18 May 2007
Central government is planning a drive to expand the amount of social housing. So where will this leave traditional housing associations? Caroline Shah looks at one option – transferring the entire stock to a government-owned company
Housing associations in England must be looking eagerly to the future. They now own and manage more than 4 million homes worth more than £400bn. They build housing for sale and shared ownership. They provide housing for key workers, students and elderly people, and have been merging to create groups that are vying to be the biggest and best in the sector.
Managers are taking their inspiration and hunger for growth directly from the private sector. Talk among the larger registered social landlords is of mega-groups, each owning, maintaining and managing more than 100,000 homes. The Hyde and Metropolitan housing associations, for example, are planning to merge to become England's largest RSL, with more than 62,000 homes. And Gordon Brown, when he becomes prime minister, is likely to encourage the construction of much more social housing.
This looks like good news for RSLs. But if you examine closely the issues driving the current reviews of social housing, it is possible to see a radically different future emerging – one in which associations have downsized to become exclusively community-focused housing management companies.
In the first place, the government has already announced that responsibility for new public sector investment in regeneration and housing will be transferred to Communities England, to be formed from English Partnerships and the Housing Corporation. This body will be responsible for a £4bn development programme and has the explicit aim of accelerating private sector investment in all its programmes.
So it is not difficult to imagine Communities England sidestepping RSLs and working entirely with large private sector developers such as George Wimpey, Barratt Homes and Persimmon. After all, they have the resources and know-how to manage the complex risks involved with major projects.
And these companies could acquire local knowledge and specialist skills by taking over successful players in niches that are likely to spin off from housing associations, such as shared ownership.
Secondly, residents and communities are going to be at the heart of any future social policy, whichever party wins the next election. The current government has already recognised that more effort is needed to tackle antisocial behaviour, crime and unemployment. And Professor John Hills, in his recent report on the future of social housing in England, highlighted the need to create mixed-income communities by improving neighbourhood conditions and services, addressing unemployment and giving residents more 'voice' power.
Communities are also at the heart of Professor Martin Cave's review of social housing regulation, which is due to report imminently. Cave is examining how the regulatory system can offer social housing residents high-quality, value-for-money services, while ensuring that taxpayers' money goes to the entities best able to use it effectively. At the same time, Cave will address concerns that larger associations formed by merger might not be connected to the communities in which they operate, and examine how RSLs can take on wider responsibilities than those of a simple landlord.
Lastly, the government has latched on to the fact that the sector has the capacity to borrow more money. After all, it is sitting on a significant number of houses across the country that were either built entirely with grant or on which all debt has been repaid. And it wants to find a way of using this borrowing capacity to build more houses while keeping all RSL debt in the private sector.
So what does this mean for housing associations? Let's imagine a scenario. We are in 2012. Social housing assets in England, and the loans associated with them, have been put in a sector-wide asset management company, known as GotTheLot. This company also buys all newly completed houses from Communities England.
GotTheLot's objectives are to maximise the value of its assets and to raise the most debt it can against them within the constraints of government policy for social housing rents. Treasury, lender and local authority representatives make up its board and are accountable directly to the government for meeting agreed financial and strategic targets. Given that the government now takes direct responsibility for protecting its own assets, there is no need for a regulatory body to monitor GotTheLot's performance.
By bringing the ownership of social housing across the country together, GotTheLot is able to borrow against mortgage-free property wherever it is located and invest the cash wherever it is needed, while keeping the loans off the government's balance sheet.
At the same time, lenders are reassured that their money is safe as they are now lending to the sector rather than exposing themselves to the risks of individual RSLs.
This long-time government goal was impossible to achieve back in 2007 when houses were owned by individual associations. After all, it was neither legally nor practically possible for a Cambridge-based association to raise money for investment against a house sitting debt-free but owned by another RSL in, say, Preston.
Of course, in this world where associations do not own social housing assets, they no longer have a duty to maintain them. GotTheLot purchases maintenance work from large private sector companies. And mergers are now common in the maintenance sector, as successful smaller contractors – previously subsidiaries of RSLs – need to acquire the scale and clout to negotiate with this giant asset manager.
The Audit Commission acts as inspector of works, carrying out regular visits, with residents able to instigate an inspection of a contractor's work if they have concerns.
So, if this scenario came true, where would it leave housing associations? Asset-stripped and with development and maintenance activities taken away from them, you could argue that they are a sorry sight. But this is not the case.
Freed from the need to build and maintain homes, housing associations would be able to work exclusively on delivering much-needed local services. They could enter into contracts with GotTheLot to collect rents and to manage lettings, and with local authorities and residents to agree to deliver additional services that will keep tenants happy and improve neighbourhood conditions generally.
They could retain discretion to set the rents for the properties they manage for GotTheLot. Rents would be made up of a payment to GotTheLot to cover its finance and maintenance costs for those properties – taking into account local demographic and social factors – and an additional amount to cover the association's own management costs. Residents and communities could choose to pay more for other services such as training and job advice or the re-opening of a community centre.
These arrangements would create strong incentives for housing associations to operate efficiently. On the one hand, they would have to make agreed payments to GotTheLot even if they failed to collect rents, could risk losing empty properties if GotTheLot decided to sell them because they were empty for too long, and could ultimately lose their contract with GotTheLot if performance remained poor. On the other hand, residents would expect the highest level of service possible for their money. And the lower an RSL's management costs, the more services it would be able to provide to residents for a given level of rent.
Housing association boards in their current form would be dissolved, as RSLs would no longer need to juggle the conflicting interests of different stakeholders. Instead, the board would provide the mechanism through which resident and community representatives could judge their association's performance. If residents believed an RSL was failing to deliver agreed services or not meeting financial performance targets, they would be able to call in the Audit Commission to carry out an inspection and, ultimately, if the commission judged that the manager was failing, it could ask GotTheLot to transfer the management contract to another provider.
Some housing associations might be disappointed by the prospect of this apparently lower-profile role. But this structure would leave RSLs accountable to communities in the true sense of the word. It would recognise achievement by ensuring that associations that listened to their residents and provided the value-for-money services people want would be rewarded by seeing their communities prosper and by winning future contracts with their local authority partners and GotTheLot.
If you look carefully, this vision does not conflict with the role that many housing associations already see for themselves as community-focused housing management companies. It simply calls for the executives and boards of all associations to strive to make the social vision that guided them in the early days of their existence a reality.
Caroline Shah is a partner in the Shah Scott Partnership, a strategy and risk management consultancy
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