Profit for Purpose or Blatant Commercialism? Redefining The English Housing Association Sector Nicky Morrison and Tony Manzi Paper to be presented to Housing Studies Association Annual Conference April 2016

Contemporary Policy Context: Attitudinal Change: Hostility towards the sector Policy Change: State withdrawal from the sector The Research Study Questions – how the sector is responding Conceptual framework Focus – the G15 London Housing Associations Methods Emerging Findings Preliminary conclusions Structure of presentation

The context: housing completions in England

Housing associations’ Performance record Sector Accounts (2015): Surpluses (after tax) = £3 billion (25% increase from 2014) Book value of properties £138 billion Debt drawn £63.4 billion (£0.5b from grants) Delivered 46,500 affordable homes p.a. (a 1/5 th of total new builds) Benefited from favourable macro-economic conditions > could do more?

Attitudinal Change: Hostility to the Sector (1) Media hostility – ‘True villains of housing crisis’ (Channel 4 News 23/7/15) – ‘Public sector lethargy and private sector greed’ (The Spectator, 25/7/15) – ‘Sleeping giants’ (The Economist, 21/11/15) – ‘High salary, low performance - £350,000 salary for Britain’s worst housing chiefs’ (The Times, 18/3/16)

Attitudinal Change: Hostility to the Sector (2) Government hostility ‘There has not been much pressure on the sector to be particularly efficient in recent years’ (Osborne, HoC, 8/9/15) ‘Part of the public sector that haven’t been through efficiencies, haven’t improved their performance and it is about time they did’ (Cameron, HoC, 15/9/15)

Government policy change: Shake up of the sector Coalition Government (2010 onwards) Steep reduction in grants for new build Housing benefit capped Help to buy loans (20% of market value) Conservative government (2015 onwards) Extend Right to Buy to sitting tenants Starter homes Housing Associations to cut social rents by 1% p.a. over next 4 years… (£4.3m p.a. estimated saving to Government’s Housing Benefit bill)

Research Questions How are The G15 London housing associations responding to the government’s radical shake up? - Re-examine business plans - Re-think overall business purpose  organisational strategies Consider the wider implications for affordable housing provision in London - Housing providers to whom? - Meanwhile 1 in 10 on London’s social housing waiting lists… (Shelter 2016)

Conceptual Framework Institutional Theory Reconciling institutional logics – social and commercial (Mullins 2006, 2012) Organisations face similar institutional pressures BUT negotiate logics in different ways (Gruis 2008, Nieboer & Gruis 2014) Hybridity and diversification (Blessing 2012; Morrison, 2016) – Hybrid governance structures – Hybrid financing – Hybrid housing products > To secure long term survival

Competing Institutional Logics (adapted from Thornton, Ocasio and Loundsbury, p.85 ) Institutional logics Organisational practices and identities Commercial orientation Social orientation

Research methods Data analysis – Homes & Communities Agency’s Global Accounts ( ) of G15 registered providers Documentary analysis of G15’s Group business plans & financial statements/press releases/expert opinions & analysis Case studies - in-depth interviews with G15 CEOs, Financial directors and Board members Cross-check & verification (Yin 2009)

The G15 London Housing Associations A2 Dominion (35,399) Affinity Sutton (57,000 ) Amicus Horizon (27,892) Catalyst (21,350) Circle Anglia (64,808) East Thames (15,125) Family Mosaic (25,406) Hyde (41,772) Genesis (32,639) L&Q (71,700) Metropolitan (38,415) Notting Hill (30,313) Network (18,064) Peabody (27,857) Southern (28,181)

The G15 London Housing Associations Own & manage 550,000 homes (21% of sector stock) House 1 in 10 Londoners Levered £15.5b private investment (33% of sector’s net debt) Generate 47% of sector’s surplus 16,000 affordable rental homes & 6,400 shared ownership last 3 years Chief Executives’ salaries: £155,000 (East Thames) to £300,706 (Affinity Sutton) CEO pay per home (£3.69 to £10.25) (Inside Housing (21/3/16) “worth it?”) > G15 announcement: Could increase development programme from 93,000 to 180,000 over 10 years (Social Housing 4/3/16)

Move from social logic? Reliance on turnover from social housing lettings – remains core function (Hyde 72% to Family Mosaic 95%) “Rent reductions remove considerable capacity in business plans” (G15 response to Budget) Surpluses on ‘other’ social housing activities -Community & economic development programmes (worth over £40m in total per annum) -Yet 9 HAs made a deficit year on year -Pressure to cut discretionary activities & welfare based services -Walker (2000) “Housing plus” 16 years on… Conflicting logic: Added social value potentially eroded?

