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Mergers & Takeovers
Councils claim that after stock transfer our homes will be owned by a not-for-profit, locally-based organisation which will be responsive to tenants' needs and local concerns. But the direction in which most transfer organisations are going is a very different one. Registered Social Landlords (housing associations) are increasingly operating as multi-million pound businesses, characterised by mergers, takeovers, and expansionism, all of which mean one thing to tenants - you vote for transfer to one landlord and you end up the tenant of another. There are considerable pressures on associations to expand and link up; and the costs of both mergers and attempted mergers which fall through are high. Many transfer associations fail and look to takeovers to survive.
Local companies responsive to local needs?
Housing associations began as small organisations, funded by charitable donations, set up to meet a particular need, or provide for a particular group within society; and many of them have done a lot of good work over the years. But since the Tories stopped councils from building and started using housing associations - channelling public money into them through an unelected quango called the Housing Corporation - they have moved a long way from their roots. The government exploits that image of cuddly, charitable, and above all local organisations when selling privatisation to tenants. But it is a false image.
If you used to live in a council home in Carlisle, in the Netherley and Dovecot areas of Liverpool, or in Manchester council's homes in Langley, Rochdale - then your home now belongs to the Riverside Housing Group which owns "in the order of 40,000 properties and operates in 27 local authority areas." 1
Similarly the 4,500 tenants in the London Borough of Bexley who transferred in 1998 to London & Quadrant Housing now belong to a group which manages over 33,000 homes spread across more than 60 local authorities. In September this year the group added another 5,500 homes to its portfolio in a merger with Nucleus Group. 2
"Alongside the growth of the housing association sector overall, and stock transfer associations in particular, there has been a trend towards organisational restructuring, both internally… and externally (Pawson and Fancy, 2003). Internally, they have adopted flatter structures, a stronger business focus, and diversified their activities. The great majority of stock transfer associations report considering setting up or joining some form of group structure and a third have also considered merger (Pawson & Fancy, 2003). Pawson and Fancy, using Housing Corporation registration data, found that 60% of all English transfer landlords in existence in 2001 were part of group structures." 3
Tenants in East Hertfordshire were transferred to Stort Valley Housing Association, which is now part of the Anglia group. The tenants of Barking and Dagenham Council have already been transferred twice - to Stort Valley Housing Association, and then to Barking and Dagenham Housing Association, also part of the Anglia group. Anglia (which also owns homes transferred from Harlow and Basildon councils) is about to link up with Circle 33, described by Inside Housing as "one of the capital's biggest social landlords.. If the merger goes ahead, the new organisation will manage 32,000 homes across London and the east of England, making it England's fifth biggest registered housing association." And does the reason behind the merger have anything to do with local solutions and responding to the needs of transferred tenants? The Chief Executive of Anglia told Inside Housing "that the creation of the new organisation would assist the M11 growth corridor's development". 4
Expanding Into Private Markets
Registered Social Landlords are required by law to make their primary object the provision of social rented housing at "affordable" levels. This means that they are allowed to devote up to 49% of their business activities to market renting, property development and other speculative schemes typical of private sector businesses.
Many transfer associations, not long after they are formed, set up a group structure of their own, so they can enter the world of non-social housing - market renting, buying, building and selling houses on the private market. So for example, Somer Community Housing Trust, a new organisation set up to take over stock from Bath and North East Somerset council, set up a related but profit-making company, SOMACO Ltd, so that as well as managing the homes of transferred tenants it could also develop "new and diverse activities including shortlife leasing; market and sub market renting; care services and repairs contracting." 5
Pressure to Join Up
There are many pressures on housing associations to expand, merge and rationalise their stock.
The bigger an organisation is, the greater the economies of scale - they can buy goods and services cheaper because they are buying more of them. With the latest announcement from government that private developers will be allowed to build social housing, RSLs will be under even greater pressure to compete.
There are also pressures from lenders. The bigger the collateral, the smaller the risk. (In other words, the more houses an association owns, the more money it can borrow.) Banks put pressure on organisations to join up and pool their assets in order to minimise risk.
In January 2004 the Housing Corporation announced plans to let associations borrow against their social housing "assets" to finance non-social housing development schemes. That means using tenants' homes as collateral for schemes to make money out of the private sector - and if those profit-making schemes go wrong, the banks could seize tenants' homes to pay back the loans.
The Housing Corporation is now aiming to pay 90% of its grant money only to organisations which set up consortiums, or "partnering" arrangements, to bid for cash.7 This is part of the drive to push associations to join up and become bigger and bigger. The case of Pavilion, below, shows how a consortium can be the first step towards a full merger or takeover.
The drive towards mergers brings yet another problem as well as the loss of democracy and localism. Restructuring companies in this way comes at a price. "Millions of pounds are being wasted every year through failed merger negotiations, a consultant has warned. In a report for the Housing Quality Network, Debby Ounsted urged RSLs to think carefully about prospects for success before embarking on costly negotiations. 'There is as yet no published reliable data on the cost of failed negotiations in the RSL sector,' said Ms Ounsted. 'But the direct costs must be high, as are the hidden costs of damaged morale, abortive effort and tarnished reputation.' On top of the tangible costs of lawyers and accountants, there were non-tangible costs such as the amount of time chief executives spend on mergers." 8
The Risks of Failure
Housing associations are not safe, risk-free organisations. Many of them face financial shortfalls, poor performance and "governance" problems - problems facing boards who are unable to control the organisation.
