The Housing (Amendment) (Scotland) Bill passed through Stage 3 (i.e. consideration by the whole Parliament) of the Scottish Parliament on 31 May 2018 by 114 votes to nil. All that is needed now for the Bill to become law is Royal Assent which is expected early autumn. The purpose of the Bill is to lessen public sector influence over Scottish housing associations and other registered social landlords. On its face, this sounds like a good thing. No one likes too much regulation, but the changes that will be taking effect need to be considered in a wider context.
The background to the Bill arises from the re-classification in 2016 by the Office of National Statistics (ONS) of housing associations as public sector non-financial corporations. This was bad news for the Scottish Government as it resulted in approximately £3.4bn of debt being suddenly added to the public sector balance sheet.
The solution, effectively mirroring what has already happened in England, has been to bring forward legislation designed to ensure that public sector influence, as exercised by the Scottish Housing Regulator, over RSLs is made compatible with RSLs being classified by the ONS as private sector bodies in the UK national accounts. Bingo! £3.4bn is immediately struck off the public sector balance sheet.
The principal changes proposed under the Bill are:-
Narrowing the powers of the Scottish Housing Regulator to appoint a manager and to remove, suspend and appoint officers.
Removing the need for Regulator consent to the disposal of land and housing assets.
Removing the need for consent to changes to a RSL’s constitution.
The Bill also provides for power for the Scottish Ministers to make further regulations modifying the functions of the Scottish Housing Regulator, although now limited to a 3 year window.
Overall there will be less regulation.
These changes need to be put in the context of wider consultation by the Scottish Housing Regulator on the future of social housing regulation, with a proposed move to risk based regulation, prioritising use of resources available to the Regulator. The final words ‘prioritising use of resources’ is important. There is pressure on costs and the structure proposed is designed to maximise use of available funding.
The consultation papers refers to RSLs giving the Regulator the right type and level of assurance, backed by appropriate evidence, that tenants and other interests are protected. To an untrained eye that sounds again like less direct regulation due to budgetary constraints and more of a self-certifying exercise.
Coupled with the changes proposed through the Housing (Amendment) (Scotland) Bill, we seem to be moving to a structure involving light touch regulation and less ability for the Regulator to take early stage action in the event of concerns over governance or other performance.
I would query the benefit to a sector where funder and investors have placed much reliance on a robust regulatory structure being in place leading to a ‘non-default’ sector. It would be extremely unfortunate if a RSL were to fail in circumstances where this was perceived to be in consequence of, or contributed to by, a lighter regulatory regime being imposed. This would not be viewed positively by funders or investors. In the context of the huge investment currently being made in the sector, this would be an unwelcome development.
If the proposed changes to the regulatory regime as outlined in the Regulator’s consultation are due in whole or part to financial constraints, and the need to prioritise resources, then query if the relevant actions proposed should be focused not on lessening the robustness of the regulatory framework but instead ensuring that sufficient funding is made available. Other regulated entities fund their regulatory through an annual charge, and I wonder if such an arrangement might also be worth considering for the RSL sector given that this is such an essential element of the sector.
Chris Dun is a partner in Brodies LLP who specialises in housing finance, both in relation to debt facilities and private placement and other capital market transactions.
On July 2, 2018