The wedding crashers
The Office of Fair Trading last week showed up as an unwelcome guest at the marriage of two housing associations. Nick Duxbury finds out what the competition watchdog’s sudden arrival means for the sector
Last week Inside Housing broke the news that the Office of Fair Trading has begun investigating a housing association merger for the first time. The government’s competition watchdog has launched a probe into the marriage between Harvest Housing Group and Arena Housing Association which took place in April, to ensure that the creation of 32,000-home Your Housing Group has not resulted in a lessening of competition.
Landlords fear the move reflects a wider interest in social housing - a sector that is heavily regulated by the Homes and Communities Agency - from the OFT. Of primary concern to housing associations, which come under the OFT’s jurisdiction because they are not public sector bodies, will be the fact the OFT has much bigger teeth than the HCA.
With a growing pipeline of mergers planned, landlords are confused and concerned about what the OFT’s intervention means for their plans. Its scrutiny is also asking searching questions of the housing sector - the most significant being, do not-for-profit housing associations actually ‘compete’ in a market and how does the OFT’s involvement impact on the HCA’s regulatory role?
The OFT denies it has any sectoral priorities and points out it has examined charity mergers before. It is looking to ensure the public purse is not losing out. To establish this, it is interrogating Your Housing Group to see whether the merger will result in the landlord controlling more than 25 per cent of the supply of the local market. If it does, it is eligible for further investigation and can be referred to the Competition Commission for a second phase investigation, or avoid a referral by negotiating an alternative remedy.
Your Housing’s chief executive, Brian Cronin, has written to the OFT with data showing that the largest market share of a local authority it would have is in Warrington where it will control 20 per cent of the social housing. But that doesn’t mean the landlord is in the clear.
‘They don’t define what a market is,’ Mr Cronin explains. ‘We have assumed that it is a local authority area. They may come back and ask for a different market or sub-markets within that. They have asked us to split our stock between sale and rent, so you can see they are keen to look at all that stuff.’
‘The Enterprise Act 2002 doesn’t seek to limit the size or geography of a market place,’ agrees Mark London, partner at law firm Devonshires. He considers that a housing association does constitute an enterprise under the act, and that housing providers do engage in a market for social housing and similar services. However, the rest is up for debate.
‘There is no precedent in terms of how you define a specific market place for social housing - and also how that market place might work in terms of the choice potential consumers have,’ he says. ‘It is difficult to see how the provision of social housing within a market place lends consumers any particular choice. It is arguable social tenants are not consumers in the normal sense. They don’t necessarily have a choice about where they live.’
Certainly the National Housing Federation is sceptical about the grounds for the OFT’s competition concerns in the housing sector. ‘Mergers can be a good way of improving the services housing associations offer to residents living in their homes,’ says a spokesperson. ‘Housing associations aren’t in direct commercial competition with each other so we would want to understand their rationale for the investigation.’
Mr Cronin says he is confident that Your Housing Group, which has a £140 million-a-year turn-over, will not encounter any problems following the OFT’s probe. However, he warns that other mergers could be hit. ‘I know one merger which is two stock transfers coming together, and it was split by a local authority that didn’t want one housing association - but two. They will own around 80 per cent of the properties in an area. Would the OFT step in and block the merger?’
Bjorn Howard is chief executive of 17,000-home Aster Group which is planning a marriage with 9,000-home Synergy Housing - and therefore awaiting the ruling with great interest. He does not foresee competition-related problems for his merger plans because of the wide geographic spread of the combined organisation between Hampshire and Cornwall.
‘I can understand, given the scale of many housing associations today, why the OFT is looking at the sector,’ he says. ‘But the change of ownership in no way alters the structure of the local market… I would be very surprised indeed if there were issues from the OFT, broadly for the sector, or for Aster-Synergy.’
Even if there is no immediate impact on merger plans, the OFT’s interest in the housing sector has also caused regulatory confusion. The HCA already considers the effect on competition when deciding whether to approve mergers. The OFT did not inform the HCA of its decision to investigate Your Housing Group, and the HCA confirms that it does not consult the OFT before giving mergers the go-ahead.
However, a spokesperson for the HCA says it is in discussions with the OFT to understand its concerns.
It is also understood that the Communities and Local Government department, which funds the HCA, and the Department for Business, Innovation and Skills, which funds the OFT, are in talks to resolve the future regulation of competition in the social housing sector.
For a real understanding of the OFT’s interest in the sector, landlords will have to wait until the beginning of August when the watchdog will make its decision on whether or not to refer Your Housing Group to the Competition
Commission. Only then will housing associations get a clear idea of exactly who they can marry.
The Competition Commission has the power to force an organisation to sell parts of its business and can block mergers. Supermarket chain Asda, which in 2010 was forced by the OFT to sell off 47 of the 194 Netto stores it had bought, in order to address local competition concerns. In return, the OFT did not refer the deal to the Competition Commission. Airports giant BAA was referred by the OFT to the Competition Commission in a five-year wrangle that led to it selling Edinburgh airport at the start of the month for £807 million to Global Infrastructure Partners.