Risky business

Swan Housing Group became the latest housing association this week to reveal its response to the challenges of a new financial model for housing.

SHG has been awarded the 11^th largest allocation under the affordable homes programme - £38 million - despite only having 10,000 homes. Indeed it does not even appear in the top 60 largest associations by stock owned, according to the Tenant Services Authority.

SHG then, is punching above its weight.

In order to deliver its ambitious 1,500-home plan it has set up a new non-registered vehicle to manage its profit-making arms and avoid regulation.

The organisation is adamant that the vehicle will allow it to ringfence risk and that there is no threat to the core housing association’s finances.

Inside Housing has now learnt that there are around half a dozen other landlords looking at the same sort of model.

The TSA has yet to develop its strategy for regulating organisations that have non-profit, non-registered companies sitting alongside profit-making, non-TSA regulated entities.

The question of whether and how risk is ringfenced in profit-making arms is likely to be a talking point in the sector over the coming months.

It is important to recognise that simply putting risky activity in a non-registered entity does not mean it is not risky.

If an organisation has bid for development money on the assumption that it can raise a specific amount of cross-subsidy from profit-making activities, it needs those profit-making companies to perform. If they don’t, the organisation could fail to deliver its affordable homes programme -and therefore could fail to receive its grant allocation.

The increased ability to benefit from profit-making arms has great potential for bringing rewards to the sector and could be essential in a landscape with vastly reduced government grant.

But, as in all private business, the prospect of reward carries the risk of failure, and the TSA needs to ensure associations’ core activity of building and maintaining much needed affordable housing does not come under threat.