Southern Housing (5171) - Regulatory Judgement: 28 August 2024
Updated 28 August 2024
Applies to England
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Our Judgement
| Grade/Judgement | Change | Date of assessment | |
|---|---|---|---|
| Consumer | C2 Our judgement is that there are some weaknesses in the landlord delivering the outcomes of the consumer standards and improvement is needed. |
First grading | August 2024 |
| Governance | G1 Our judgement is that the landlord meets our governance requirements |
Upgrade | August 2024 |
| Rent | Our judgement is that the landlord has addressed the issues in the regulatory notice dated November 2021 | New judgement | August 2024 |
| Viability | V2 Our judgement is that the landlord meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance. |
Assessed and unchanged | August 2024 |
Reason for publication
We are publishing a regulatory judgement for Southern Housing (Southern) following an inspection completed in August 2024 and earlier responsive engagement.
This regulatory judgement confirms a consumer grading of C2, a financial viability grading of V2 and upgrades the governance grading to G1. This regulatory judgement also confirms the removal of the November 2021 regulatory notice in relation to Southern’s rent setting in respect of some of its fair rent tenancies.
Prior to this regulatory judgement, the governance and financial viability grades for Southern were last updated in January 2023 following merger activity, to confirm interim grades of G2 and V2. This is the first time we have issued a consumer grade in relation to this landlord.
In November 2021 following responsive engagement, we published a regulatory notice that concluded that Southern Housing Group Limited (one of the landlords that merged to form Southern) had failed to deliver the outcomes of the Rent Standard 2020 and we did not have assurance that it was compliant with the legal requirements of the Welfare Reform and Work Act 2016 (the Act).
Summary of the decision
From the evidence and assurance gained during the inspection we have concluded that there are some weaknesses in how Southern is delivering the outcomes of the consumer standards and improvement is needed, specifically in relation to outcomes in our Safety and Quality Standard and the Transparency, Influence and Accountability Standard. Based on this assessment, we have concluded a C2 grade for Southern.
Our judgement is that Southern meets our governance requirements. Through the inspection, Southern has provided evidence to demonstrate that it has strengthened its governance since January 2023. We have concluded that this has provided sufficient assurance that Southern has made the necessary improvements to be assessed as a G1 grading.
Through the inspection and responsive engagement, Southern has also provided evidence that it has addressed the issues relating to rent setting that were summarised in the regulatory notice dated November 2021. We have concluded that this has provided sufficient assurance for us to remove the regulatory notice.
Our judgement is that Southern meets our financial viability requirements and has the financial capacity to deal with a reasonable range of adverse scenarios, but it does need to manage material risks to ensure continued compliance. Southern’s financial profile is adversely impacted by the costs of significant fire safety remediation works to its homes and it has exposures to the housing market. Southern has provided appropriate assurance that it has access to sufficient liquidity and adequate funding in place. Based on this assessment, we have concluded a V2 grade for Southern.
How we reached our judgement
We carried out an inspection of Southern to assess how well Southern is delivering the outcomes of the consumer standards and meeting our governance and financial viability requirements, as part of our planned regulatory inspection programme. During the inspection, we considered all four of the consumer standards: Neighbourhood and Community Standard, Safety and Quality Standard, Tenancy Standard, and the Transparency, Influence and Accountability Standard.
During the inspection we observed a board meeting and tenant scrutiny panel, spoke to tenants, held meetings with Southern including with its non-executive directors, and reviewed a wide range of documents provided by Southern.
Our regulatory judgement is based on all the relevant information we obtained during the inspection as well as analysis of information received from Southern through its regulatory returns and other regulatory engagement activities, and the earlier responsive engagement in relation to the rents issues covered by the November 2021 regulatory notice.
Summary of findings
Consumer – C2 – August 2024
During the inspection, Southern provided evidence-based assurance that it has appropriate systems in place to ensure the health and safety of its tenants in their homes and associated communal areas. Southern is meeting landlord health and safety requirements including delivering actions coming from assessments. Southern identified a number of blocks that required a legionella risk assessment but did not have one. It has now completed these risk assessments and is in the process of completing the resulting actions.
Southern’s stock includes a high proportion of high-rise blocks, including buildings over 18m. Southern has completed fire risk assessments for all blocks that required one through a combination of accelerated fire risk assessments and a cyclical programme. These assessments have led to a significant number of fire remedial actions, a proportion of which are overdue, including high-risk actions. Southern is being supported by an external consultant to complete these following a risk-based approach. Southern provided evidence that it is managing the risks associated with building safety, including having appropriate mitigating actions in place until outstanding actions are complete. Southern has provided evidence that demonstrates it seeks specialist external support where required in certain aspects of landlord health and safety as well as obtaining assurance from its own inhouse internal audit function.
