed to respond to the risks and challenges that they face.

I will add briefly to that. There are real risks growing in the sector. Capacity is an issue, both in the organisations themselves and in general with regard to new house building. The skills to which Michael Cameron alluded have diminished, which is an issue that must be faced.

Our approach is risk-based and proportionate. We identify where we think the most serious harms might occur and where there are serious weaknesses, and we try as far as possible to work with organisations to get them to rectify the situation.

Rent affordability is a key risk in the sector. There are increasing costs for landlords, but tenants’ income is not rising at the same rate. Tenants are very concerned about how they will afford to pay their rent.

Do you want to add anything on that, Ruth?

No—that is fine.

Alexander Stewart wants to follow up on some of those points.

Yes.

I thank the witnesses for their comments on the uncertainty and risk that they face. However, from uncertainty sometimes come opportunity and the potential to go forward and develop. What opportunity do you see coming forward in the turbulent times that we face? What role should the Scottish Government play? Is there an increased role for it in providing support to try to mitigate some of the risks and uncertainties that you face, or are there other organisations and individuals with whom you need to communicate and develop new relationships as you go through this uncertain time?

It is absolutely key—as you mention—that the Scottish Government engages and understands the opportunities as well as the challenges. There are opportunities in shared services, for instance, and in looking at value for money. It is not all doom: there are a lot of good things on the horizon.

I think that it would be safe to say that, over the past 30 to 40 years, social landlords have been among the most innovative and responsive organisations in dealing with changing environments and challenges. That is a real strength of the sector. The place of those organisations as community anchors and hubs for services presents a real opportunity.

There are challenges, too. For example, the potential withdrawal of other services from the local environment and communities, with social landlords being viewed as the last organisation standing, can bring real challenges. However, there are opportunities in that respect too, and the sector has in the past risen to take such opportunities.

Supporting social landlords, as the Scottish Government currently proposes to do through increased funding to support new build, is hugely important. Picking up on the theme that Kay Blair highlighted, a clear focus on effective cost control and value for money will be crucial.

The whole idea of shared services gives us a great chance to see what can be done. Have you looked at what others have done—in other areas of the country, in parts of Europe or elsewhere—to take on board opportunities and manage them to benefit social landlords and organisations such as your own that are trying to provide support?

In terms of support to the sector, there is a role for trade bodies to be proactive, give help and share best practice. That would be helpful. Already, quite a lot is taking place on sharing services and looking at how things can be done better, and trade bodies are taking note of what is going on elsewhere.

In your answer to Ruth Maguire, you mentioned skills—I was not sure whether that was in relation to Brexit or to getting back in the game to rebuild social housing with a significant budget over the next five years. I was not sure whether you were talking about skills in the construction sector or the skills of senior managers of housing associations who perhaps have not managed projects for new-build developments for a little while. Can I tease out the skills challenges a bit more?

I am talking about both. Governing bodies must ensure that they have the necessary skills to develop as they want to. Sometimes an organisation has got into difficulties because it has not understood what it is getting into. It is essential that bodies have the skills to understand complexity and to understand what they do not know, so that they can bring in expertise from elsewhere.

In various seminars and briefings that we have had, we have seen that there are skills capacities in the housing sector—in building skills and development skills. If someone is a development officer in housing and construction in Scotland, they are in strong demand. A good career opportunity probably beckons.

If there was a small gap site in the area of a small or medium-sized social landlord with maybe 800 or 900 units, that body might think of speaking to the Government or the local authority about getting housing association grant money for 40 or 50 units. However, the body might think, “Och, it’s been 10 years since we built anything.” It would have to tie up the lending from the banks with 25-year projections and it would have to deal with construction companies and procurement processes. Those are the skills that I was thinking about, which have maybe not been used as actively as they were in the past.

Would the Housing Regulator have a role in the process of support? Would it have a role in signing off any business plans? Alternatively, would its role be to look back and see how the sector has performed? Where would it sit in that mix?

We do not give advice. Every year, we look at organisations’ business plans and the complexity and scope of their plans, to assure us that they know what they are doing. People have sometimes got into trouble when they have not known enough about what they are doing and what they are expanding into.

