The Regulator of Social Housing (Regulator) has published its 2022 Sector Risk Profile (SRP) this morning, setting out its view of the most significant sources of risk to Registered Providers of Social Housing (RPs).
The Regulator continues to emphasise the importance of the “non-negotiables” – that financial viability, tenant safety and the delivery of landlord services are key responsibilities which Boards and councillors must continue to prioritise.
As expected, the SRP makes for sombre reading and focuses on the current “macro-economic shocks” facing the UK with RPs continuing to face an extremely uncertain operating environment, including:
- Significant cost inflation;
- High energy costs;
- Cost of living crisis for tenants – with many tenants increasingly struggling to pay rents;
- Continuing supply chain disruption; and
- Cost of borrowing increases.
These factors will inevitably weaken financial performance and reduce capacity to manage downside risk. We are already seeing evidence of RPs having to make key strategic choices in order to manage these risks, including an increase in merger appetite in the sector. RP Boards must continue to make tough decisions and set out a clear direction for their strategic priorities and any trade-offs. Robust stress testing and mitigation strategies must underpin these decisions.
The 2022 SRP goes on to discuss other risks including:
- New supply and development – demand for new homes remains high, but the current risks in the market mean there is an increasing risk of house prices falling and a decrease in sales. This is already being reported by some of our clients in relation to shared ownership reservations, as a result of spiked mortgage rates. RPs must particularly be aware of how the crystallisation of risks from investment and commercial activity, including participating in joint ventures, leasing arrangements or other investment vehicles, could affect their core social housing business and be impacted by adverse financial pressures.
- Stock decency and safety – despite the current macroeconomic pressures and spending pressures, the 2022 SRP warns that failures to maintain adequate investment in existing stock, including investment required under the Building Safety Act 2022 and to meet decarbonisation targets, may have significant consequences for tenants and lead to greater expenses in the long term.
- Service delivery and accountability – the sector is preparing for the move to a proactive consumer regulation regime including the introduction of the Tenant Satisfaction Measures from April 2023. Boards should already be embedding systems and processes promoting a strong culture of tenant engagement.
- Reputation – this is identified again as a key risk, particularly following high profile cases linked to service delivery, complaints handling and stock quality failures. The SRP also highlights that, as many tenants face cost of living pressures, there is likely to be increased scrutiny around areas of spending, including probity and remuneration.
For more information on what the Sector Risk Profile 2022 means for your organisation, contact Sharon Thandi or your usual Devonshires contact.