For better or worse

The agenda is changing at the highest level of government. Last month the Barker Report on housing supply, commissioned by the Treasury and backed by the chancellor, told the social housing sector to think carefully about rationalisation – there are a total of 1925 RSLs for 1.4 million homes, each with a costly team of senior staff and bureaucratic, time-consuming chain of command. There have already been efforts at stock rationalisation in cities such as Liverpool and Manchester but, with development high on the Whitehall agenda, it would appear that this isn't enough.

The Housing Corporation agrees. It has already earmarked the majority of its grant for organisations with development programmes worth more than £10m a year, effectively forcing smaller RSLs that want to see any of this money to band together.

And John Carleton, the corporation's head of investment and regeneration for the Northern field, threw down the gauntlet in Housing Today last month: he said the corporation should take on the role of matchmaker and arrange "marriages" between housing associations (HT 2 April, page 9). At the moment, it will only act when an association is clearly failing – indeed, as the law stands, that is the only time it can step in.

The corporation favours mergers because it is under pressure from Whitehall to deliver more homes for less money. Developing housing associations rely largely on their guaranteed rental income to make them a safe bet for the lenders who provide the money to build homes but, as they increase their development programmes, they use up their capacity to borrow. By swallowing up smaller associations – and their rental income – larger ones can borrow more money and use it to build more homes. The same principle applies when smaller associations band together.

Carleton's comments are welcomed by Keith Exford, chief executive of Downland Housing Group, which merged with Affinity Homes Group in March 2003 to form Downland Affinity. The parent associations have now fully integrated, saving themselves "more than £1m a year", according to Exford.

Exford compares the process of weaker associations choosing a partner to a beauty parade where the smaller, less-successful associations force potential partners to make highfalutin promises. Intervention by the Housing Corporation would work in everyone's favour by stopping that happening, he believes.

"In that situation, I don't think the regulator can take such a laissez-faire role," he says. "We can't be left in a position where weak and underperforming associations are holding beauty parades. The demands they place on us are not acceptable."

The corporation's role
Most of the sector accepts that the drift towards more mergers is inevitable. But many question whether the corporation should take a coercive role, believing instead that partners should be left to seek each other out.

Steve Harriott, chief executive of St Pancras & Humanist Housing Association, says: "Mergers should be all about the business case. If that is strong enough, the board and tenants will go for it. I'm not sure where the regulator fits into that."

Moreover, there are questions about how the corporation would go about forcing mergers in any case. RSLs are independent businesses and, as the law stands, the regulator cannot force their boards to do anything they don't want to unless the association is clearly failing. Anil Singh, chief executive of Rochdale-based black and minority ethnic association Ashiana, asks: "How would the corporation do this? Would it replace board members on a one-by-one basis until they agreed to the merger? The idea may be laudable, but I would question the delivery."

Ian Graham, head of housing at law firm Trowers & Hamlins, says: "If the corporation wants to have a greater right to get involved it will have to change something, because at the moment its powers are linked to failure. The Housing Bill currently going through parliament is one vehicle through which the legislation could be changed."

An amendment to the bill has already given the corporation new powers to intervene in how associations manage themselves, rather than just their stock (HT 2 April, page 12).

Last month, corporation chairman Peter Dixon gave an indication of how the regulator might increase its role. He confirmed that the body is going to put more emphasis on continuous improvement in its regulation process and said associations that were not improving might be encouraged to look at mergers. This would move the goal posts, allowing the corporation to get more involved in mid-range associations rather than just those that are failing (HT 19 March, page 21).

I’d be concerned if we created mega-associations that didn’t have any connection with communities 

Steve Harriott, St Pancras & Humanist Housing Association

The idea of increased consolidation has been far from universally popular, and many feel that it doesn't fit in with the National Housing Federation's In Business for Neighbourhoods agenda (see "The In Business issue", below).

But, according to some, choosing a middle way could keep the corporation happy and still allow RSLs to retain their identities.

There is another way
Group structures offer an alternative to mergers, and arguably allow individual associations to retain their identities and a degree of autonomy while benefiting from the resources of a larger organisation.

Under a group structure, a parent housing association takes responsibility and overall control of the group, but members keep their own chief executives and boards. As a consequence, associations do not save as much money as they would through a merger, but procurement costs and central overheads can still be cut and some tax breaks may be available.

St Pancras & Humanist is about to form a group structure with Griffin Group. Steve Harriott says: "I would be concerned if we created mega-associations that didn't have any connection with local communities. Lots of associations are doing really good stuff at a local level. The trick is to retain that while tapping into some of the benefits of a bigger organisation. If it costs a bit more to retain local focus, I think it's a price worth paying."

Even Downland's Keith Exford, a keen advocate of mergers, agrees that group structures can allow individual associations to retain their identity.

Long-term strategic alliances are often mooted as another, somewhat diluted, alternative to full-scale mergers. But they don't always work.

The Quantock Housing Partnership is an alliance of three councils, seven housing associations and four builders. After just two years, however, it is on the verge of disbanding, having failed to meet its objectives.

Malcolm Weston, housing strategy manager at Taunton Dene council, which set up the partnership with Sedgemoor and West Somerset councils, says the partnership has fallen short of its target to build 450 homes a year by about 300. He adds: "The partnership has not worked anywhere near as well as we would have wished. The ethos was to provide as much affordable housing as we could, but it feels like we've failed. One of the alternatives we have now is to go small and just be Taunton Dene again."

Weston cites external factors such as the abolition of local authority social housing grant and the corporation's development partners programme as contributing to the failure. "Partnership working is a very time-consuming way of doing things," he adds – rather giving the lie to the theory that joint working always speeds up processes and reduces bureaucracy.

Justin Roxburgh, chief executive of Somerset-based Falcon Rural Housing, which is part of the partnership, agrees. He says: "The bigger you get, the less direct responsibility falls on individuals."

The corporation does not seem to have decided yet what form its arranged marriages should take, so may be amenable to the lesser alternatives of group structures and partnerships.

Carleton says: "This sector is ripe for rationalisation, but how that is going to happen is a bit more difficult. We will be having a number of conversations over the next 12 months about what kind of shapes we would like to see."