Navigating stormy seas: Breaking down the 2023 sector risk profile

What are the main risks facing England’s social housing sector, as outlined in the Regulator of Social Housing's latest sector risk profile, and what should registered providers should do to mitigate their exposure to them?

The Regulator of Social Housing has published its annual assessment of the risks facing the sector in England, painting a dreary outlook for the coming months. 

Primarily aimed at boards of registered providers, the eleventh report highlights areas of the sector that the Regulator believes are at particular risk, partly due to the wider macro-economic landscape and partly due to the increased demands being placed on providers. 

Indeed, the Regulator makes no attempt to dampen its dour forecast, stating in the report’s first few pages: “The risks...have the potential to threaten the successful delivery of providers’ strategic objectives, providers’ viability, or the safety and well-being of tenants.” 

It adds that some of the risks it warned about in previous iterations of the sector risk profile are now “crystallising” and that the management of these risks is “already testing” the resilience of many. 

But what are those risks, and how might the sector look to mitigate their impact? 

Macroeconomic turbulence 

It’s not wholly surprising that in its report the Regulator repeatedly points to continued inflationary pressures and wider economic turbulence as forces that are hitting and will continue to hit sector finances.

As a result of these pressures, the report notes the sector expects decreased income due to capped rent increases and uncertain government policies, raising concerns about tenant arrears. 

To manage these challenges, the report reads, it's crucial for boards to set clear strategies, make tough decisions, and conduct stress tests to maintain viability. Providers must show value for money, monitor performance closely, and engage stakeholders transparently.  

Diversifying income sources beyond housing could help, but doing so introduces new risks, which boards must carefully assess.

Nevertheless, “boards will inevitably face difficult trade-offs."

Tenant safety

Given events such as the death of Awaab Ishak due to damp and mould and the subsequent inclusion of Awaab’s Law in the Social Housing (Regulation) Act, there is much for providers to get on top of to ensure their tenants’ best interests are always front of mind. 

The risks of not doing so can be dire; not only for the organisation in question, which may suffer reputational and financial damage, but also for the wider sector, which may attract yet more scrutiny and cynicism.

Tragic cases such as the death of Awaab Ishak speak for themselves in terms of the potential consequences for residents.

To mitigate these risks, the Regulator says boards must establish robust governance to uphold service delivery standards and compliance. Transparency in decision-making and communication is crucial, aided by solid data and performance management for effective service delivery. 

Tied to tenant safety is the area of stock quality and maintenance. The Regulator says boards need to maintain homes to high standards and consider long-term asset viability.

The report also points out that the proposed Safety and Quality Standard will replace the Home Standard, setting higher expectations for home quality, maintenance, and improvements. 

Digital diligence 

As the Regulator states in its report, there has been no shortage of high-profile attacks on the IT systems of registered providers. 

Indeed, cyber threats are something that all providers, regardless of size, are increasingly having to look out for, with the “widespread move” to remote working and online service delivery making them more vulnerable to attacks such as phishing, malware, and ransomware. 

“We expect boards to actively manage these risks to ensure continued delivery of essential services,” the report reads. 

On data, there is increased emphasis on collecting more tenant-specific data for better service understanding. Compliance with data protection laws is mandatory, requiring proactive security measures and contingency plans for data incidents. 

The report notes how data integrity underpins effective decision-making, and that accurate, detailed data is crucial for monitoring rents, financial management, tenant needs, and more. 

It adds that boards must ensure data quality and compliance with regulatory standards, such as the Data Protection Act 2018, warning: “Failure to provide accurate and timely data that meet regulatory requirements will be reflected in the judgement of a provider’s compliance with regulatory standards.” 

The labour crunch 

Registered providers are currently having to deliver on many fronts. Yet, the workforce and skills needed to successfully meet expectations are currently lacking and will continue to "threaten" providers’ ability to deliver on various programmes and services, according to the regulator. 

Access to skilled workers remains a challenge, hindering developments and maintenance; while labour shortages affect safety compliance and service delivery, demanding effective mitigation strategies from boards. 

The report highlights the problem of recruitment and retention challenges in local authorities, for whom more than nine in 10 have reported difficulties, especially with planning officers. 

To mitigate these risks, the Regulator says providers must ensure they have an understanding of the environment in which they are operating and how emerging and longer-term labour and skills shortages impact the delivery of objectives, safety, and quality. 

It adds that boards will need to have in place established mitigation strategies to ensure they have the necessary skills and labour to continue to deliver essential services and maintain quality stock. 

Further risks 

The above list is by no means exhaustive when it comes to the very real risks facing the sector as we head into 2024. Also outlined in the Regulator’s report are risks around pensions, fraud, counterparties, and the low-margin nature of supported housing. 

On pensions, the Regulator says the boards of providers should understand the potential for changed contribution levels and what the implications of this might be. The report reads: “Although most providers have taken a proactive approach to managing this risk, where appropriate boards should seek independent advice from relevant professionals to understand their risk exposure.” 

On fraud, the report highlights the many different types registered providers are exposed to, including mandate fraud, supplier fraud, finance function fraud, and tenancy fraud. To mitigate these risks, the Regulator says boards should have in place robust internal control procedures and seek professional assistance where fraud is identified. 

In terms of counterparty risk, the report points out the tendency of some providers to outsource landlord services to contractors to reduce costs. When doing so, the report reads, it is “essential” to maintain oversight of service delivery – or else risk falling short on tenant safety and reputation damage. 

Finally, the report notes how increasing cost pressures are having a particular impact on supported housing, a sector that typically operates with low margins, with many providers also dependent on local authority funding. There are several ways in which supported housing providers might look to ease this pressure, or at least prepare themselves for an increasingly testing financial period. These include stress testing against increased costs, loss of contracts, and the commissioning of revised or new services; and managing staffing and other risks to ensure the appropriate delivery of services. 

• Read the full report 

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