Recommendation 1

HM Government Accepted

9. As outlined in the Committee’s report registered providers are faced with significant financial challenges, as well as multiple and competing pressures on their resources. We agree with the Committee that providers need to manage these difficult trade-offs and make best use of their resources, so they can continue to deliver their core objectives of providing safe, well-maintained homes for their tenants and invest in new homes. 10. Investment by the sector in repairs and maintenance is at record levels with further significant increases forecast.2 Over the next five years, repairs and maintenance expenditure is forecast to amount to £50bn, 43% of social housing lettings turnover.3 However individual provider business models and their stock profile affect the levels of investment they need to make and their capacity to do so. Increasing expenditure on repairs at the same time that rents have been capped below inflation and interest rates have risen is the main reason that interest cover (ratio of surplus to debt repayment costs) has gone down and recently fell to its lowest level. The increased investment in existing stock is impacting on providers’ capacity to invest in new supply which is being reined in to meet the demand for spend on existing stock. 11. We are confident in our ability and capacity to regulate the sector’s financial position to enable them to invest in existing and new stock. We expect landlords to deliver the outcomes of our standards that apply to them, deciding for themselves the best way to do this for their organisation and their tenants. Our standards require them to understand their stock condition and make adequate financial allowance for the work in their business plan.4 Through our regulatory engagement we look at the processes and controls a provider has in place to deliver this outcome and seek evidence which gives us assurance that they are taking appropriate action if there are failures to deliver this. Where it is not cost effective to invest in stock to meet expectations we seek assurance that providers have plans in place to remedy this. 12. There are a number of examples of recent regulatory casework where failure to maintain stock has been a factor. For example, a case in which the regulator had concerns about the integrity of stock condition data which then adversely impacted on decision making and scrutiny of risks. In another, a provider failed to manage its affairs appropriately in relation to risk management, fire safety, and the decency of homes. In both these examples we downgraded the providers’ governance judgements and worked closely with them to address the issues identified. 2 Financial Forecast Return 2024 data from Sector risk profile 2024 - GOV.UK 3 Financial Forecast Return 2024 data from Sector risk profile 2024 - GOV.UK 4 Governance and Financial Viability Standard and Code of Practice - GOV.UK