Following a review into the structure and effectiveness of the Homes and Communities Agency (“HCA”), the government has backed plans to remove regulatory functions from the HCA and establish a standalone regulator for social housing. The government has just finished its consultation on the establishment of the new independent body and also recently consulted on the introduction of fees for regulation.

The Tailored Review of the Homes and Communities Agency highlighted that the establishment of the HCA’s investment arm had made the HCA both a secured creditor and regulator of registered providers, a perceived conflict of interest that had not existed at the time the decision was made to move social housing regulation to the HCA. Currently, operational “ethical walls” are used to keep the regulatory and investment functions separate, however, the Review recommended the removal of the HCA’s regulatory functions to a new independent body in order to uphold lender confidence, improve governance, provide for better transparency, accountability, proportionality, consistency and to emphasise the independence of the regulator.

A consultation has recently closed with plans to use a Legislative Reform Order to establish the new independent body. Under the consultation proposals, the current Regulation Committee (including its functions and powers) will transfer to the new body, which itself will retain close working links with the HCA to allow for constructive information sharing on agreed joint areas of interest whilst safeguarding commercially sensitive information. Whether true independence will be achieved with these “close working links” and the transfer of current HCA staff remains to be seen. However, the proposals will address the slightly unusual situation where the HCA board is legally accountable for decisions made by a separate Regulation Committee on the other side of an “ethical wall” and will allow the new body to focus its strategy purely on its regulatory objectives.

There are no proposed changes to how registered providers are regulated in the consultation that closed on 28 January, but the new broad framework is set to involve the HCA becoming more light touch, with registered providers no longer requiring consent for many activities (such as disposal of land or change of ownership) but instead notifying the new regulator. There is a separate consultation on the introduction of fees for regulation, which recently closed on 9 January 2017. Under these further proposals £12.5 million of the regulator’s £15 million annual budget will be funded through fees paid by registered providers. Currently the social housing regulator is funded by government grant. It is proposed that:

  1. A one-off fixed fee of £2,500 should apply to all successful applications for initial registration;
  2. The annual fee payable by a registered provider should be set by reference to the number of social housing units owned by that provider and that this level should be £5 per-unit;
  3. However, all providers owning fewer than 1,000 units should pay a fixed annual fee of £300;
  4. For groups where the parent is registered, the annual fee should be set at group level rather than for each individual entity on the register;
  5. Providers should pay the full cost of the annual fee for the year that they are on the register when they register or de-register.

Introducing fee charging under this scheme is said to enable the new regulator to ensure it maintains the confidence of lenders and other stakeholders. There were initial public concerns over the fairness of the proposal that local authorities would not be charged an annual fee, however, this stems from the fact that the regulator’s role in relation to local authorities is limited to considering breaches of consumer standards and it is proposed that consumer regulation will be paid for by grant-in-aid.

A further concern identified in the fees discussion paper responses was the issue of sector representation on the Regulation Committee as part of fees introduction, and the potential for too much influence over the regulator as a consequence of fees introduction. However, in line with the regulator’s ambitions of being viewed as a truly independent and credible housing regulator, it was considered that sector representation was not appropriate.

The fees have the potential to be very expensive. The 125,000 home Clarion Housing Group (the recently merged Circle Housing and Affinity Sutton and largest registered provider in the UK) will have an annual regulatory bill of £625,000.

For any questions regarding the content of this article, please contact our Social Housing team.

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Claire Whittle

Senior Associate

+44(0)20 7551 7605

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Posted on 01/02/2017 in Legal Updates

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