There is evidence that arrangements are in place to make sure there is an accurate record of the condition of Southern’s homes, including a process for keeping this information up to date through a programme of physical inspections. There is evidence that Southern uses the information it has on the quality and safety of its homes to make decisions on future investment to maintain and improve the condition of its homes.
We found evidence of weaknesses in the provision of an effective, efficient and timely repairs service. Tenant satisfaction, complaints and performance information demonstrates that improvement is needed in this area. While Southern is taking appropriate steps to resolve these weaknesses, including procuring new contractors, increasing its inhouse repairs service, and undertaking a full review of its processes, we have not yet seen sufficient evidence of improved outcomes for tenants. We have assurance that Southern has appropriate plans in place to deliver the required improvements. Through our ongoing engagement we will continue to seek assurance from Southern that sufficient progress is being made so that outcomes for tenants are improved.
We have assurance that Southern is putting in measures to ensure complaints are addressed fairly, effectively and promptly, and that it is taking action to address increased levels of complaints. We have evidence that Southern undertakes work to understand why complaints are made and to use any learning to improve the experience for tenants raising complaints. However, Southern has not yet been able to meet complaint handling timescales, due in part to a backlog from its legacy (pre-merger) organisations and the weaknesses in its repairs service. Southern has invested in resourcing its complaints team to improve response times and has responded to a recent Housing Ombudsman investigation with an action plan in place. We will continue to seek assurance from Southern on its progress against its action plan and that this is delivering the improvements required for tenants, through our ongoing engagement.
We gained assurance that Southern works in partnership with relevant organisations to deter and tackle anti-social behaviour, including hate incidents, in its neighbourhoods. The anti-social behaviour service has also recently been subject to tenant scrutiny, and we were provided with evidence of how this has delivered improvements to the service.
Southern was able to evidence its arrangements for treating tenants with fairness and respect, including actions to deliver fair access to and equitable outcomes of its services. Southern has comprehensive information about its tenants, including protected characteristics, and is now seeking to gain further insight from this information to improve its services and address regional differences.
We found evidence that tenants have a wide range of meaningful opportunities to influence and scrutinise Southern’s strategies, policies and services. These opportunities have directly influenced how Southern delivers services to improve outcomes for tenants, including recent opportunities to scrutinise anti-social behaviour, its approach to managing damp and mould, and future scrutiny of tenant involvement. Tenants have also been involved in the procurement of new repairs contractors. Tenant engagement is clearly structured, from a local level through to board level, and well supported by Southern’s staff. Southern has provided appropriate evidence that it is making effective use of its performance and insight information to shape services. It provides a range of information for tenants to support effective scrutiny, using tenant, neighbourhood and building level information.
Our inspection found evidence that Southern’s approach to lettings and allocations is transparent, that measures are in place to ensure terms of tenancy are appropriate and meet the needs of tenants. There are a range of measures in place to support tenancy sustainment including successfully helping tenants to access financial support.
Governance – G1– August 2024
Based on the evidence gained from the inspection there is assurance that Southern’s governance arrangements have improved to enable it to effectively manage its risks and adequately control the organisation, allowing it to deliver its objectives. Southern’s board demonstrated that it provides challenge on performance against the organisation’s strategic targets and consideration of risk appetite in strategic decision making.
Southern has provided appropriate assurance that its board proactively reviews its approach to delivering against its purpose and regularly considers alternative options to ensure it is achieving value for money in making best use of resources.
Southern was able to provide evidence that it has established and maintains clear roles, responsibilities and accountabilities within its leadership and governance structure. Continuing governance improvement is evidenced through annual effectiveness reviews and in-depth periodic external governance reviews.
Board member skills, experience and knowledge are aligned with the activities of the organisation and there is a structured approach to developing and appraising skills which feeds into succession planning. This is evidenced through our observation of a board meeting, discussions with individual board members and the executive team as well as reviewing governance meeting minutes.
Southern has an improved risk management and control framework that aligns to its strategic risks. There is evidence of robust discussion and board challenge of the controls and assurance on strategic risks and of risks being managed effectively in practice, such as its approach to building safety and data and systems integration.
There is evidence that Southern’s board actively seeks and gains an appropriate level of assurance across a range of areas. There is evidence of how this assurance has been used to make improvements to the quality of information held, the approach to damp and mould, and landlord health and safety compliance.
Board ownership of stress testing, mitigation strategies and wider governance over risks through regular and structured review of golden rules was evident through our review. Reporting to board provides sufficient detail for the board to ensure effective oversight.
