By Alistair McIntosh, HQN CEO

Has stress testing been good or bad for housing? Scanning for crises and figuring a way round them has certainly played a big part in keeping the sector solvent. That’s great. But at the same time our reputation is on the floor. We just aren’t fixing the homes. Have we tightened the purse strings too much? Is stress testing stopping us from doing the right thing?

Yes, it is, sometimes. Here’s how it goes. The regulator says there are landlords that just don’t know how much they need to spend on their homes. Their data is poor. How do the boards fix this? By setting aside humungous sums of cash as a safety net. This misplaced attempt at caution leads to big problems in the here and now. The cash that’s set aside for a theoretical crisis isn’t available to deal with the problems that they do have. This is why we get delays on repairs and shotgun mergers.

We see many examples of this. Once we worked with an association that thought universal credit was the apocalypse. As soon as it came in, tenants would stop paying the rent and the ship would sink. Nothing of the sort happened, of course. But for a while they had a business plan that flew past Cameron and Osborne in the fast lane for austerity. The new management team is still putting things right.

Then there was the council that believed their HRA was kaput. It became an article of faith. No one really looked into it for fear of what they’d find. After a few years of misery for tenants they examined the finances properly only to discover things weren’t that bad. They could start to do repairs again and even build a few new homes. The council created a stress for themselves while trying to avoid a stress.

You really have to avoid piling on a whole heap of crises and using that as an excuse to do nothing. That’s using stress testing as a blunt instrument.

This problem isn’t unique to housing. In an article in the FT, the boss of IKEA says that “we have no concept of predicting with precision what’s going to happen in six or 12 months”. He’s relieved that the worst predictions of economic turmoil and energy shortages haven’t come to pass. But as more people burn wood the costs of IKEA’s raw materials have soared. Who saw that coming? Thankfully, people are still buying his furniture. So, there’s a lot more to stress testing than flexing a few cells in Excel.

IKEA’s boss concludes: “Look at what people have gone through: the pandemic, the economic damage, the tragedy of war, energy prices. What people might have underestimated is human resilience.”

Where does all this leave stress testing for housing? You’ve got to do it. Even IKEA says so. You need to start out with the best possible facts about your homes and your tenants. At one time boards were happy-go-lucky about risk. That’s why the regulator told us to do stress testing. But it’s just as dangerous to be all doom and gloom. Striking the right balance between optimism and pessimism is more of an art than a science. And we can say without fear of contradiction that the crisis that’ll hit hardest isn’t the one you anticipated. Most of the stress testing we saw at the time reckoned Brexit was never going to happen. The cardinal error there was hiding like an ostrich in the corporate stockade and not listening to other people. Don’t do that again.

As spring begins, we’re seeing a few green shoots in the economy. Public borrowing is £30.6bn less than the Office for Budget Responsibility said it’d be. And the economist who predicted 18.6% inflation now says it’ll come down to 2% this year. Is this a let-off or is it akin to what Sartre wrote in The Reprieve?

“’I am free,’ he said suddenly. And his joy changed, on the spot, to a crushing sense of anguish.”

For me, stress testing is about harnessing anxiety in a good way. We can use it to give us the energy to frame the right questions. It’s much better to do that than follow the herd and/or panic.

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You can hear direct from the Regulator of Social Housing about operational priorities and long-term asset management strategies at our stress testing event next week. Click here to read more and book your place.