Opinion: 'HCA's value for money demands must not be forgotten'
Published by Jon Land for 24dash.com in Housing and also in Finance, Regulation
Opinion: 'Don't turn a blind eye to HCA's value for money demands'
The housing sector faces huge challenges in 2013 but one of the biggest is how social landlords demonstrate they are achieving value for money in meeting strategic objectives, writes Peter Hall, Managing Director of PHHS.
Where value for money (VFM) was once a regulatory standard which only required an annual statement to tenants and wasn’t evaluated, it is now integral to regulatory judgements on governance for all housing providers with more than 1,000 properties.
While that’s been the case since the new Regulatory Standards were introduced in April 2012, given the risks and impact of welfare reform amongst many other economic challenges facing the sector, for this financial year at least the HCA clarified in their Regulating the Standards’ guidance that they are focusing “on providers’ progress towards the key elements of the VFM standard, reflecting that providers will be at differing stages of development”. This has been reflected in judgements published to date.
However as the standards guidance document clarifies: “from the point at which providers publish their self-assessment, it will become a key area of focus for the regulator’s assessment of VFM”
The first self assessments of Value for Money are due to be published within 2012-13 Operating & Financial reviews (OFR’s) , with detail expected within them on how boards have developed and delivered a strategy to achieve continuous improvement in their performance on running costs and the use of their assets, and how they will:
• Deliver a comprehensive approach to achieving value for money in meeting objectives,
• Take into account the interests of and commitments to stakeholders
• Manage resources economically, efficiently and effectively to provide quality services and homes, and
• Have performance management and scrutiny functions which are effective at driving and delivering improved value for money performance
As the standards guidance document clarifies: “The provider’s ability to drive value for money across its operations and asset base will be taken into account” in judgements made.
Very soon then, organisation’s who don’t effectively articulate and demonstrate their approach to ongoing improvement in their performance on running costs and the use of their assets will be faced with a downgrade of their Governance judgement – with all the inherent risks that brings.
New Homes, Reduced Costs or Social value?
The current standard was framed against a backdrop of the 2007 Cave Review of regulation and it’s finding that ‘(taxpayers) have an interest in ensuring that their investments in the supply of social housing (cumulatively more than £100bn) continue to generate satisfactory returns in the public interest’, and recommendations that ‘the regulator should support the supply of new social housing by.. unlocking development capacity’ and ‘play an important role in maximising the capacity of regulated bodies to meet their objectives’
In the intervening years, analysis of global housing association accounts also revealed:
• The value of the sector’s housing assets exceeding the £100 billion mark, supported by £43 billion of private finance and £38 billion of government grant
• The sector as a whole remaining comparatively lowly geared; with smaller providers (1,000-2,500 homes) having an adjusted net leverage of just 27.2%, in 2009-10, while
• Of the 1,500 active housing providers owning or managing nearly 2.5 million homes, those with 2,500 homes or fewer held around 20% of the sector’s financial capacity, but contributed only around 3% of new development.
The focus of the standard is therefore very much on unlocking capacity to deliver new homes – reflected in the purpose of economic regulation being to ‘protect historic government subsidy, promote access to private finance, and help address the lack of competitive pressures on providers which might otherwise put pressure on service quality and efficiency’.
The conclusion last December to the government review of barriers to setting up REITS (i.e. that there are none) is seen by some that the government are eyeing up housing association'surpluses as a prime source of equity for new homes.
But as Julian Ashby, chair of the HCA Regulation Committee has clarified ‘the issue isn't primarily about saving money; it is about future investment in new homes and a range of related services. Greater efficiency and effectiveness can release resources for new homes and other public benefits’. That’s reflected in the standard , which also outlines that value for money will not just be judged by the number of new homes developed, but by ‘the optimum sustainable performance of all ... assets – including for example financial, social and environmental returns’.
This leaves clear room for those organisations that may not have as hearty a risk appetite as others, and also wish to invest in sustaining their local neighbourhoods and communities, to redefine their objectives around a shared vision developed with stakeholders of financial, social and environmental returns. Some are choosing to go down that route.
But those organisations can expect pressure from the government and the regulator if that leads to their gearing ratios being lower, and operating margins or financial capacity being higher than sector averages or what are considered acceptable levels. The key will lie in providing, as the specific expectation outlines, ‘clear evidence of delivery’ in whichever direction taken.
Evidence of social value which some intend to provide will need to be much more detailed than a LM3 economic contribution to the community analysis, and any Social Return on Investment audits will need to be robust to demonstrate this clear evidence of delivery. Many private sector and voluntary organisations can demonstrate economic contributions to the local community or the social impact of any volunteering/job creation programmes without recourse to any form of ongoing government funding (HB/Universal Credit) or use of tax payer assets (the £38bn of government grant in the sector’s assets). And with the likes of LGA calling for a greater role in job creation, questions over whether housing organisations are the most appropriate and value for money providers of such linked activities are bound to be raised.
The non-cashable efficiency gains which social value investments represent will in all likelihood be subject to more scrutiny for those with significant ‘underused’ financial capacity.
How prepared is the sector?
The new approach to Value for Money has been the subject of much discussion and debate across the sector. At last year’s CIH annual conference, Julian Ashby warned that: “Housing associations must make a fresh offer to government that shows they are managing risk and offering value for money…you either shape the future or it will shape you”.
Mathew Gardiner, Chief Executive of Trafford Housing Trust summed up the sector’s readiness for that, outlining how the sector “doesn’t have good matrices for measuring value, but we need to get these urgently”
One of the sector’s own national organisation’s has tried to re-brand with a ‘total Vfm’ approach, but as the HCA’s consultation feedback document last year outlined, “There is no intention that the regulator will develop national metrics or league tables to evaluate or monitor individual providers’ value for money performance. However, we expect that providers themselves will measure and evaluate their strategies and deliverables, in the overall context of achieving their organisational aims and objectives. It will be for providers to decide the most appropriate way to do this.”
Ultimately, the emphasis in the revised value for money standard is as much about values as it is value – focussed on how value for money is being achieved ‘in delivering the organisation’s purpose and objectives’. The value delivered will be measured against organisational values, purpose and objectives, and there is a need to ensure these, together with financial viability measures, are aligned.
At PHHS, we are focused on helping organisations to do just that on a less is more basis – through less information but of a much higher value.