LTF Briefing August ‘07

‘Every Tenant Matters’ Cave Review of Social Housing Regulation
Published June ‘07

The Government commissioned the review of the regulation of social housing in December ’06. Reflecting perhaps how great a role the market now plays in social housing, a Business School Professor, Martin Cave, was appointed to carry out the review. It was commissioned because the current system of regulation apparently has shortcomings in a social housing world that has changed significantly over the 30 years that the current system has been in place.

Cave’s ‘call of evidence’ made it clear that his focus would be a greater role for the private sector, more ‘choice’ for tenants and ‘greater competitiveness’ within the social housing sector. It specifically suggested that the market place is the ‘best way to insentivise landlords to provide improved services’ and apparently to ‘empower tenants’ by offering more choice.

The review spells out that ‘Government is keen to increase the role of private developers in providing affordable housing’. Since 2004 private developers have been able to apply for development grants from the Housing Corporation. Some have obtained grant to build but as yet none to manage social housing. Cave’s role appears to be to ensure that regulation facilitates this.

Over a hundred submissions were made to Cave’s ‘call for evidence’. The majority were from service providers (councils and housing associations) and professional organisations, but also the Council for Mortgage Lenders (who were also part of an ‘External Advisory Group’ to Cave), a few trade unions, an MP, DCH and TPAS (also part of the ‘External Advisory Group), but only 5 from tenants’ organisations (including the LTF). No tenant organisations were part of the ‘External Advisory Group’. Cave held two meetings with tenants, one in London and one in Manchester.

As with most government consultation documents, very specific questions were asked by Cave, leading one to presume they were set in order to attain the desired responses.

The 143 page review discusses current methods of regulation and notes the need for regulation to ensure tenants are not put at risk of poor treatment by providers and to ensure taxpayers’ money generates a satisfactory return in the public interest.

The executive summary provides a précis of the report, but the full body provides the full detail including comments and recommendations that give cause for concern – such as that

• the DWP extend its experiments on Local Housing Allowance, as the review believes that this will also have the effect of stimulating real choice for tenants’ (We suspected that this would reappear at some stage)
• there is substantial potential for ‘windfall’ profits by raising sub market rents to market levels and by selling homes that have had substantial capital grant input
• lenders have played a key role and their continued support is one of the core objectives of the reviews proposals
• the regulators ‘market making role’ gives it a particular interest in supporting the supply of new homes.
• there may be significant interest in long term private sector investment in affordable housing (for example pension funds)
• it is likely that substantial private capital could be attracted to the provision of further affordable rented homes if the barriers to entry were reduced and became more proportionate to the scale of holding envisaged
• ‘as the Housing Corporations says’ [in its response to consultation] ‘the review presents the opportunity to establish a regulatory framework that looks at the community housing domain increasingly as a market. Such an approach will take time to establish itself and to support more active customers, whether they are tenants, shared owners or leaseholders. With customer power people benefit from competition as well as initiating and sustaining it’
• evidence would suggest that the desire to meet social objectives more effectively is not always an adequate driver to efficiency.
• the regulators role will be to facilitate mobility between tenures, reduce the burden of regulation and enable providers to have greater flexibility in the way they manage their assets.
• lack of incentives for efficiency in the HRA subsidy system is an issue that concerns the review team. [The review] strongly supports the experiments with possible opt out mechanisms.

The objectives of the review are set out as being to ensure continued provision of high quality social housing to empower and protect tenants and expand the availability of choice of provider at all levels in the provision of social housing.

Its aims are to achieve the above objectives with a minimum degree of intervention and apply the same approach, where possible, across all providers of social housing.

Its conclusions are that regulation is best dealt with by an independent regulatory body created by statute, with a board of executive and non executive directors appointed by the secretary of state and that no single approach to regulation is capable of dealing with the regulatory problem of social housing, and so proposes a combined approach based on ‘eliminating unnecessary regulation’. It also concludes that co-operation activities by providers should be encouraged, such as voluntary benchmarking and having providers supply data to the regulator, which it can investigate further following a risk based analysis and then apply a graduated scale of regulatory interventions, maintenance of a quick response capability to deal with emergency situations, where tenants are at serious risk or of a provider is financially endangered. (Diagrams are set out showing how this may work) Co-regulation is proposed.

