Proposals for a new regulatory framework for social housing providers in Northern Ireland

Consultation response

The Northern Ireland Federation of Housing Associations (NIFHA) represents 26 registered housing associations in Northern Ireland. Collectively our members provide 44,000 homes comprising general needs, specialist and supported accommodation, as well as shared ownership. Housing associations are not-for-profit social businesses that increasingly borrow significant amounts of private finance to deliver public benefit in meeting housing need, supporting their tenants and investing in communities.Working in partnership with the Housing Executive and the Department for Social Development, Northern Ireland housing associations have helped deliver 10,000 social-rented and shared ownership homes over the last four years.

Key points

  • We welcome the proposed regulatory framework and believe it can help further strengthen the housing association movement.
  • Although it is beyond the scope of this consultation, the effectiveness and credibility of regulation depends on an independent regulatory function, ideally achieved through a dedicated independent regulator.
  • The final regulatory framework would benefit from a fuller explanation of the need for social housing regulation and its fundamental objectives. These should be enshrined in legislation.
  • More detail is needed on how the framework will be regulated in practice. Both the Better Regulation principles and Regulator’s Code can usefully guide implementation.
  • Regulatory staff will require appropriate guidance and training in how to implement a more sophisticated and sometimes nuanced outcomes-focused approach.
  • To avoid the unnecessary compliance burdens and duplication created by the new Charity Commission, DSD should legislate for housing associations to become ‘exempt’ charities.
  • In the final regulatory framework, it would be helpful to have the standards, outcomes, ‘what this means’, and guidance presented together.
  • Although the proposed regulatory standards are generally sound, the consumer standard could helpfully be developed, including separate home and tenancy outcomes.
  • The term ‘inspection’ has no place in the new regulatory regime and should be replaced with ‘engagement’.
  • Whilst the Regulator may require new powers, much greater detail should be provided on why these are needed, the exact powers proposed and how they would operate in practice. This should be the subject of a further dedicated consultation.
  • Improving the transparency and accountability of the regulator should be prioritised. Prior to the creation of an independent regulator, an annual report by the regulator including a self-assessment of its performance can help, as can the creation of an advisory committee.

Introduction

NIFHA welcomes DSD’s proposals for a new regulatory framework for social housing providers.

Housing associations recognise the need for effective regulation to provide assurance to tenants, politicians and funders. However for some time housing associations have felt that the approach to regulation that focused on processes rather than results imposed unreasonable bureaucratic burdens and gave insufficient emphasis to the outcomes being delivered for customers.

We are encouraged that DSD has heeded these concerns and are pleased to have been able to contribute to the proposed approach. The new system should be based on robust outcome-focused standards around consumer standards, governance and financial viability. ‘Better regulation’ principles will help ensure the revised approach is proportionate, transparent, consistent and targeted.

As a result, we hope and expect housing association boards will have greater freedom to set the strategic direction of their organisations and will use this to develop innovative ways of meeting the significant challenges the sector faces. These freedoms should also assist associations in maximising the resources for working with tenants in scrutinising and improving services, and providing customers with more opportunity to shape services and hold their landlord to account.

We look forward to continued close working with DSD, tenant groups, funders and other key partners in finalising and implementing the new system.

Purpose of regulation

In the consultation document, the need for social housing regulation is summarised as follows: to ensure the continued provision of high-quality housing services within our communities; to protect and empower tenants; and to assure investors including DSD and funders.

We agree with this rationale as far it goes. However we suggest that the final regulatory framework would benefit from a fuller explanation of the need for social housing regulation and its fundamental objectives. In England, these are helpfully set out in statute in the 2011 Localism Act (attached for reference in the Appendix). A similar statutory basis is needed in Northern Ireland explaining at a high level the rationale for, objectives of, and approach to social housing regulation. The rationale for and objectives of regulation could be expanded upon with reference to the three standards (governance, consumer, financial).

A maturing sector

As the consultation document correctly states, the Northern Ireland housing association sector has matured significantly since the first regulatory framework was introduced in 2008. Partly this was a function of the discipline required in compliance with the framework and the associated Housing Association Guide. However at least as important in this maturing is the marked improvement in sector leadership, both in boards and executive teams, which has resulted in considerable improvements in performance in much of the movement.

