Successful places with homes and jobs A NATIONAL AGENCY WORKING LOCALLY What does the regulator expect of Boards? Matthew Bailes Director of Regulation,

The social housing regulator

Successful places with homes and jobs

A NATIONAL AGENCYWORKING LOCALLY

What does the regulator expect of

Boards?

Matthew BailesDirector of Regulation, HCA


Overview An important first principle

Finance and Risks

What we mean by diversification – what’s different?

Changes to the Regulatory Framework and how we regulate

What do we want to see?

How VFM fits in

Some news about the regulator


An important principle

“The Principles of co-regulation

1. Boards and Councillors who govern providers are responsible and accountable for delivering their organisation’s social housing objectives”

If your organisation is a charity, you might like to look at Charity Commission guidance on the role of trustees too.


Sector finances are healthy…

Healthy balance sheet

Assets worth £118bn, largely valued at cost

Growing surpluses - £1.8bn in 2012

Access to funding at competitive rates, increasingly through the capital markets

Available security, albeit not evenly distributed

Position will be pretty stable in next global accounts


..but thanks in part to unusually benign conditions

Very low variable interest rates (1% on variable rate debt is worth c.£200m/annum)

Healthy profits from sales in a more buoyant market (profits from sales account for about 1/3 of the sector’s surplus)

RPI (rents) rising faster than wages


Historical perspective (base rates)


Historical perspective (house prices: earnings)


So although conditions might feel a bit like this…


The figures suggest conditions are more like this…


Sector risks

Second sector risk profile published September 2013

Welfare reform

– Under-occupation

– Benefit cap

– Direct payment

– What’s round the corner?

Historic debt and gearing covenants, in a world in which lenders are losing money on pre-credit crunch deals

Sales and development risks

IFRS, pensions and, for some, loss of rent convergence


Diversification

Exists already, but now driven by end of “vanilla” option

Diversification of activities and funding

Risk profile of activities varies considerably, e.g:– High turnover, low margin, limited liabilities

– long-term liabilities that rely on non-social housing revenues

– Exposure on sales receipts

Our interest lies in the potential recourse to social housing assets


Likely Regulatory Framework changes

Stress-testing of businesses – e.g. higher interest rate / sales risk scenario

Forensic grip of assets and liabilities, including recourse to social housing assets

Appropriate pricing of risk, in line with charitable vires/investment powers where appropriate

Skills and capability that measure up to market exposures

Boards confirming that they comply with our standards


What we expect of Boards

Underlying premise – Boards as custodians of assets for long-term provision of community benefits

Prudent risk taking to meet your objectives

Strategic choices grounded in commercial and financial realities

Iron grip on risks, and strategy for dealing with a more difficult market

Don’t lose sight of the basics – e.g. gas servicing

Transparency with us – and accurate data on time

Protecting the sector’s reputation


What we expect of Boards on VFM Value for money is not an add on or a nice to have. Key to

continuing to deliver and manage risks

We want to see, in the public domain:– An understanding of costs and the outcomes they deliver– An understanding of return on assets, and a strategy for optimising

future returns– The basis of your assurance that your organisation measures up

on the above (e.g. via benchmarking results)– A full and frank picture– Stretching future targets

There will be governance downgrades this year, based on weaknesses and timeliness of public statements

No room for complacency. For most what was good enough this year won’t be good enough next year


Sound advice


What about the regulator? Credit crunch and austerity mean that:

– Our resources have been cut and we need to continue drive out costs wherever we can

– But we also have to regulate a more complex and risky market

– We have made some important changes to improve our regulation and we’ll have to continue to evolve

Against that backdrop we want to start a debate with the sector:

– To what extent should the taxpayer bear the costs of regulation?

– Should the sector pay some or all of the costs, bearing in mind the benefits providers receive from regulation?

– What’s the best way to ensure the regulator remains fit for purpose?

Documents

Successful places with homes and jobs A NATIONAL AGENCY WORKING LOCALLY What does the regulator expect of Boards? Matthew Bailes Director of Regulation,