Overall, we consider that Southern has provided appropriate assurance that it has sufficiently addressed the governance weaknesses we previously identified. Our judgement is that the landlord meets our governance requirements.
Rent – August 2024
As outlined in the November 2021 regulatory notice, we concluded that Southern Housing Group Limited had not complied with the Rent Standard 2020 or the legal requirements of the Act in respect of some of its fair rent tenancies. Through our responsive engagement and the inspection, evidence has been provided to demonstrate that Southern has actioned recommendations from the reviews completed and implemented a number of improvements. As well as correcting errors and ensuring any overcharges of rent have been refunded, Southern commissioned independent external reviews of its arrangements for rent setting including its policy and whether controls in place were adequate and operating effectively. Southern provided appropriate assurance to demonstrate that the issues covered by the regulatory notice have been satisfactorily addressed, so the regulatory notice has been removed.
Viability – V2 –August 2024
Based on the evidence gained through the inspection we have concluded that there is appropriate assurance that Southern’s financial plans are consistent with and support its financial strategy. Southern has appropriately evidenced that it has an adequately funded business plan, sufficient security in place to support its financial plans, and Southern is forecast to continue to meet its financial covenants under a reasonable range of adverse scenarios. Southern’s board has effective oversight of covenant compliance with actual and projected covenant performance reported quarterly.
Southern is increasing its investment into existing homes, including a significant fire remediation programme where some costs are unknown, putting pressure on its financial performance. While Southern is reducing its development programme, there is still a significant programme to complete, which exposes it to housing market risks. Achievement of financial targets also relies on delivery of an efficiency savings programme. When set in the context of economic pressures including inflation and interest rates, this impacts on Southern’s capacity to respond to adverse events.
Background to the judgement
About the landlord
Southern is a charitable registered provider and was created by an amalgamation of Optivo and Southern Housing Group Limited on 16 December 2022. Its main purpose is the provision of social housing for general needs, but it also provides homes for shared ownership, older people, intermediate and affordable rent, student and for private rent. Southern develops homes for shared ownership and market sale and provides care and support services.
Other providers in the group include Amicus Group Limited, Crystal Palace Housing Association Limited, and Southern Home Ownership Limited. Southern Housing Group Limited and Optivo will be deregistered once all legal processes are complete.
The group is currently going through a process of simplification following merger and currently has 31 entities. The group consists of holding companies, development companies, joint ventures, finance entities, charities, private housing companies and dormant entities. The majority of external debt is in the group parent, Southern. There is also a finance entity holding three capital market bonds, Optivo Finance Limited. The most significant entities are the development subsidiaries. These are Southern Home Ownership Limited, Lamborn Estates Limited and Optivo Development Services Limited.
The group owns and manages around 78,000 social housing homes and operates in London, the south east of England, the Midlands and the Isle of Wight.
The group employs the full-time equivalent of 2,424 staff and its turnover for the year ended 31 March 2024 was £609m.
Southern plans to develop 3,745 homes over five years and has removed all uncommitted development from its business plan.
Our role and regulatory approach
We regulate for a viable, efficient, and well governed social housing sector able to deliver quality homes and services for current and future tenants.
We regulate at the landlord level to drive improvement in how landlords operate. By landlord we mean a registered provider of social housing. These can either be local authorities, or private registered providers (other organisations registered with us such as non-profit housing associations, co-operatives, or profit-making organisations).
We set standards which state outcomes that landlords must deliver. The outcomes of our standards include both the required outcomes and specific expectations we set. Where we find there are significant failures in landlords which we consider to be material to the landlord’s delivery of those outcomes, we hold them to account. Ultimately this provides protection for tenants’ homes and services and achieves better outcomes for current and future tenants. It also contributes to a sustainable sector which can attract strong investment.
We have a different role for regulating local authorities than for other landlords. This is because we have a narrower role for local authorities and the Governance and Financial Viability Standard, and Value for Money Standard do not apply. Further detail on which standards apply to different landlords can be found on our standards page.
We assess the performance of landlords through inspections and by reviewing data that landlords are required to submit to us. In Depth Assessments (IDAs) were one of our previous assessment processes, which are now replaced by our new inspections programme from 1 April 2024. We also respond where there is an issue or a potential issue that may be material to a landlord’s delivery of the outcomes of our standards. We publish regulatory judgements that describe our view of landlords’ performance with our standards. We also publish grades for landlords with more than 1,000 social housing homes.
The Housing Ombudsman deals with individual complaints. When individual complaints are referred to us, we investigate if we consider that the issue may be material to a landlord’s delivery of the outcomes of our standards.
For more information about our approach to regulation, please see Regulating the standards.