We therefore agree that the new regulatory framework needs to strike a new balance between the need to provide assurance for sector tenants, funders and partners, whilst enshrining the primacy of boards in leading their businesses.

Approach to regulation

In England, there is a statutory basis for the approach that the regulator must adopt to regulating the standards. It ‘must exercise its functions in a way that— (a) minimises interference, and (b) (so far as is possible) is proportionate, consistent, transparent and accountable.’[1]

We agree that the new regulatory framework should embed the principles of ‘Better Regulation’ as used across UK Government Departments. These are proportionality; transparency; consistency; targeted and accountability. The recent DETI commissioned review ‘Making Life Simpler: Improving Business Regulation in NI’[2] suggests three additional Better Regulation principles that can helpfully guide the development of the new framework: collaboration, support and focus on growth.

With regard to the first of these principles – collaboration – the document notes that ‘Regulators should be consistent with each other, and work together in a joined-up way.’ Key to this is better information-sharing. The ‘Regulators’ Code’[3] advocates sharing information between regulators on the principleof ‘Collect once, use many times’. This is helpful and necessary. Housing associations are now required to complete detailed regulatory returns for the new Charity Commission for Northern Ireland (CCNI). Given that our sector is already robustly regulated by DSD, this additional layer of regulation provides little benefit to consumers or housing associations, whilst imposing significant burdens of additional compliance and reporting.

Therefore, in addition to a greater commitment to collaboration, DSD should consider pursuing legislation that allows for housing associations to become exempt charities, given their regulation by the social housing regulator.

Comments on the proposed regulatory standards

Overall we believe the proposed regulatory standards and outline guidance are positive and a big improvement from the unnecessary levels of prescription and detail contained in the Housing Association Guide. Clearly they are still a work in progress, and we believe that the consumer standard requires further consideration.

In the final regulatory framework, it would be helpful to have the standards, outcomes, ‘what this means’, and guidance presented together.

Although the associated guidance for each standard may need to be expanded in some respects, we would strongly caution against extensive guidance being published. To do so risks returning to the old-style prescriptive approach that was partly driven by an ever-expanding Housing Association Guide. The Scottish and English regulatory frameworks both give a useful steer as to the level and type of guidance that can most helpfully accompany these type of outcome-focused standards.

We have the following comments on the specific standards:

Consumer Standard

Outcome 2 – This currently covers a wide range of areas that would currently be covered by two HCA regulatory standards – the Home and Tenancy standards. We think separate home and tenancy outcomes may be helpful here.

Also, we recommend that the statement that ‘Social housing providers shall provide premium homes with good service quality choices appropriate to the needs of their tenants’ should be re-worded. To most, the phrase ‘premium home’ suggests a luxury dwelling with all that entails, from marble worktops to en-suite bathrooms. ‘Good homes’ or ‘high-quality homes’ are perhaps more realistic and achievable descriptors. The phrase ‘service quality choices’ could also be usefully clarified.

The guidance for outcomes 2 and 3 is extremely brief and could usefully be expanded upon. NIFHA would be keen to work with the department on this.

Governance Standard

We are content with the drafting of this standard. The guidance for outcome 2 might usefully include reference to the value of ‘stress-testing’ business plans as part of managing risk. Especially for larger and more complex associations, this will help ensure that housing association businesses are sufficiently robust to successfully withstand adverse pressures and circumstances, even when these present simultaneously.

Financial Standard

We are content with the drafting of this standard.

It is important that the level and frequency of evidence required to demonstrate compliance with this standard is proportionate. For example, although the supply of business plans, the annual regulatory return and quarterly financial returns should not be contentious, there may be greater concern around the sharing of internal audit reports and management accounts. Also, it had been suggested that some information might be required on a monthly basis, whereas quarterly returns should in most cases be sufficient.

Risk-based approach

We support the intended move to a risk-based approach to regulation. It is pleasing that there is recognition of the need to enshrine the primacy of boards in running their organisations, accompanied by increased opportunities for tenants to contribute to the shaping of service delivery, and holding their landlords to account. These increased opportunities for tenants will be under-pinned by new regulatory obligations for landlords to facilitate full participation for customers.

It is also important that in demonstrating the meeting of regulatory standards, there is a decisive shift away from ‘tick-box’ audit and compliance approach. We agree with the document’s expectation that providers themselves take greater responsibility for providing timely and relevant evidence that they are meeting regulatory standards.

