A lively market

There is no doubt that a mood of change is about in social housing. There is a growing acceptance that it is failing to meet the demands of its communities. Whether this is viewed in terms of the investment shortfall, the demand crisis or the failure to achieve excellent services for its customers, the need for a new, more modern form of social housing is clear.

A major part of the current debate is therefore about how to improve services to tenants. Until recently the only real intervention for change has been stock transfer. However, there now appears to be a growing interest in outsourcing the management as a vehicle for improvement. If this becomes a trend, it will be the starting place for a new debate: one which questions why the roles of landlord and manager should be joined together and begins to explore the advantages of separation.

The roles of landlord and manager are very different yet have always been provided by the same organisation. This framework has restricted choice and because landlords, whether they are local councils or housing associations, have their customers "captured", there is no real incentive to achieve excellence in service delivery. The lessons being learnt by JSSPinnacle and their council partners reveal that there can be real improvements in service outcomes through separating the roles. For example, a clearer customer focus, more control for customers over their service providers and greater incentives to innovate. However, whatever the logic for separation the process is being delayed by the absence of a mature marketplace and more "manager only" organisations.

The concept of management contracts came out of compulsory competitive tendering (CCT). This generated a dozen private companies chasing housing management contracts. Five years after the first CCT contracts were let only two private companies are left still managing local authority homes: Serco in Sutton and JSSPinnacle in Westminster, Wandsworth, Hackney and most recently, Lewisham.

The embryonic market has been buoyed by the entrance of a handful of housing associations who have either won work in London like Paddington Churches, Hyde and Swale or who have been actively bidding for contracts, such as Circle 33, North British, London and Quadrant and New Islington and Hackney. So why the private sector reluctance?

There are probably eight main reasons:

• firstly the private sector underestimated the difficulty of breaking into housing management. The quality requirement was far higher than most anticipated. The employment of ex-local authority housing managers was no guarantee of success;
  
• the margins for profit are tight. There are far more lucrative service sectors to focus new business energies on;
  
• the nature of public housing requires a more socially focused business with far higher degrees of transparency. This is not typical of the way the private sector works;
  
• the costs of bidding and starting up contracts is high and when set against the relatively low profit margins makes the business unattractive;
  
• the presence of housing associations means that for new/potential private sector companies there appears to exist many expert providers. There is therefore a perceived barrier to entry, an already crowded marketplace with its own networks and business relationships which are inevitably difficult to become part of;
  
• the need for investment and the limited number of ways new resources can be generated in social housing means that, at least in the short term, housing associations have an edge as stock transfers remain the primary vehicle for achieving major improvements to local authority homes;
  
• housing management is a difficult business. The product is often flawed and the customer demands unrelenting. This makes it hard to succeed in; and
  
• the prevailing model where the landlord is also the manager means that until a split in the roles becomes commonplace registered social landlords will continue to dominate the market.

In view of the considerable barriers to entry how will the marketplace develop? The priorities in this context are:

• new investment models which flow out of management contracts rather than landlord assets;
  
• a recognition that separating the roles of landlord and manager can better allow the different functions to flourish;
  
• the rigour of the Best Value process being applied to housing associations in the same way as for local authorities;
  
• the continued success of those private companies already in the marketplace;
  
• TMOs being encouraged to employ managers rather than trying to do everything themselves;
  
• more local authorities externalising their management;
  
• an acceptance that diversity, choice and competition between local providers is a positive factor which should be encouraged.

If we look forward say five years will the picture have changed? It seems likely given the increasing pressures on local authorities that their role as both landlord and manager will have reduced. However will this have happened within the prevailing model which sees the landlord and manager as one or through an enthusiasm for separating the roles. If the latter happens the market will grow quickly. The mix of providers will include the existing players Ñ both housing associations and private managers Ñ new housing associations keen to exploit the opportunity, in-house teams who have bought themselves out (Westminster's staff are currently in the process of doing this) and inevitably some new private managers. However new managers are probably more likely to come from a residential management rather than a facilities/support services background.

In reviewing the health of the marketplace it is important to recognise that it is still only five years old. For a new market this is no time at all. If after 10 years the position is largely unchanged then there will be cause to question whether or not it will ever flourish. However now is not the time.

The pace of change in social housing looks set for take off. The forces of innovation are powerful; from e-housing to new investment initiatives, from massive stock transfer to the progressive outsourcing of management. The world of social housing needs to empower itself, to set its own vision and create an agenda for improvement which it can control. Much of this can be done without government intervention or money. For example, the movement could apply Best Value to itself, could create more modern service structures, could set its own performance targets, could explore new investment models, could seek excellence in service delivery and could look outwards at its customers rather than inwards at its organisation and the profession. The future is in the hands of the sector itself.

Social housing has the power to modernise. The question is does it want to? If it takes up the mantle then within five more years there will be vibrant marketplace where residents at last have real control over their service providers.