Developing housing association faces £10m bill after overcharging tenants

Housing 21’s financial hit from paying back overcharged rent is nearly £10m - three times more than previously suggested.

The 21,000-home housing association had its governance rating downgraded by the social housing regulator (SHR) last summer over incorrect rents, with the regulator saying the overcharge was “approximately £3m”.

However, the association, which specialises in developing and managing extra care and later living housing, has now revealed in its accounts for 2020/21 that the total rent overcharges amount to £9.7m after the full impact of a second rent-setting error was revealed.

Housing 21 is covering the £9.7m cost through one-off items with £2m accounted for in 2019/20, £0.6m in 2020/21 and £7.1m charged to its historic reserves.

As a result of the money set aside for the repayments in 2020/21, the group’s annual operating surplus increase for the year is 20% less than it would have been had the provision for repaying rents not been made. Its operating surplus rose to £35.8m for the year from £32.9m in 2019/20, an increase of £2.9m.

The increase would have been £3.5m had the £0.6m provision for 2020/21 not been accounted for.

A Housing 21 spokesperson said the group’s provision of services will not be affected as a result. Bruce Moore, chief executive of Housing21, apologised to affected tenants for the error.

He said: “We have learnt lessons from mistakes with our rent setting process and can assure our residents, families and partners that we have established more robust governance systems and checks to ensure this does not happen again – both in respect of rents or in any other aspect of Housing 21’s operations.”

Housing 21’s accounts also show it increased its turnover from £193.1m to £202m. However, its total surplus fell slightly from £18.1m to £17.1m due to the movement in the value of financial instruments and reduced interest payments. 

The provider increased its annual investment in new homes from £71.4m to £81.8m, delivering 400 new homes, comprising 351 extra care homes and 49 units of retirement living accommodation. It is aiming to complete 671 homes in 2021/22 and has an ambition to increase development to 800 a year.

>> See also: Housing association accounts 2020/21 coverage all in one place

The issue cited by the regulator last summer referred to an error in meeting a legal requirement to cut affordable rents by 1% a year for four years from 2016.

Housing 21 applied the cut to net rents rather than gross and incorrectly maintained variable service charges, leading to overcharging totalling £2.8m. However, the SHR has also now confirmed that Housing 21 failed to comply with the rent standard on some properties, incorrectly believing that some homes were exempt from rules restricting rent increases to a set formula with a 10% flexibility top-up option for supported housing.

This second error pushed the total bill for repayments to £9.7m after a lengthy investigation working with the SHR to calculate the full impact.

A spokesperson for the regulator said: “We expect all providers to comply with our standards, including the rent standard. Following our previous finding that Housing 21 was not compliant with the rent standard, we continue to engage with them as they take the necessary steps to reach and sustain compliance with rent requirements.”