Examining a different approach

Earlier this month I met Rolf Buch, CEO of Vonovia – a German housing association which owns 340,000 homes across 30 cities in Germany.

Four years ago they obtained a listing on the German stock exchange. In Germany you can buy shares in your local housing association. Today Vonovia is worth €15.5bn, is a member of the DAX 30 Index, and is the largest real estate company in Germany.

So I was intrigued to find out what motivated Vonovia, whether an organisation so large could still deliver a responsive local service, and whether a listed company could remain true to its founding purpose.

Here’s what I found.

“Life as a German housing association is very different.”

Life as a German housing association is very different. You might think that operating as a listed company would grant greater freedom than we enjoy here. But nothing could be further from the truth. I asked Mr Buch what the organisation’s mission was, why they existed. And the answer was a legal one.

Their rents are regulated and tenancies last forever. They have no control over the price of their product, they just have to live within their means.

Investment in the energy efficiency of existing homes is governed by law. Every year they have to meet demanding investment targets.

Industrial/staff relations are also governed by law, far more than here. 

The politicians want to see greater investment in new homes – one thing we do have in common.

And their shareholders want an increased dividend every year.

Each of these stakes is firmly rooted, yet Vonovia thrives. In their eyes, opportunity and funding are limitless but the only thing they have any control over is cost. So that’s what it focuses on – the delivery of legal, regulatory and business objectives through a relentless focus on efficiency.

I left our meeting wondering whether we have the same unlimited view of the world, whether we have the same desire to achieve our goals through greater efficiency, or whether it takes the closing off of every other option to create this drive.

I guess the closest comparison we have is the rent cut. Somehow we all bore the strain. We re-examined and reimagined our businesses, a wave of consolidation hit us, and we reconnected with our ambition and social purpose. 

Must it take an external stimulus for us to thrive? Do we focus on efficiency because someone else tells us to, because someone pulls the rug from under us? Or because our customers deserve it, because efficiency is our pathway to independence and success?

Would we achieve more if, like Vonovia, we were driven by shareholder value, regulation and statute? Perhaps in our lifetime we will see the emergence of listed UK housing associations. 

When I was finance director of L&Q I once toyed with the idea. It’s what finance directors do when no one is looking. “Wouldn’t it be great,” I thought, “to be in control of our own destiny?”

But the words of a colleague always stuck with me. “When you are listed, everything is about profit. It doesn’t matter what you think your purpose is, it will become profit.” Chilling words, and a future we should avoid at all costs.

It wouldn’t surprise me if share capital played a greater role in the future of the sector but L&Q is and will always be a regulated charitable housing association.

“Perhaps in our lifetime we will see the emergence of listed UK housing associations.”

With a development ambition of 100,000 homes, a private rent subsidiary, our own commercial letting and construction divisions, and the largest sales programme in the sector, our status has never got in the way of our ambition. But it has played an important part in keeping us close to our founding social purpose. We make a profit every year and every penny is reinvested in affordable housing and communities. 

Sometimes we grumble about political interference and regulation – we see barriers rather than opportunity. But I think we are lucky. We have strong balance sheets, we are independent. People need what we do, and we do it because we care. 

So, as we look ahead to the outcome of a general election and a new future outside Europe it would be tempting to bide our time, to see how things settle before taking the next step. But as independent, long-term social businesses we can look beyond the electoral and economic cycles. 

Guided by our social purpose we can work with anyone who cares about housing and communities. We can change the place where we live. And whatever the future holds, we have so much to offer.

David Montague, chief executive, L&Q