We have found that the sector is very diverse. That is one of the sector’s attractions, but it has challenges. As you said, some small organisations have decided not to develop but just to manage their properties.

Does Mr Cameron want to add anything?

Many associations already collaborate with other organisations that have the kinds of skills that you talked about. Even when an organisation is developing properties to own and let, it does not always undertake all the work itself. The sector’s approaches to sharing such services are quite well developed.

However, we have certainly identified a risk, given that there has been a reduction in delivery over time by a range of organisations that now want to get back into delivery. As Kay Blair said, they need to ensure that they have the right skills—skills for the process of developing new houses and the finance skills that are required to support that—at board and committee levels and within their staff. They also need to ensure that there are appropriate skills and capacity in the supply chain to be able to deliver effectively.

What about the regulator’s role? Kay Blair mentioned that it is not the regulator’s position to look at business plans and that kind of thing. Would the regulator have a retrospective role—for example, of looking back at developments over the past five years and seeing what lessons could be learned from the social rented sector?

We do look at business plans. That is part of our risk assessment.

Are those plans for new developments? Do you look at business plans for any new developments in isolation or in the round as part of the overall package?

In the round.

There are a number of ways in which we might become involved. As Kay Blair said, each year, we look at the organisation’s overall business plan, which includes its proposed future developments and new-build projects. We look at that in the totality of the organisation’s finances to understand the impact. We have a role when an organisation is seeking to borrow money to build houses and, as part of that, is looking to dispose of some assets by way of standard security, because the organisation would require our consent to do that. That is common when there is a new-build development; we would look at the whole proposal in that regard. However, our role is principally to look at the organisation’s overall finances and ensure that none of its proposed business developments would adversely impact on tenants’ interests over the longer term.

That is helpful.

I have a question about homelessness but, before that, I will pick up on the answers that were given to Ruth Maguire’s earlier question. Do the risks, uncertainties and opportunities that you have talked about in terms of community-based housing associations apply equally to local government?

We have a different way of scrutinising local authorities, in that we have a shared risk assessment, which means that we work with other regulators. We look at service delivery for local authorities but not at the financial or governance situation, and there is shared scrutiny.

Do you say anything in your annual report about shared scrutiny of local government?

We do, but I do not remember on what page. In terms of our charter, we have found that local authorities are doing well on tenant satisfaction but are slightly below the satisfaction levels that RSLs achieve, although that is often to do with the context in which they operate. However, it is important that local authorities’ tenant satisfaction level is improving. We can now benchmark that information, because we have enough information from the charter to see where the improvements are and to make comparisons. That has been a catalyst for improving standards.

That is excellent. To move on, you reported a 4 per cent drop in homelessness numbers, which is perhaps not statistically significant. Do you have a view on the state of homelessness and the contribution that the housing options approach is making to tackling it?

We are very concerned about homelessness. I know that the numbers of homelessness applications are down, but we need only look at the streets and see people sleeping rough to know that there is a problem. The problem is complex, because it is not just about providing somebody with a house; for most homeless people, it is about providing them with a package of health and wellbeing support that goes beyond providing just a house. However, we are concerned that too many people are homeless, so we will focus on that this year. We have looked at the housing options approach, which the Government produced guidance on, but we have to look at that in more depth this year as one of our tasks.

To echo what Kay Blair said, homelessness will remain a key focus for us over the next year and probably beyond. It is the single biggest issue on which we engage with local authorities. Kay Blair referred to the housing options report, which we published back in 2014 and which had a clear recommendation to the Scottish Government that guidance was needed for local authorities on the implementation of the approach. That guidance was put in place last year, so we will revisit the approach to ensure that the guidance is being appropriately adhered to and implemented.

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That is very welcome.

I have another question. Your annual report highlights that there is room for improvement in the services that are provided to Gypsy Travellers. What do you intend to do about that in the year ahead?

The situation is a concern for us. Our report shows clearly that Gypsy Travellers do not have the same satisfaction levels as other tenants in housing have. This is the first time that we have had full data. We are looking at the issue in more depth to find out what the sites that have the most problems are doing about that.

I am pleased to say that we have Gypsy Travellers on our national panel, which has helped to give us feedback on what is important to them. Rent and the quality of the site are key factors for them. The situation is a concern and we are again focusing on it this year.

