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Local Government, Housing and Planning Committee 05 December 2023

05 Dec 2023 · S6 · Local Government, Housing and Planning Committee

Item of business

Scottish Housing Regulator: “Annual Report and Accounts 2022-23”

George Walker Watch on SPTV

I am happy to take that. I will start, and Michael Cameron might want to add something. It is a very sensible question. There is no doubt in our minds that this is probably the most challenging, volatile and uncertain environment that social landlords, tenants and service users have experienced—that is clear. The economic uncertainty and volatility over the past three years have been unprecedented, and, frankly, at times, it has felt pretty relentless. That is what we hear from tenants and landlords. I could give you rhyme and reason on inflation and the Bank of England, but I think that you all know about that, so I will not get overly bogged down in the detail. We know about the effect that that is having. There are a couple of points to make. We all know that food and drink inflation remains high, despite the fact that headline inflation rates have fallen. The annual rate hit just over 19 per cent in March, and it fell a little to 17.3 per cent in June. The latest monthly data shows that it has slowed to around 10 per cent, which is good, but that simply means that prices are rising more slowly; they are still rising by 10 per cent. Why do I comment on that? I do so because the reality is that poorer households spend much more of their budget on essentials such as food. We know that they are the most exposed to high food inflation. We must not be drawn into thinking that the fall in headline inflation has taken the pressure off some of those poorer households. In many cases, it really has not. On your point about the whole sector, we are very aware that, for landlords, cost inflation—especially in maintenance and new construction—is running at between 10 and 20 per cent, which is significant. In our regular meetings with landlords that operate in rural and island areas, we have learned that cost inflation there is even more dramatic. We recently heard of increases in maintenance costs of between 30 and 40 per cent over the past two years. That is just one area where the experience of social landlords is that inflation is running way ahead of the consumer prices index. I will touch on the fact that the rapid increase in the Bank of England rate to 5.25 per cent is beginning to hit home. About 25 per cent of the borrowing by social landlords is on variable rates, so the rate increase has fed through to increases in interest charges of about £66 million a year. That means that quite a significant chunk of revenue is being hit. There is no doubt in our minds that social landlords have made considerable efforts to minimise the impact of those challenges on their tenants. We can really see evidence of that. They have certainly tried to limit rent increases to levels that are below what they had in their original business plans, which are usually linked to inflation. Of course, that means that landlords will have less income than they originally planned to have in current and future years, which will mean their having less to invest in tenants’ homes and services, as we have said. Another example relates to landlords’ wider activities. In my opening statement, I touched on the cutback in wider non-core activities, such as welfare advice and energy advice. Social landlords support tenants in a host of ways and, as I mentioned, we are seeing plans to cut the investment in such support by half, which is quite significant. We recognise that the current context means that social landlords are having to make tough decisions to prioritise what they pay attention to and focus their resources on. Those are the most critical issues for them. I reassure the committee that we absolutely take those challenges into account in our risk assessment this year, which we went public with fairly recently, and that we will continue to respond to that changing landscape and the challenges that landlords and tenants face. The committee can rest assured that we will focus on the big challenges that tenants and landlords face in the cost of living crisis. We will not do regulation by tick box. We will focus on what is in front of us at the time: the cost of living crisis; affordability, of course; the acute issues around the number of people in temporary accommodation; and the emerging requirements for landlords on net zero, damp and mould and residents’ safety. In answer to the final part of your question, the approach that we will take, as a regulator, is to focus on those live issues as they emerge. I hope that that helps.

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Local Government, Housing and Planning Committee 05 December 2023

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