However the association, one of the largest in London with 17,000 homes, has escaped supervision despite recent concerns over its financial performance.
The inspectors' report, published on Tuesday, said the trust's performance was "unimpressive compared with its peer group" but it had not breached the regulatory code.
The report said: "Unlike many of its peers the trust has not taken appropriate action to address the decent homes standard and it is unlikely to meet the 2010 target."
It said Peabody must urgently reassess its figures on what proportion of its stock currently meets the target.
Peabody currently estimates that it needs £156m over the next seven years to get all of its homes up to the standard.
In March 2003 its own statistics showed that 59% of its stock did not meet the target, although this was later revised down to 41%.
Overall, the inspectors concluded Peabody's services showed "scope for improvement", the second lowest rating out of four.
The criticism is particularly acute given that Peabody recently went way over budget on one of its most high-profile developments.
Last year Housing Today revealed that Peabody's award-winning BedZED scheme in Sutton, south London, cost £10m more than had been planned. A smaller overrun was also recorded for another flagship development – Murray Grove in Hackney, east London.
There have also been signs that Peabody is suffering wider financial problems: in December, it was forced to make 51 staff redundant and in January it got an "amber" for financial viability in the Housing Corporation's "traffic light" ratings system.
Steve Howlett, who took up the post of chief executive at Peabody in March, said: "We've made progress in a number of areas but accept that we must improve more rapidly."
The Audit Commission concluded that it provided satisfactory services but showed weakness in its efforts to improve.
Source
Housing Today
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