The committee will be aware that, last year, the Scottish Government published minimum standards for Gypsy Traveller sites, which will be incorporated into the social housing charter from this April onwards. That will become an important focus for us in our plans for scrutiny of landlords’ delivery of services to Gypsy Travellers. We will treat those standards as a benchmark for how landlords are performing.

I have a final, brief question. You said that you have just over 50 staff, but I think that I recall that the figure of 48 was given in your report as the average number of employees in 2014-15. Does that mean that your numbers had gone down and are now above 50, or is that just a ballpark figure?

Our numbers went down as part of a change exercise, which we continue to go through to ensure that our resources are appropriately aligned with our priorities. We have turnover and we bring new people in. When the report was produced, the figure of 48 was accurate, but we currently have just over 50 people in post. As I said earlier, our proposed budget settlement for next year should enable us to maintain our level at around that figure.

Registered social landlords must meet the energy efficiency standard for social housing by 2020. What progress is being made towards reaching that target?

As you said, 2020 is the target date for achieving the energy efficiency standard. We have been monitoring landlords’ progress towards that. In the most recent year, landlords reported to us that just over 68 per cent of all houses that they let and which fall within the scope of the standard comply with those provisions.

The Scottish Government plans to include the energy efficiency standard in the new charter from April. That will put it on a more formal footing and give it a statutory status, and our monitoring and engagement with landlords will reflect that new status. We will look to focus on landlords’ delivery of the standard up to the target deadline, and we will publish annual monitoring figures on that.

I saw the figure of 68.6 per cent, but that relates to the 160 registered social landlords. What variance is there between landlords? Are some at 30 per cent and some at 90 per cent? Are all the RSLs on track to meet the target by 2020, or are there difficulties that need to be addressed along the way? It is only three years until 2020, and quite a large number of tenants are still expecting the relevant measures to be taken.

You are right that there is a variation in compliance. That is an important factor that we will take into account in our annual risk assessment. We will do that in a similar way to the way in which we monitor and engage with landlords on their delivery of the Scottish housing quality standard and its energy efficiency element. We will engage with any landlord that has further to go than the average suggests is the overall picture to ensure that it has the appropriate plans and resources in place to achieve the standard by the target date.

Are you confident that all RSLs will achieve the standard? You have not said what the variance is. Are any falling behind? Do you have particular worries about any of them? How does the RSL sector compare with the 32 local authorities on reaching the target?

We have figures about variance and the comparison between local authorities, which we can give you.

We will engage with landlords, particularly from April, when the energy efficiency standard will become a formal part of the charter, which will bring the matter clearly within our remit. We will engage with any landlord when we have a concern about the distance that it has to go and the capacity issues that it might have. We will require such landlords to provide us with a clear plan that takes them to the compliance level, and we will monitor and report on their delivery of those plans over the coming years.

That is positive; I am pleased to hear that. Will you say how RSLs compare with local authorities?

I have those figures with me. If you give me a second, I will get them.

There will be a variance between local authorities.

There absolutely is.

The overall average of 68.6 per cent of houses complying with the standard breaks down to 72.6 per cent for RSLs and 65.2 per cent for local authorities.

So local authorities need to do more to catch up.

They are marginally behind. That does not necessarily surprise me, given the age profile of the stock in the two areas of the sector.

Graham Simpson wants to ask a follow-up question.

You said that you had to intervene in relation to three RSLs. Can you give us some details about why you had to do that?

We had to do that because we felt that, particularly in one case, there was a danger of insolvency. The boards of those RSLs were not taking control of the situations that they faced and did not have the expertise to turn the situations around. Sometimes, our statutory intervention was welcomed by the organisation, but sometimes our experience was more difficult and challenging.

We have used our statutory intervention powers in relation to four organisations. As Kay Blair mentioned earlier, we are now able to end the statutory interventions in two cases because the organisations have made sufficient progress and improvements, with the support of the statutory appointees.

As you just heard, the key thread in all those cases involved weaknesses in the organisations’ governance. That is what led us to have to intervene, particularly when it became clear to us, through our engagement with the organisations and the support that we provided for self-improvement, that the organisations either did not have the capacity or did not have the willingness to address the fundamental issues that they faced.

