This week social housing has been in the news. The government – or at least Conservative component – charged into battle against the UN rapporteur who dared to come from Brazil (where some people live in favelas) to the UK to question the “bedroom tax” – which the Conservatives describe as an end to a “spare room subsidy”. (As entertaining backstory the
Daily Mail reported that the Brazilian academic dabbled in witchcraft – even going
so far as to making an animal sacrifice to get Karl Marx to leave her alone.)
Against this the House of Commons’ Communities and Local Government select committee had little hope of getting much press coverage for its own report on social housing regulation. (Only the BBC and Guardian seem to have given it any
profile outside the housing and public finance media.)
The CLG select committee report (pdf available) may not have
much witchcraft or sorcery but it is an interesting survey of economic and
consumer regulation of social housing by the Housing and Communities Agency.
The committee report was highly critical of how the HCA rates
the financial viability of housing associations.
It has now emerged that the Regulator is unable to use his
statutory powers or provide a frank assessment of concerns about a provider’s
financial viability fearing that it might trigger a re-pricing of the
provider's debt and therefore undermine its viability. Instead, rather than use
his financial viability ratings to convey his assessment of financial
viability, the Regulator uses the governance ratings to signal concerns about
financial viability. This approach lacks openness and is confusing.
The committee noted that the social housing regulator had admitted
that a “handful” of providers that are of concern to the regulator and a “small
but steady flow of problem cases”, no provider has yet been graded as having “financial
viability [which] is of concern”. Less than 1% of ratings were V3 or V4 – the two
lowest. The only V4 rating was awarded after Cosmopolitan Housing Association
was on its last legs.
The committee’s solution was simple and straightforward:
Ratings published by the Regulator should be reliable and
capable of being understood at face value. The practice of using governance
ratings to signal concerns about financial viability lacks openness and is confusing.
It is misleading to the taxpayer and tenants, and potentially also to lenders
who, it appears, are expected to understand the coded message from the
Regulator. We conclude that the practice should cease. We recommend that the
Regulator publish accurate financial viability ratings.
How practical are warts-and-all viability ratings? Might
they actually be self-fulfilling in terms of financial weakness?
Transparency is important. But might narrative opinions be
better than the pass/fail simplicity of ratings?
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