Or instead, do they set the scene for innovation in the sector to drive it through the choppy waters and onto safer shores?
Value for money (VFM) assessment has never been as important in helping the sector achieve its objectives. With the riskier environment and low inflation on the horizon, housing associations are ultimately being forced to make their assets sweat through diversification and innovation.
The focus in the coming year for VFM, therefore, lies strongly on return on assets and in ensuring that assets are protected. With increased reliance on income from shared ownership and open market sales and the existence of higher debt burdens, the number of viability downgrades are set to rise. As one housing sector expert said: ‘There has been a bit of a recalibration – V2 is the new V1.’ Housing associations will be expected to understand the returns on their assets and seek to optimise them.
With effect from April, the Homes and Communities Agency’s (HCA’s) approach will include in-depth assessments (IDAs) every four years, or more frequently for housing associations that are deemed to be riskier. The IDAs will consist of a deep dive into housing associations’ finances. Interestingly, the approach to the viability ratings will change, with the HCA giving ratings from first principles rather than starting from the premise that the organisation is of V1 standard and then adjusting as necessary. Together with the stability tests and the mandatory assets and liability register, the regulator is flexing its muscles.
Julian Ashby, Chair of the regulation committee at the HCA, recently mentioned at the Social Housing Finance Conference that housing associations should adopt a merger code for takeovers, similar to that used by businesses in the private sector. Specifically, he argued that mergers should be explored to allow the sector to push itself on value for money and not be dictated by CEOs’ retirement dates. This highlights the growing importance of VFM in the sector.
VFM is twinned with social value. Social value asks the question: If £1 is spent on the delivery of services, can that same £1 be used, to also produce a wider benefit to the community? As housing associations notice an increase in the importance of VFM, so will the prominence of social value rise.
Perhaps it’s necessary to have a lifeguard in-house to reduce the pressure when the regulator comes for a dive. This life guard could be the VFM champion, making sure no hidden surprises exist for the regulator. With 10 housing organisations confirmed to be piloting the IDAs, the HCA will be ready to present a refined version of the regulatory standard very soon. It may very well be the calm before the storm.