Tuesday, 23 May 2017

Opportunity for takeovers will diminish under new regime

New regulatory era could see big fish go hungry

The big fish in the social housing sea have often welcomed the chance to dine on their ailing cousins.

Swallowing up struggling housing associations offered the strongest a fast-track way of swelling their size without going to the bother of laying a single brick.

It was also a convenient arrangement for the Housing Corporation, the housing association regulator, which has acted as a matchmaker between the rescuers and those it wanted rescued.

When it became apparent that Ujima Housing Association was heading for financial collapse late last year, it was the regulator that decided which association should take Ujima over. While landlords such as Sovereign Housing Group and Places for People offered their services, it was L&Q Group that the corporation hooked in.

The watchdog’s interest in the takeovers of other troubled associations can be seen from a scrutiny of its assessment reports over the years.

It was also L&Q that was deemed the best organisation to take over Beaver Housing Society after the corporation raised concerns about its governance in September 2003.

An assessment published by the regulator just 10 months later made clear the acceptable solution to the society’s troubles. ‘It is anticipated that Beaver will become a subsidiary of L&Q.’

According to housing lawyers and consultants, the corporation has also eased the passage of takeovers by pledging to be extra generous to the larger landlords when allocating development cash to build new homes.

But such agreements will no longer be an option when the corporation’s regulation and investment functions are hived off to two separate organisations, the Homes and Communities Agency and the Tenant Services Authority.

‘The corporation has made off - balance sheet promises about future allocations since time immemorial,’ a senior source told Inside Housing.

Lawyers Keith Jenkins, a partner at Winckworth Sherwood, and Catherine Hand, a partner at Trowers & Hamlins, both said they knew of instances where funding allocations were agreed during takeover negotiations.

‘There was a point where the corporation could rescue any association because it upped grant to the rescuer to make sure that they didn’t suffer by rescuing somebody with a loss situation,’ Mr Jenkins said. ‘The last 10 years has made that much harder and the [Housing and Regeneration] Act is going to make it impossible. You can’t get the HCA to put money in.’

Richard Hill, director of investment at the corporation, said decisions on putting cash in were considered on a ‘case-by-case’ basis.

The National Housing Federation’s chief executive David Orr last week acknowledged the need to find a way to help bail out associations which suffer financial strife (Inside Housing, 15 August).

‘The important point is not so much what mechanism we use but that there is a proper understanding in the federation, and in the movement more generally, that there is a problem here,’ he said.

One possi

ble solution is the creation of a Dutch model, where landlords chip into a guarantee fund (see opposite). The federation’s concerns are shared by Anu Vedi, chief executive of Genesis Housing Group, a serial saviour of ailing associations. Just three months ago his association took over St Matthew Housing after it plunged £500,000 into the red. The group was also behind the high-profile rescue of West Hampstead Housing Association in 2002 (see box: swallowed up).

Genesis’ appetite for takeovers is now much changed, Mr Vedi told Inside Housing. ‘Today, God forbid, if another Ujima was to happen I am not sure how many of the large associations would have the appetite or motivation to come forwards as a rescue partner or have the financial capacity to come forward with a rescue package.’

The rules of the game have changed with the separation of the corporation’s regulatory and investment functions, he added.

‘Since Genesis rescued West Hampstead the economic environment has fundamentally changed,’ he said. ‘There is the issue of availability of new and fresh finance and the availability of mortgages for associations that have got properties to sell.’

Ms Hand said that the Tenant Services Authority was likely to take a much different approach to the corporation. ‘There is a myth that the TSA is going to be the Housing Corporation with a different name,’ she said.

‘At the moment the corporation does a lot of regulation behind the scenes. The TSA will look more are at using real powers rather than regulation by discussion.’ Such a threat reinforces the need for associations to find their own solution to potential financial woes.

But James Tickell, a director of consultancy Campbell Tickell, warned that self-help solutions such as a guarantee fund could give associations a false sense of security. They could create what bankers call a ‘moral hazard’, he added. ‘If you put more safety features on cars you will drive faster.’

Swallowed up

West Hampstead Housing Association

Genesis Housing Group took over West Hampstead Housing Association in 2002 after the latter was found to be facing financial insolvency. In common with Ujima the scale of its problems only emerged when the corporation eventually stepped in by placing it under supervision.

The regulator was forced to take the unprecedented step of giving West Hampstead a £3 million overdraft guarantee to tide it over until the takeover was complete. The association was renamed Pathmeads and is now the largest provider of temporary housing for homeless people in the UK.

The corporation said at the time it was forced to step in to prevent tenants losing their homes. The regulator also agreed to waive its right to claw back social housing grant from the fire sale of some of West Hampstead’s homes.

‘The only realistic option available to WHHA to fund its deficits was sales of properties, firstly non-housing and then housing, on the open market,’ corporation papers state. ‘Local authorities had considerable concerns about sales, mainly because of the loss of much-needed affordable housing stock.’

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