Re-appraise development programmes “We are being asked to deliver development with less spending..” (G15 response to Budget) G15 announcement (Social Housing 4/3/16) Reduced numbers of sub-market rented housing Change tenure mix – hybrid housing products – 29% social housing – 29% shared ownership – 28% for sale – 14% private renting Affordability in London? (Savills 2015)

Tenure Mix of London’s Estate Regeneration Programmes.. Trend set to continue (Source: GLA, 2015)

High profile announcements “Government policies forced our hand.. No longer build social housing.. Low income families won’t be my problem.. We should be looking to redefine why we’re here’ ” (Genesis October 2015) Yet Genesis Business plan (2014) ‘Socially hearted, commercially minded’ …  Conflicting logic: ‘social purpose’ compromised

Move to commercial logic % of total turnover from ‘non-social housing’ activities (Family Mosaic 0.4% to Peabody 14%) Diversification activities & varied performance: - Supported housing (only Amicus - records deficit) - Nursing homes (Catalyst & Metropolitan - record deficits) - Student accommodation (A2Dom, L&Q & Affinity Sutton - record surplus) - Market renting (10 undertake & record surplus) - Properties built for outright sale (7 undertake & record surplus)

Surpluses Made from Non-Social Housing Letting Activities (G15) (2015) (£,000s) £20,607 Source: HCA Global Account & Financial statements (2015)

Move to commercial logic (cont.) HCA global accounts under-records Group’s commercial activities (e.g Peabody Group building for sale (132,883) <10 times its Trust (13,858)) Non-registered off balance sheet activities - not reported YET reflected in increase gift aid surplus to registered provider Pressures to forms complex hybrid group structures & cross-subsidize core social functions  Conflicting logic: Changing risk profile  level of scrutiny & accountability?

G15 Hybrid group structures ** e.g. Notting Hill development ltd/A2 Dominion FABRICA/GenInvest ltd/Family Mosaic Development company ltd/ Peabody Enterprise Ltd/ L&Q New Homes ltd etc

Crowding out? “Commercial subsidiaries have gone untested….as these operations ramp up, so do new sources of potential complainants - including house builders who may see competition against entities who do not pay tax as unfair” (Social Housing 4/3/16)

Gift Aid by G15 HAs Source: HCA global accounts & financial statements

Empire building? Merger talks -Circle & Affinity Sutton to form largest landlord (127,000 units) -Genesis & Thames Valley HA - Amicus Horizon & Viridian Will mergers increase efficiency? (Mullins & Bortel 2010 revisited) – To increase quality of service & free up capacity to deliver more homes OR remove responsiveness to local needs & accountability  Conflicting logics: increase size & scope in order to increase power and influence?  Rent seeking behaviour

Rent seeking behaviour? To use resources to obtain economic gain from others without reciprocating benefits to society through wealth creation… Benefits to decision makers & organisation - and not to maximising benefits to society “The government has thrown down the gauntlet…we must review and reconfigure how we operate as a business and what sort of housing products we decide to develop” (Genesis, 2015)

Beware of Charity Commission’s scrutiny…. “If housing associations want to keep their charitable status, they must continue to demonstrate that they are involved in charitable activities….more difficult to deliver..as the commercial arms assert themselves in order to maximise their profits…” (Social Housing 4/3/16)

Preliminary conclusions England’s political agenda driving change - accelerated state withdrawal & hostility to housing association sector Can the sector respond to changing institutional logics? Face competing social & commercial logics – tough choices Evidence London G15 HAs resilience & reinvent themselves -Adapting organisational strategies YET at what cost? -profit for purpose or blatant commercialism? Debate should not just be about organisations’ long term survival as businesses BUT also duty to meet full range of housing need…