You might be interested in looking at our website, where the first of the reports on those organisations is available. It is quite illuminating with regard to what the problems were. We will publish the second report soon. We are keen that the sector learns from the mistakes that were made and that people take on board the messages about recognising complexity and diversity and ensuring that the necessary skills and funding are available. Our concern, particularly with regard to one of the cases, was the threat of insolvency if no action was taken.

Which one was that?

That was Muirhouse Housing Association. We have concluded our statutory intervention in that case and published our review report of that intervention. That is now in the public domain.

What are the two organisations that you are still involved with?

We are still involved with two organisations, but the names have immediately gone out of my head.

It is Ferguslie Park and Wellhouse.

No—we have now ended our engagement with Wellhouse.

Oh, right.

It is Ferguslie Park and Antonine.

Yes, but we have not published the report on Wellhouse yet. That will probably be done at the end of next month.

Hopefully.

You have created a digital comparison tool. What is the take-up of that? How many people are using it?

We do not have hard-and-fast figures on how many people use it. However, we get strong anecdotal feedback on the popularity of the tool. We might be able to provide the committee with webpage hit information, which will give you a sense of the level of usage of the tool. However, from the feedback that we get from tenants, our tenants panel and landlords, it seems to be a popular addition to the range of tools that are available.

We are coming towards the end of our evidence session, but I want to follow up on one thing with Kay Blair. Earlier, she mentioned challenges relating to tenants’ income, which made me think about tenant arrears and how those are managed by registered social landlords. Do you have any general comments in relation to tenant arrears and some of the causes of those?

I have a constituency reason for asking my next question, but I will keep it fairly general. I am interested to know about the housing investment policies that some social landlords might have that mean that they may not invest in individual properties where tenants have housing arrears. Sometimes, people with quite small levels of housing arrears might miss out on stock investment.

I will leave that issue hanging there. My question is more about the level of tenant arrears and the issues for housing associations and local authorities. If people are in arrears, should there be any consequences for the level of investment in their property during an investment programme?

We obviously keep a focus on arrears. We have issued publications about managing arrears and landlords being sympathetic to tenants’ cases if they get into trouble and cannot pay their rent. We are concerned about the issue, but nothing is escalating at the moment. Obviously, we will keep an eye on it, because we are aware that costs are going up in the organisations but that tenants’ income is not likely to go up in a proportionate way.

On your question about investing in current—

Perhaps I should give some clarity on that. I apologise for conflating two questions. I have experience of a registered social landlord that had a policy of not doing investment programme work, such as fitting new kitchens or bathrooms, in some houses where the tenants were in rent arrears. I had significant issues with that. I corresponded with the organisation and, I think, I got a result for the constituent in question. I do not want to single out that registered social landlord and I have been careful not to name it. My question is more about how local authorities and registered social landlords seek to take action to focus minds on rent arrears and what the consequences are for what can sometimes be quite vulnerable tenants. That is one example where I thought that the approach was deeply unsatisfactory. Any reflections on that would be helpful.

When decisions are made on investment, we expect landlords not to take account of individual tenants’ circumstances in the way that you have described. We are aware that there are a number of incentive schemes that landlords can operate to encourage full payment of rent, but we would absolutely be interested in any landlord that takes an approach that seeks to penalise, in terms of investment, tenants who are in arrears.

That is helpful. I have deliberately not named the organisation, but we will correspond separately in relation to that issue. I just wondered whether there was a general theme of that happening across the board or of other unintended consequences in relation to rent arrears.

No.

Thank you. Some of my colleagues want to get back in, but I am afraid that we have run out of time. However, there is always time at the end of an evidence session to allow the witnesses to make any final remarks or comments before we move on to the next agenda item.

I would just like to thank the committee again for inviting us. We have had a good year as a regulator. We are concerned about the economic situation, the impact of Brexit, inflation, value for money and rent affordability. We have to maintain the confidence of lenders in the sector. There are exciting opportunities, but obviously there are big risks. We are keen that the sector identifies and mitigates those risks wherever it can.

That concludes agenda item 2. I thank Mr Cameron and Ms Blair very much for their evidence.

I suspend the meeting briefly to allow us to prepare for agenda item 3.

10:16 Meeting suspended.  

10:18 On resuming—