The Sector Risk Profile 2021

Posted: 10/12/2021

Less than 11 months after the 2020 Sector Risk Profile (SRP), the Regulator of Social Housing’s (RSH) it published its ninth annual SRP on 19 October 2021. Whilst 2020 was the year that saw the face of the political, economic and societal environment change forever, 2021 has been the year that the real impact of 2020 was brought to bear.

November 2020’s SRP was published in the eye of an uncertain storm and shortly after the release of the Social Housing White Paper (the White Paper). In many ways, it could only emphasise the importance of registered providers of social housing (RPs) continuing to keep their eyes open to the wider pool of risks that could affect ongoing viability and the delivery of strategic aims and objectives. This year’s SRP was published in a marginally more stable operating environment with the benefit of observing nearly 11 months of further operations during uncertain times.

Interestingly, in light of upcoming changes to consumer regulation, the SRP makes no distinction between those risks that are relevant to compliance with economic standards versus consumer standards. There is certainly an underlying message that (as Fiona MacGregor has stressed at recent conferences and as highlighted in recent documentaries) boards need to be aware when operational issues are becoming of greater strategic importance. We set out below a summary of the key risks discussed within this year’s SRP:

• Diversification – diversification within the sector has appeared in some form within every iteration of the SRP. It was first classed as a ‘strategic risk’ (as opposed to operational) in the 2020 SRP. This year’s SRP continues to flag it as a strategic risk noting that boards must be equipped with the skills, information and advice needed to appropriately assess and monitor diversified business streams.
• Delivering against expectations – in light of the significant amount of recent public scrutiny for the sector and the greater emphasis on accountability within the White Paper, it is perhaps not surprising to see this addition to the SRP. Whilst the RSH has discussed strategic choices previously, its inclusion within the body of key strategic risks for the sector crystallises its importance. The SRP acknowledges that RPs face a range of competing demands; however, failing to effectively communicate strategic decisions to stakeholders can have serious reputational ramifications. Poor complaints handling, poor quality accommodation, health and safety, incorrect rent and service charge setting, conflicts and executive pay are all highlighted within this section of the SRP and are all reflective of recent headlines. The SRP emphasises the important role of the board in considering reputational risk as part of strategic decision-making alongside reiterating that it is for the board to manage and maintain effective relationships with stakeholders.
• Existing stock quality – the SRP flags the risks associated with failing to invest appropriately in existing stock, particularly in light of the review of the Decent Homes Standard announced in the White Paper, net zero-carbon commitments and recent public scrutiny. Boards require robust and up-to-date stock condition data to effectively identify and oversee existing stock investment requirements. Alongside this, the SRP flags several issues that have affected the availability of key materials, staff and skills including Brexit, delayed development programmes starting back up again, the Fire Safety Act 2021 and the Building Safety Bill. In the midst of this, boards must ensure that their organisations provide an effective repairs and maintenance service that represents value for money and ensures that tenants’ homes meet minimum standards.
• Health and safety – health and safety remains a key risk for the sector. The Fire Safety Act 2021 and the Building Safety Bill will introduce wide-ranging changes in this field. The SRP highlights that boards must ensure they adequately understand all the legislative requirements under the relevant new regulatory regimes with regards to fire and building safety.
• Supported housing – the 2018 SRP included an addendum that discussed the specific risks around specialised supported housing provided on a lease basis. The 2021 SRP confirms that the risks identified in the 2018 addendum continue to be a significant concern and recent sector headlines reflect this. The inherent funding risks, particularly in light of the reduction in income and increased costs faced by local authorities as a result of the pandemic, must be fully understood and managed by boards of supported housing providers.
• New debt funding – an increase in the reliance on debt financing arrangements to fund increased investment in existing stock as well as delivering new supply has been forecasted. The amount undrawn and repayable in 2025/26 has increased to £114 billion, compared to £85 billion in 2020/21. The SRP discusses the increased consideration of environmental, social and governance (ESG)-linked funding and sustainability linked loans. The RSH emphasises that it will expect to see evidence that a critical assessment has been undertaken to ensure that boards are able to effectively understand innovative and/or complex funding structures, particularly where targets as part of ESG funding are being considered. The aim is to ensure that the targets do not undermine Board control over the business.

The risks facing the sector are undoubtedly challenging. 2020 proved that RPs can respond quickly, collaboratively and innovatively in unprecedented situations. 2021 continues to pose difficulties and robust governance oversight will be more important than ever in managing the risks and competing priorities that providers face, particularly in light of increased scrutiny from residents, the media and other stakeholders.

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