It is suggested that under this new approach, ‘inspections would only be required where the regulator became aware of an issue of concern.’ The consultation document appears to use the terms ‘inspection’ and ‘engagement’ inter-changeably. Given the move away from a ‘tick-box’ approach, we think the term ‘inspection’ has no place in the new regulatory regime and should be dropped. ‘Engagement’ is a much more positive term to describe the breadth of ongoing contact between housing associations and the regulator under the new system, which we would still expect to be significant. We therefore do not believe that old-style inspection type visits will have any place under the new system except in extreme circumstances. This should be confirmed in the finalised framework.

We would at the same time comment that, in moving away from an old-style ‘tick-box’ approach to judging associations’ compliance with the regulatory standards, the department will recognise the importance of its engagement teams receiving appropriate guidance and training in how to implement a more sophisticated and sometimes nuanced approach.

We support the proposal to use HCA-style ratings to assess performance against the three regulatory standards as part of a ‘judgement rating’. As described below, we also believe that there is much more work to be done to effectively collaborate and co-ordinate with other regulators such as the Charity Commission and RQIA to minimise the compliance burden on housing associations.

Commensurate Effort

We agree with the general premise that regulation should be proportionate and targeted according to factors including the size and complexity of the organisations, previous regulatory history and scale of any development ambitions.

The commitment for the regulator to produce an annual ‘Sector Risk Report’ is important. Such a document can usefully comment on the sector’s strengths, weaknesses, and raise awareness of the nature and scale of threats it is facing. This will help instil confidence that the sector is well run, forward looking and managing risk effectively. The proposal for an annual report by the regulator reviewing its activity and performance is also important and necessary (see ‘Transparency, accountability and good governance’ section below).

[SB1]

Additional powers for the regulator

We agree that it is important to consider whether the regulator needs new powers to complement the new regulatory framework. As the document describes, the Northern Ireland social housing regulator has fewer powers than its sister regulators in the other UK jurisdictions. It is also possible that the powers of intervention that exist might not be useful in addressing an urgent or crisis situation.

Potential additional powers suggested would include enforcement notices, penalties and compensation. We accept that it is vital that the regulator has a range of appropriate, timely and effective powers to intervene where required, such as where there are serious failings in service quality or where the viability of an organisation is threatened.

Nonetheless, the consultation document does not set out in any detail why the new powers are needed, what they might be or how they would operate in practice. Therefore we are encouraged by the commitment to consult on any new powers that might be proposed. As with the new regulatory framework, we hope the scope and operation of any new powers can be developed in partnership with the sector. They should then be subject to a dedicated consultation – in our view being subsumed into the statutory consultation on a new housing bill would be insufficient.

To help ensure a balanced approach, we agree that new powers for the regulator should also be considered alongside the potential for an appeals mechanism for social landlords.

Transparency, accountability and good governance

As discussed above, greater powers for the regulator may be required to ensure it can effectively respond in difficult circumstances. However it is vital that any such new powers are accompanied by much greater transparency and accountability from the regulator.

Of the four social housing regulatory systems in the UK, Northern Ireland is currently the only one without any body to provide accountability and oversight. This urgently needs to change, even ahead of any legislative changes. Although confidence of the sector in the regulator has increased in recent years (and vice-versa), housing associations do have some concerns about how the regulator operates. These include doubts about the consistency of approach and the grading of different associations. There are also concerns around some major delays in the production of inspection reports at a level that would (rightly) not be tolerated by the regulator of associations.

Independence of the regulatory function is vital in achieving the required improvement in transparency, accountability and governance. Ideally this should be achieved through the creation of an independent regulator. We appreciate this will require legislative change.

In the meantime there are a number of things that can help. The new annual report by the regulator can provide not just a commentary on the housing association sector but also a self-assessment of the regulator’s performance, perhaps using the Better Regulation principles as a basis for this. This should also be accompanied by the creation of an advisory committee comprising people with experience as tenants, funders and providers. Such a committee could valuably provide guidance and oversight for the regulator prior to any structural changes that may be several years away.

Successful delivery of the new approach also depends crucially on the approach taken by individual officers in their engagement with housing associations. As we have indicated above, the regulator should ensure that its officers have the necessary knowledge and skills to apply the Better Regulation principles, to understand the businesses of those they regulate and to choose effective and proportionate approaches.

CAMERON WATT