Happy families

Husband and wife Brian and Gail Wheeler moved into their home in Hampton, west London, 10 months ago. They soon contacted their landlord, housing association Family Mosaic, about installing a disability chair in their bathroom, as Mrs Wheeler, 50, had recently suffered a stroke.

Nine months later, nothing had happened. Then last month Family Mosaic, based in central London, sold the 200 homes it owned on the Wheelers’ road and connecting streets to a local housing association, Richmond Housing Partnership, for an undisclosed amount. Within two weeks, Mrs Wheeler had her disability chair.

‘As soon as the house was taken over by Richmond Housing Partnership, it was done,’ says Mrs Wheeler.

‘They’ve also sorted out the lock on the back door,’ adds Mr Wheeler, 58. ‘They acted very quickly.’

Brendan Sarsfield, chief executive of Family Mosaic, says such improvements in service delivery is exactly why his organisation decided to ‘rationalise’ some of its stock by selling homes that were outside its core central London areas.

Homes in three other London boroughs have already changed hands, with more deals on the way.

‘Our approach is named, “Big but local” - knowing our local communities and the problems they face, and knowing the local authority,’ adds Mr Sarsfield. ‘Where we don’t have that, we felt we should find partners who are better than us at delivering the local agenda in that area.’

And for Richmond Housing Partnership, buying the 200 homes made sense. ‘They are right in the middle of our area,’ says RHP spokesperson Eddie Kelly. ‘We are able to respond to tenants and leaseholders there much more quickly.’

Family Mosaic is one of several large housing associations that have rationalised their stock over the past two years. Afterall, whittling down the number of landlords in an area ties in well with the localism zeitgeist espoused by both main political parties: fewer landlords in any given area make for a more efficient local decision-making process. The recession has driven this trend, says Rosemary Hart, partner at Trowers & Hamlins, a law firm which has worked with numerous landlords that have bought or sold homes in stock rationalisation programmes.

‘Housing associations built and built over the boom years, but during a recession they are not doing development work. This gives them time to look at things that didn’t happen before,’ she explains.

There are no official figures showing how many stock rationalisation projects have taken place over the years, but anecdotal information suggests there was little appetite to explore this pre-recession.

New framework

Now though, in less certain economic times, landlords are deciding to sell stock for various reasons: to get their hands on cash to buy land ready for development; to concentrate their efforts in particular geographical areas or housing types; to focus on providing better services to their tenants elsewhere; or to please the Tenant Services Authority. The latter is a timely consideration given the watchdog’s proposed new regulatory framework unveiled earlier this month, which includes plans for landlords to set their own local standards.

‘People need to demonstrate that they are giving continuous improvement and meeting high standards, and by rationalising their stock, they are doing what the TSA has propounded as a good way forward,’ explains Ms Hart.

Stock rationalisation is not a new idea. Former regulator the Housing Corporation, and now its successor the TSA, which permits or denies sales of stock between housing associations, have long encouraged landlords to pursue this option.

Last February the TSA published a document, Location, location, location, which implored: ‘With as many as 50 or 60 associations working in some local authorities, some of them with only one or two homes, there is plenty of scope for action.’

Tim Sullivan, a manager in the policy department at the TSA, explains that over the last couple of years the regulator ‘has suggested that housing associations should look at stock rationalisation as part of their asset management strategy’.

Throughout the boom years, some housing associations wanted to keep adding to their stock whatever its location to reach big figures, with some predicting the first 100,000-home association was not far off. Now, with frugality the name of the game, landlords are putting their business strategies before vanity-fuelled acquisition exercises.

Mervyn Jones, director of housing investment at property services firm Savills, has advised on stock rationalisation projects involving around 4,300 properties in total over the past two years. He says his clients decided to rationalise for ‘a number of reasons’, but of course, ‘there are financial incentives’. Selling stock provides landlords with the liquidity they need to buy land on which to build homes in future, he explains.

Ms Hart adds that ‘some people might be getting rid of stock which was not helping their loan to value ratio’. In tough times, losing stock that holds debt improves landlords’ financial outlook. Figures released by Nationwide last month show that the average house price is £162,038, down 13 per cent from the peak of £186,000 in October 2007. Multiply that loss by the thousands and the damage to landlords’ LTVs becomes clear.

Small to medium-sized organisations tend to buy homes sold by larger landlords, says Mr Jones - 9,500-home RHP buying from 20,000-home Family Mosaic, for example. ‘The stock is right in their backyards, so it makes sense for them to pick it up,’ he explains.

There are also an increasing number of housing associations deciding they want to sell certain types of housing.

Older people specialist Anchor Trust, for example, announced its plans to transfer 37 of its sheltered schemes in January. It pointed out that some of them were 40 years old and were not ‘aligned’ to its wider portfolio, and added that they would represent ‘sound investment’ for smaller, local associations.

As stock rationalisation programmes become more commonplace, Ms Hart expects to see more housing associations swapping stock rather than simply selling it. ‘Registered social landlords don’t want their overall number of stock to go down,’ she explains. ‘They still want that headline number of units, so they might look to swap with somebody.’

Win some, lose some

Family Mosaic’s Mr Sarsfield is keen on this idea. ‘Swaps would be a lot better for us, but we struggle with them. Different properties are different ages, so you have to be very broad-brushed [in terms of the value of properties] - some you win, some you lose,’ he says. ‘We would love to have some associations come to us [with stock], as we would like to be buying and not just selling.’

Those wishing to follow in the footsteps of Family Mosaic and RHP should be aware of numerous potential pitfalls, states Ms Hart. Vendors need to be able show they have achieved ‘best value’, she explains.

Buyers, on the other hand, should address various legal liabilities that can arise. These include leaseholds that are near expiry and issues surrounding transfer of undertakings (protection of employment) regulations, which arise when employees are taken on along with properties.
‘You need to do your homework,’ confirms TSA’s Mr Sullivan. ‘Engagement with tenants is important and projects can go on for quite a while, so you need to trust your partners.’

Mr Sarsfield stresses that the process must benefit residents, who should be consulted. His former tenants in Hampton seem happy with the way that both his organisation and RHP handled the consultation process, which took place over a six-month period before the handover of their homes was finalised.

‘I was told about the sale. I received a letter,’ confirms Michael Duffy, 65, who lives down the road from the Wheelers. ‘I felt informed and it has gone well,’ concludes another neighbour, Sheila Armstrong, 65. Whether the ride is as smooth for other residents as more landlords choose to rationalise stock remains to be seen.

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