The social housing sector is a diverse beast, a myriad collection of the unique, the ambitious and frankly the downright bizarre. From smallscale Almshouses, to Large Scale Voluntary Transfer organisations (LSVTs) and increasingly complex group structures, the sector has a very divergent selection of organisations that operate within its boundaries.
Does it matter? Not really. What does matter is that the mantra that big is beautiful is back. Though in reality this notion has never really left us. Mergers have been a constant part of the sector for decades. It is however the set of circumstances that currently face social housing that may give renewed energy to the get big or get going brigade. Typically it has been times of cuts in, or significant changes to the administration of, funding that have seen spikes in mergers and group structures. The brave new worlds of 1974 and 1988 (private finance) saw a huge rise in mergers, followed by a jump in group structures in the mid 1990s. This has subsequently been followed by a further jump in mergers in the early to mid 2000s, just ‘cos.
And lo and behold capital funding is again getting rare, as rare as Grant Shapps not making an appearance in the media rare. Previous posts have covered this new reduction in funding. But the bleak stats require repeating. Even more so due to the fact that a number of major players have both publicly and privately turned down government funding. Bromford came out swinging, in the stylish, tech-savy way it is now known for. London based housing organisations’ snub of Mayor ‘Cor isn’t he crazy he’s not like the other Tories’ Boris Johnson has been a more private affair. The reason for the rejections? Too little wonga has been offered and the strings attached too stringent. For a number of landlords the sums increasingly just don’t add up. This has left the Mayor of London’s Office scrabbling around like a desperate ex trying to patch things up. “I’m sorry I cheated on you, we can still be awesome together, please take my money and build stuff with it”.
Of course it wouldn’t be housing blog without mentioning welfare reform. It is, potentially, a significant factor in moving organisations towards merging as it does create a slightly awkward operating environment. This in combination with lower levels of capital funding, and reduced bank lending. Something not unnoticed by the ratings agency, Moodys. Who, in addition to the helpful advice of ‘partner up people’, did warn of potential issues around existing and future funding arrangements when doing so.
So what do we do? Well at the moment around 90% of stock in the social housing sector is owned by just 20% of the largest landlords. That means there are a lot of smaller players out there, though for how much longer remains to be seen, particularly as the number of housing associations is steadily decreasing. In 2012 there were around 1,500 organisations compared to just under 2,000 in 2002. With only 40% of the expected welfare cuts currently in play (the other 60% conveniently scheduled for after the next general election), more pain is on the way. Finding sugar daddy/momma is therefore an increasingly attractive option for smaller associations.
There will be those who argue that small organisations still have a place in the post apocalyptic housing world we are entering, and I do have sympathy with that notion. It is still debatable as to whether economies of scale are actually achieved by mergers. But you cannot keep on levering in dollar without increasing your portfolio. You can only get so much money with your existing stock. As your stock ages overheads will steadily increase, your ability to fund new projects will decrease and eventually towel throwing-in time will occur. This is a situation faced by many smaller organisations in the sector. Better get out that slinky black number and hope someone is interested.
It isn’t all doom and gloom, the sector has always been remarkably resilient. If (and it is a big if) Labour win the next election then it is likely funding will increase. Other countries, Holland in particular, have shown how a post capital funding world could look like, albeit in a highly unique situation. I doubt such collectivist action will ever happen here but a gal can always hope. Also it would be best to avoid going the route of the Dutch housing association Vestia. The derivatives market is best left to the boys in the city.
I will leave you with a quote from a very informative Think Tank policy paper on the future of the sector. It does slightly mirror my thinking on the sector and very small scale organisations in particular.
“…there are far too many of them. You’ll see three councils coming together to share services, yet in the same area there might be 20 housing associations working independently of each other. It doesn’t make sense.” (Chevin et al. 2013).