Why social housing providers must adapt to the changing nature of risk

  • Registered providers of social housing are understandably concerned about government rules and regulations, according to a new report
  • Zurich Municipal’s expert analysis also suggests climate change should be considered a key risk area
  • A good risk-management strategy should help deal with the diverse nature of risks in this sector

Social housing providers need to think about the bigger picture when it comes to managing risk, a major study by Zurich Municipal suggests.

A total of 79 board-level chief executives and directors within the social housing sector were interviewed for Zurich Municipal’s new piece of thought leadership – ‘New world of risk – embracing the unknown. Perspective on risk for the social housing sector’.

The results suggest that Registered Providers (RPs) of social housing are most concerned about relatively short and medium-term risks, such as changes in government policy; while Zurich Municipal’s expertise shows longer-term issues such as climate change and sustainability could pose a greater threat.

Asked about the most significant threats facing their organisations over the next five years, the respondents ranked risks associated with changes in government policy, legislation and regulation highest, with 71% rating these of high importance, and 16% of medium importance.

The climate change challenge

However, only 6% placed high importance on environmental challenges, even though the variety of threats to tenants posed by flooding, storms, heat waves and water shortages, propelled climate change to the top of Zurich Municipal’s own Social Housing Risk Ranking list.

The difficulty RPs face in attracting funding can create extra challenges around enabling them to build properties that manage flood risk, and protect their tenants against other potential disasters – together with the difficulty in obtaining insurance for properties in vulnerable areas – are two of the main reasons that climate change is becoming a growing risk area.

Sustainability also featured high on Zurich Municipal’s Housing Risk Ranking list, which was compiled using its Total Risk Profiling methodology.

Social housing organisations face the challenge of helping to meet tough Government targets for reducing Britain’s carbon footprint by 80% by 2050, and the additional pressure to use green materials while ensuring they and their contractors keep their costs down.

Short-term thinking

For the RPs themselves, the focus seems to be on the shorter term.

Zurich Municipal’s report asked the chief executives and directors to list strategic risks that would be priorities for housing as a whole over the next five years. Funding (51%) topped the list, followed by Universal Credit/welfare reform (47%).

Zurich Municipal’s analysis highlights how the latter could have an impact on the former.

Under the Universal Credit system, tenants receive all their benefits in one monthly payment, from which they must pay their own rent, instead of the money being transferred directly to the RP.

Social landlords have been reliant on the financial security that comes from direct payments, in order to secure private investment at highly competitive rates – and the new method is obviously causing concern.

Growing commercialisation

The report also highlights how major welfare reforms, along with political uncertainty and financial pressures, are driving RPs to change their business and funding models.

Zurich Municipal’s research shows that 75% of RPs are introducing new services that are supplementary to their core role of providing social housing – examples include employment training, handyman services and money advice.

A separate report last year suggested that diversified activities – ranging from agricultural lettings to leisure centre management – provide £2.3billion of housing organisation turnover, with 34 RPs already generating a fifth of their turnover from non-core income.

Zurich Municipal’s research shows this trend is likely to continue – with 84% of respondents agreeing that housing associations will probably commercialise further in the future.

However, diversification brings risks as well as opportunities, something which the report suggests not all RPs have fully considered. Fewer than one in five (18%) of those surveyed ranked the risk associated with offering a broader range of services of high importance, with 38% considering it of low importance.

Cyber and data risks

Other risk areas where there is a real danger of RPs becoming complacent include cyber safety.

While only 5% of RPs said they were not very confident about their ability to protect sensitive data, it is unclear whether they have truly considered the breadth and scale of the risk.

RPs will increasingly hold and share confidential data. For example, under the Care Act 2014, housing providers will become more responsible for safeguarding vulnerable adult tenants at risk of abuse, including protecting sensitive data and sharing it with external organisations such as health professionals.

The growing trend for diversification, could also see an increase in data sharing agreements throughout supply chains.

Last year, the Information Commissioner warned RPs about the importance of keeping tenants’ data secure, and highlighted areas where RPs should improve their compliance with the Data Protection Act.

Serious breaches of the act could result in penalties of up to £500,000, and Zurich Municipal’s report touches upon the Information Commissioner’s Office less than complimentary assessment of RPs and the stringent fines it can impose for failure to protect data.

Confidence in risk management

Overall, RPs remain extremely confident about their ability to manage risk – 95% of the chief executives and directors surveyed said they were either fairly or very confident that their organisation’s risk management processes fully address the threats they face.

Asked about specific strategies their organisations use to manage risk in different areas, most respondents said they concentrated on getting ‘greater visibility at board level of risk response and recovery plans’ and also used external advisors or insurers to manage risk.