Introduction

In March 2007 the Housing Corporation consulted on changes to Housing Corporation Assessments (HCAs), to broaden the scope of the fourth (Development) traffic light, to encompass how associations manage their assets, and use their financial capacity, with a view to creating and maintaining sustainable communities and decent homes.  The consultation closed on 11 June, with 28 responses being received.

Overview of responses

The responses to the consultation were very much a mixed bag.

Several responses questioned the timing of the consultation in the light of the Cave Review.  We recognise that we must align changes to our regulatory approach with the principles set out in the Cave Report, but at the same time we cannot allow that regulatory approach to stand still whilst we wait for the new regulatory regime to be established.  At its meeting on 10 July, our Regulation and Supervision Committee gave a clear steer that we should continue with this work, as it represents the direction in which the Corporation needs to travel, irrespective of potential changes in the regulatory landscape.  Several of Martin Cave's recommendations support taking our proposals in this area forward including:

• duties to engage constructively with local authorities in respect of their place-shaping function and sustainable community and housing strategies;
• a wider definition of core standards where homes are concentrated in estates or neighbourhoods;
• unlocking development capacity; and 
• ensuring that surpluses are applied properly.

We re-iterate our commitment to taking these proposals forward in line with the Elton Report recommendations, without increasing the overall regulatory burden, so that our regulation remains risk based and proportionate.

A number of responses were very supportive of our proposed approach.  Positive respondents recognised that widening the scope of the fourth traffic light would enable us to recognise the breadth of activities which associations are involved in, and which contribute to the creation and maintenance of decent homes and sustainable neighbourhoods and communities.  A number of respondents noted the logic of taking a more holistic view of investment performance, incorporating financial, asset management and development strategies, with those issues being so closely inter-linked and therefore suitable for incorporation within a broader investment traffic light.

There were however a number of respondents who were opposed in principle to our proposals, believing that the Corporation has no remit to assess how associations choose to use their financial capacity, and that our proposals would fundamentally reduce the independence of associations by seeking to make the application of specific policies a regulatory requirement.  Our final policy will clarify that our interest is in ensuring that associations properly consider how they use their financial and other resources to work towards creating and maintaining decent homes and communities.  Our interest is not in dictating how those resources should be used towards those ends, or to force particular policy lines on associations - but we do have a legitimate role to ensure that the interests of current and potential new tenants are appropriately considered when associations'  boards are formulating their financial, development and wider asset management strategies.

Practical issues

Respondents set out a range of practical issues which we will address as we implement changes to the fourth traffic light including:

• the need to develop objective criteria for assessing performance, taking account of the complexity of operating environments;
• the wide range of issues covered by the proposed straplines, together with potential overlap with other traffic lights, or the work of other organisations, including the Audit Commission in their assessment of value for money and other KLOEs;
• that our assessments must take account of the longer term sustainability and viability of associations, and the competing priorities for use of resources;
• clarification of the role of local authorities, and expectations where associations have varying scales of operations across a large number of local authority areas;
• that our assessments do not discourage associations from making sensible commercial decisions;
• recognition that some associations may not be in a position to use their financial capacity;
• the implications for a lead investment partner of a consortium member receiving an amber or red traffic light for the management of its assets and financial capacity.

Next steps

The Corporation's Board will be considering how we should take forward our proposals on the fourth traffic light at its meeting on 18 September.  We want to work with the sector to implement our proposals.  At this point we anticipate piloting our approach with a number of associations in the final quarter of this calendar year, with a view to publishing our final position in the first quarter of 2008.