The review sets out proposed relationships between regulator and government and councils, as well as a strategy for regulating providers.

Government, it suggests, will set out the standards of social housing and the strategic directions for housing standards; whilst the regulator will define physical standards of accommodation and ‘where appropriate’ services ancillary to housing and fix detailed timescales for providers to meet standards, subject to the overall target. Government will set overall levels of rent while the regulator will consult over the implementation.

Councils, it says, under forthcoming regulation, are to have a greater responsibility for ‘place shaping’ – bringing together the ‘public, private and voluntary sectors and promoting the well being of local communities’.

The regulator will have power to require social housing providers, as a condition of registration, to engage constructively and co-operate with local authorities. It is proposed that the regulator will be under an obligation (subject to resource constraints) to investigate and respond to local authority complaints about social housing providers.

Social housing providers will annually provide date in a form determined by the regulator after consultation with stakeholders on - the levels of tenants’ satisfaction, tenant involvement and choice, the standard of housing and service provided, financial projections (for housing associations), average operating costs and rents.

Tenant Empowerment The report suggest that the key to achieving tenant empowerment is ‘strengthening consumer empowerment and choice’ over - where tenants live, how services are provided, the types of service, [at different prices] and how to progress to ownership and the management.

Whilst Cave acknowledges weak accountability and involvement of tenants and notes ‘the evidence of tenant disempowerment’, rather than focusing on addressing these issues through more democratic accountability and the strengthening of tenants collective voice in a bottom up fashion, solution provided are more ‘consumer’ choice.

Cave also suggest the establishment a ‘national tenants voice’ (which has led to the current CLG consultation paper on Tenant Empowerment), and considers four options, one of which is a new national tenant body with a regional and local structure. This is though rejected, concluding that whilst this would provide a ‘level of legitimacy’, it would take considerable time and resources before such a body could be established.

Additionally it is proposed that the regulator will analyse data from organised tenant groups and local authorities acting in their strategic capacity. Where cause for concern is found, the regulator will seek further information and if appropriate, institute a graduated series of actions the (depending on the circumstances). In extreme circumstances this could result in a requirement for a change in management of the stock or the regulator taking control of the assets.

Fitting neatly within the Law Commissions’ proposals for a ‘single tenancy agreement’, with tenants right covered by consumer rather than housing legislation Cave proposes a review of current tenancy agreements, and goes further in suggesting there should be choice of tenure and variation in levels of service from which tenants should be able to choose.

Promoting the supply of new homes

The review is explicit in proposing that regulation will support the supply of new homes, favouring ‘competition for funds from all sorts of developers and opportunities for different types of organisations to take ownership of stock (including developers) and finding a range of organisations to manage it’.

It proposes that regulation could be lightened for ‘best performers’ providing ‘greater opportunities to build a wider housing management service business on the back of good performance’ and ‘greater scope for flexibility and innovation’.

Specific Recommendations - to the secretary of state

The review recommends the regulatory body should be established in statute independent from Government as a primary regulator of management of social housing across the whole domain of social housing. Its duties are the objectives of the review (p1)

The regulator, it recommends, should apply common principles, where practicable across the whole social housing domain and reduce and manage the burden of regulation. It proposes the regulator be given statutory power to set rent levels across the domain; that it maintain and update a clear statement of provider obligations and implement a framework for ownership and management of social housing where the provider is registered. Where long term ownership and management arrangements are integrated into supply contracts it will ensure the contract terms aims are in the long term interests of tenants.

The regulator is recommended to have responsibilities to promote tenant empowerment, through facilitating provision of more choices. It will have statutory powers to apply a range of remedial and enforcement measures including - right to obtain information, inspection, improvement notice, enforcement notice, fines, compensation, rent increase cap, appointment of additional board members, tendering the housing management function, appointment of independent manager, 28 days moratorium, transfer of ownership and or management.

