Housing - sector challenges series

The fifth in our fortnightly series of guest blog posts focusing on sector specific challenges from an internal audit perspective.

Take a look through the lens of the housing sector.

Guest blog by Sloane Bartlett, L&Q

​​If 2020 was the most recent annus horribilus then how will we look back on 2021?

For the housing sector, as with many others, this year could turn out to be more problematic than the last. The challenges of the previous years and that of last year haven’t gone away – they have been compounded. The Regulator of Social Housing published its latest risk profile in November 2020 highlighting a range of topics from strategy and stock quality to financing.

There is no getting away from the impact that the pandemic has had on the sector.

At the start of the first lockdown access to materials, labour and development sites was restricted as all sites and stores were closed. Gradually, trades opened up and the restrictions were eased however according to Housemark data, a backlog of non-emergency repairs remains which must be managed alongside planned works and developments. Assurance on a range of evergreen issues including scheduling, works management and funding is a top priority.  

The inability of many people to pay their mortgage or rent – having been furloughed or finding themselves out of or unable to work, will have a dual impact on social housing. Not only have housing association rent arrears increased, the need for more social housing homes will undoubtedly increase as evictions get underway and more people find themselves facing homelessness. Even before the pandemic, the UK’s housing gap hit the headlines with the difference between supply and demand at over one million homes.

Pressure to develop with limited funding from government means housing providers may struggle. Internal audit need to be looking at current rent arrears and the mechanisms to support residents out of debt as well as plans to recover arrears in an ethical way. We can also review current development plans and assess what adjustments have been made to recognise the limitations that limited funding and potential labour and materials will/have had on the profitability of schemes.

There is also the Social Housing White Paper. Intended government action to ensure that residents in social housing are safe, listened to, live in good quality homes and have access to redress when things go wrong; the standards all social tenants in England can expect from their landlords. The paper also references the decent homes standard; compliance with consumer standards; the publication of reports on complaints handled by the Housing ombudsman and determinations on individual cases.  

Does your organisation understand the policy measures included within the paper? How might this impact your organisations structure, policies and procedures? Is it responding? Internal audit should be providing assurance on awareness, implementation and compliance. 

In the wake of the Grenfell tragedy, two new bills will take effect this year.

  • The Building Safety Bill will take forward reforms to the building and fire safety system. Its aim is to create a more stringent regime for “higher-risk residential buildings”. Key changes impacting house builders and landlords include; the requirement for a ‘golden thread’ of building information; mandatory reporting to the new Building Safety Regulator and the creation of, and duties for, a Duty Holder and an Accountable Person. These changes will also be coupled with enhancements to the regulatory regime that will apply to all buildings – with a few exceptions. Initially the bill will apply to new buildings but, in due course, be extended to existing buildings.
  • The Fire Safety Bill takes forward the recommendations from the Grenfell Tower Inquiry (Phase 1) report. It clarifies the responsibilities of building owners and managers of high rise and multiple occupancy residential buildings in several areas such as lifts; evacuation plans; flat entrance doors and provision of fire safety instructions to residents. There are also proposed amendments to the Fire Safety Order which look at strengthening fire safety guidance, risk assessments and maintenance.

However, safety comes at a cost and, at a time when arrears are increasing, the pandemic has created volatility in the housing and financial markets and lenders are more cautious, housing providers are having to recognise and fund many pressing priorities. Internal audit can engage with the organisation and review its plans for compliance; how it has determined its baseline, its interpretation of the requirements and how it plans to meet those – including the timeframe and costs it anticipates for full compliance.  Have they built these activities into their corporate plans and budgets?

Other challenges for the housing sector are fuel poverty, the efficiency of energy, the journey to Net Zero (carbon emissions) and the aspiration of government for all properties to be EPC Band C by 2030 – a significant issue for housing associations with older properties. These will not only have financial implications but also reputational and social risks for landlords. 

Are all of these risks on your organisation’s risk register?

What is your organisation doing to address these risks?

We haven’t even mentioned IR35; capture of staff and residents EDI data; wellbeing of staff or the Brexit impacts such as skills shortages in construction and care together with potential material cost increases.

If the pandemic has taught us anything it has taught us all to pull together to get through. The pandemic has taught us that to get through we need to pull together. Internal audit is no different and we should be seen to support organisations while realistically maintaining our independence and objectivity.

What does your organisation need you to do so they can keep the lights on for their residents? 

If you don’t already know – ask!

National Housing Federation – Code of Governance

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Central government | Construction | Financial services | Local authorities

Further reading

National Housing Federation – Code of Governance

Content reviewed: 15 June 2021