The worst nightmare for tenants must be when the housing association which has taken over their homes gets into financial trouble and has to find a bigger partner to buy them out. There are some spectacular examples of failure in the sector - like West Hampstead Housing Association, which speculated on dodgy private market schemes until it was millions in debt and had to sell out to the Genesis Housing Group. Or Solon Wandsworth Housing Association, whose board refused to sell out and whose homes are now being forcibly sold off to Wandle Housing Association by the Housing Corporation. 9
Transfer associations are not exempt from these sorts of problems. Tenants of Kerrier District Council transferred in 1998 to Kerrier Homes Trust. By 2002 the trust had been placed under supervision by the Housing Corporation because of concerns over its financial viability, failures in performance and the inability of the board to properly govern the association. "The association's financial condition is presently of concern… The governing body does not demonstrate effective control of the organisation…. The association's performance fails to achieve the outcomes specified in the Regulatory Code." When the Housing Corporation puts an association under supervision it makes its own appointments to the board - so much for local accountability! Kerrier was not released from supervision until two years later, and during that time had to go through the resignation and suspension of board members, and the threat of takeover. 10
Another stock transfer organisation which has just been placed under supervision is Weaver Vale Housing Trust - just two years after after they took ownership of 7,000 homes from Vale Royal Council. "The corporation found that the potential risks to the organisation have not been properly controlled or monitored. Indicators show 60 per cent of the trust's homes fail to meet the decent homes standard. The corporation said this was higher than it would expect, even for a young stock transfer association." 11
Pavilion Housing Group (whose homes were once owned by Rushmoor Council) is considering a merger with Atlantic Housing Group (set up to take the transfer of Eastleigh Council's stock). Both associations originally formed a 'development consortium' so they could make a big enough bid to secure Housing Corporation grant. Now Pavilion is in financial trouble, has had damning reports on its performance from both the Audit Commission and the Housing Corporation, and is looking for a merger to rescue it. "Two members of the development consortium Sappling Housing Partnership are planning to link up in the wake of Pavilion Housing Association's damning inspection report. Pavilion's annual report for 2003/04, due to be published at its annual general meeting next week, is expected to reveal an accounting loss of £27 million. It is understood that Pavilion was leading the development plans for Sappling but has transferred the responsibility to another consortium member." 12
Many of the problems experienced by RSLs are connected with their boards. The government claims that stock transfer is an empowering experience for tenants who get seats on the board, but this is nonsense. The housing press is full of examples of rows, resignations and scandals on RSL boards; the examples above show how an unelected quango can appoint its own board members if things start to go wrong.
Just this week (22nd Oct 04) three board members were axed from the Bradford Community Housing Trust Group (the transfer organisation which took over Bradford's council homes) - their crime? daring to complain about part of the group to the Housing Corporation. 13 Two tenants from Hackney were dismissed from the Canalside Housing Partnership board in 2002 for publicly criticising proposals to break rent guarantees. 14
Anchor Trust, one of Britain's biggest registered social landlords, has just 'slimmed down' its board from fifteen members to seven. The association, which pays its chief executive the highest salary in the sector (£210,000 a year), has also started paying its board members. 15 Most of the other big organisations are following suit, just months after the Housing Corporation changed the rules to allow them to do so. By paying board members, housing associations take one more step towards becoming identical with big-business private enterprise.
Sources
1 Housing Corporation Assessment: Riverside Housing Group
2 Housing Corporation Assessment: London & Quadrant Housing
3 Changing Boards: Emerging Tensions Liz Cairncross, Oxford Brookes University (Paper presented to Housing Studies Association Conference, Spring 2004) Maturing Assets: the Evolution of Stock Transfer Housing Associations. Pawson, H. & Fancy, C. (Bristol: Policy Press, 2003)
4 Housing Corporation Assessment: Anglia Group 'Circle 33 and Anglia announce merger plan' (Inside Housing, 30 Sep 2004)
5 Housing Corporation Assessment: Somer Housing Group
6 Housing Corporation Assessment: Irwell Valley Housing Group
7 'Take your partner for next steps' (Inside Housing, 02 Apr 2004) 'New partnering model aims to drive development' (Inside Housing, 05 Aug 2004)
8 'Mergers "risk driving out staff" ' (Inside Housing, 11 Mar 2002)
9 ' "Guerilla warfare" set to force association takeover' (Inside Housing, 8 Apr 2004)
10 Housing Corporation Assessment: Kerrier Homes Trust 'Kerrier considers group structure' (Inside Housing, 10 Jan 2002) 'Kerrier chief goes after merger row' (Inside Housing, 11 Jul 2004)
11 'Supervision for trust that went £2.3m over budget' (Inside Housing, 7 Oct 2004)
12 Housing Corporation Assessment: Pavilion Housing Group Housing Corporation Assessment: Atlantic Housing Group 'Consortium pair plan merger after criticism' (Inside Housing, 10 Sep 2004)
13 'Trio axed from board' (Inside Housing, 22 Oct 2004)
14 Letter to Camden New Journal 2 Aug 2002
15 'Pay for today' (Inside Housing, 1 Oct 2004)
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