It is recommended that restrictions on disposals and changes of use should be reviewed and relaxed to allow providers more easily to manage their stock in the pursuit of objectives such as mixed communities and that registration be open to ‘for profit’ organisations and subsidiaries.

It recommends the taking forward of a voluntary process for tenant management, the establishment of a national voice and of a single Housing Ombudsman for the whole domain.

Further recommendations are that the application of government’s rent direction to providers across the domain will be a matter for the regulator; that the regulator could deregulate rents where the difference between market rents and target rents is less than 10% and that it would maintain merger approval power.

Cave recommends that a Social Housing Regulatory Authority should be created by Act of Parliament with statutory duties relating to regulation of ownership and management of social housing and that the regulator should have the resources to undertake research, gather statistics and promote good practice.

Recommendations - to the regulator

Recommendations are that the system of regulation should as far as possible be ‘co-regulated’, that the regulator should avoid duplicating the work of other regulators and enter into protocols with those abutting or overlapping.

It is also recommended that the regulator should publish a clear definition of what constitutes the core housing service for the domain; this Cave recommends should be an early focus for the new national tenant voice. Performance should be judged against the standards

It is recommended that the regulator will have the authority to require all providers to deliver the core standards and that providers should establish formal arrangements to enable tenants to make periodic assessments of the quality of services provided; share benchmarking information about their performance and costs with other providers; publish the information to tenants more widely and include an independent element in their performance assessment so that there is effective external challenge.

The regulator is also to support the supply of new social housing by establishing a regulatory framework that recognises the separate roles of owner and manager and ‘reduces barriers to entry for development, ownership and management; opening registered status as an opening for private owners and managers; encourages the continued supply of private lending and capital development and ownership; encourages a wider choice of public private sector ownership; unlocks development capacity and co-operating with Communities England on all matters of common interest’.

The regulator, it is recommended, will also monitor the viability of organisations; introduce measures that stimulate competition for management of social housing services across the domain (designed to give tenants choice and improve service delivery); open access to new providers and models of provision; develop and implement a strategy for managing information requirements on providers across the social housing domain and publishing the top level of performance information that it receives on its website and develop a range of ways of triggering interventions in consultation with providers, councils and the national tenant voice.

Cave recommends that the programme of de-registration should be accelerated so that the smallest are freed of all regulation.

Main issues / areas of concerns for tenants

• The regulator will have an explicit role in facilitating a greater role for the private sector in developing and managing social housing.
• Tenants are referred to as ‘consumers’. The review makes it clear that introduction of a ‘single tenancy agreement’ (as set out by the law commission) is now imminent.
• The review allocates a greater new role for the regulator than existing, including facilitating social housing increasingly becoming a market.
• Two further consultation papers have been published by CLG as a result of Cave’s recommendations: the ‘Tenant Empowerment’ consultation paper (deadline for responses 11.09.07) and ‘Delivering Housing and Regeneration: Communities England and the future of social housing regulation’ (deadline for responses 10.09.07). The second asks for comments on the roles and responsibilities of Communities England (The Housing Corporation and English Partnerships merged) and how it might operate, as well as inviting views on the proposals for the future regulation of social housing providers.
• The report quotes endlessly from organisations that responded to Cave’s ‘call for evidence’ but tenants’ views are absent. ‘What tenants want – Report to the Housing Involvement Commission’ is mentioned.
• Genuine tenant empowerment through transparent, democratic and accountable structures is replaced by consumer choice.
• The review touches on other government policies such as those of ‘mixed communities’ (noted p4). It is of note that the Joseph Rowntree Trust has recently published a report on the government’s policy of ‘mixed communities’ which concludes that the pursuit of ‘mixed communities’ is an inadequate response to addressing poverty and actually makes life more difficult for poorer communities, (like those living in social housing) where wealthier residents have been moved into their communities.

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