Social ambitions: The risks facing housing associations moving into the PRS

From Les Pickford

Freelance writer and former Editor of the RICS Construction Journal (RICS)

I recently spoke with Kate Faulkner, independent Property Market Commentator, about the landscape of the social housing sector and the trend of providers moving into the private rented sector (PRS).

Hear from Kate Faulkner

The more organisations that are creating new homes the better, as we are desperate for stock from all sources. Obtaining additional finance from the private sector means housing associations can build in bulk – most current provision is people buying existing stock, which may not then be let legally.

Many housing associations are reviewing their business plans because merely sitting on their stock means a safe business plan but little growth. Ambitious associations are moving into the PRS so they can fund the social services and new/renovated housing they need to provide.

A good example is Thames Valley Housing, which launched Fizzy Living for the PRS in 2012. It understands that the PRS is different and created a new business model and brand to work in the sector.

However, some associations think they know how the PRS works, but actually don’t, e.g. by borrowing money to grow they risk the vagaries of a private sector market and so risk the social part of their business.

But some feel they must act because of slashed budgets and the requirement to offer Right to Buy (although they’re mounting a legal challenge). One crazy example of the scheme is to allow a social tenant £100,000+ to buy a property but the association will only receive a £25,000 grant to build a new home.

Ideally, one new home should be built before selling one off but since the scheme was introduced 25 years ago only one new home has been built for every ten sold. It has removed social stock and worsened the housing crisis for the socially vulnerable and families on a low income.

Right to Buy forces associations to sell their assets, and discourages them expanding their businesses. So moves into the PRS could be a fantastic solution to supply.

Diversification issues

Some associations moving into the PRS have major skills gaps, e.g. they don’t understand private investment funders or how to handle private tenants.

Some private tenants of housing associations are seen as cash cows, not customers. These associations aren’t entering the PRS to provide a better service but to raise funds and only meet minimum legal requirements.

An example is Wandle Housing Association that took shared ownership reservations for flats in November 2013 but in May 2014 it increased the cost of these homes by 25-50% just weeks before customers were due to move in.

It said its funding rules forced it to sell at the market price, and the market had moved upwards. Legally, they were correct; but from a customer perspective it hit the headlines. Doing the minimum is not good enough, associations should be the very best providers in their area.

Ultimately, a minimum approach to the PRS will mean tenants will avoid these associations, which will then get lower funding. This domino effect will affect the reputation of the whole social housing sector.

Some associations have a poor perception of ‘everyone’ in the PRS – from tenants to developers. But there is a good side to the residential property market they should aim to be part of. They don’t like private letting agents so they’re starting their own, yet these aren’t members of RICS, ARLA or NALS. But membership would ensure the highest standards of professional service.

Dispute resolution procedures are also often lacking in social housing. A social tenant can complain to the Homes and Communities Agency but a private tenant, or someone in shared ownership, has no third party to help resolve issues apart from the Housing Ombudsman (I’ve known simple complaints to take 9-12 months to resolve).

These systems aren’t good enough for the PRS. If associations were members of RICS, ARLA or NALS they could access very professional complaint handling procedures.

Calls to action

My biggest frustration with housing is that all parties – government, housing associations, buy-to-let investors, letting agents, local authorities, funders, etc – all moan about each other. But they have lots in common and could work well together.

An example of this is buy-to-let investors who plough lots of cash into property, which is a poor way of investing.  Whereas if they invested in a fund that allowed an association to build new homes in bulk and deliver its income targets then buy-to-let investors wouldn’t have any hassle sorting out individual properties. Working together would help create more new homes.

And instead of associations establishing their own letting agents, they should work with the best local, professionally accredited agents so tenants get a great service and the association doesn’t commit money to premises, etc. Boosting the good guys would also help force the unregulated rogue agents and landlords out of business.

Our view: Andrew Bulmer, RICS Residential Director

Kate has raised an interesting point. While there are as many opinions as there are housing associations, I have certainly heard some within the sector describe the traditional buy-to-let landlord in derogatory terms. Although there are a minority of rogue landlords, many small landlords are utterly well-meaning but don’t get everything right due to a lack of knowledge.

But ignorance is no defence in the eyes of the law and RICS is driving the agenda for raising standards in the sector. Better enforcement of the things that matter would help. But the notion that the PRS is all about so-called “profiteering lizard” landlords, wilfully ripping off victim tenants with dangerous homes, is simply untrue.

It’s also unhelpful and a multiple threat. First, existing small landlords are now spoken of in the same terms as politicians and bankers. Unlike either, the rewards of buy-to-let investment are not as lucrative as the casual complainer may assume and the risk-reward balance is marginal.

With ever-tighter regulation and penalties for failure, some landlords are deciding to exit. Perhaps marginal landlords should exit? Discuss.

But unless their stock is replaced, and by more professional/institutional landlords at scale (which it currently isn’t), the increasing demand for rented homes will meet with worsening shortages, which will only help drive rent increases.

Second, a housing association with a blended PRS/affordable operation that criticises the PRS is akin to a divorcee parent criticising their ex to their children. Yet their own PRS offering is part of the wider PRS family and negative behaviour hurts everyone.

The old PRS/affordable division, if not already dead, is stumbling. Certainly, so far as new housing provision is concerned, changing business models, government policies and market forces have effectively put all variations of tenure into a blender and hit the button.

Housing associations, private investors (institutional and individuals) all share what is now a blended “rented sector”. All responsible stakeholders in the sector know what ‘good’ looks like and the tools are there to deliver flexible, secure and good quality homes.

While perceived short-term commercial advantage may tempt some to position their interests and language to the exclusion of others, the happier family is the one where everyone pulls together for the common good. Consistency of standards and enforcement, and appropriate and proportionate regulation, all fall out of co-operative effort – witness the PRS Code of Practice co-owned by 17 different stakeholder organisations in the PRS arena.

If we accept that the blended “rented sector” could deliver additional new housing at scale to provide good homes, then responsible commentary, rational thinking and collegiate actions are the duties of all stakeholders.


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