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Exploring diversification is the right thing to do
Northern Ireland housing association Choice Housing has set up a PRS company to diversify its business. Michael McDonnell explains the thinking behind the move
In the decade following the first chill of recession, Northern Ireland’s economic performance has lagged behind the UK average in a strikingly unwelcome way.
Official figures in December 2017 highlighted the most recent disparity, confirming regional economic growth was half a percentage point lower than the rest of the UK.
In the construction sector, recovery has been particularly slow.
Hampered by higher input prices and more limited public sector contracts, modest growth in the sector last year was surprising and fuelled largely by investment in new hotels and student accommodation. Yet despite increasing and evolving demand, residential developments have been slow.
Housing associations such as Choice have been playing their part to get Northern Ireland building much-needed homes again.
Completions of new social units increased by 15% in the past year, but there remains a chronic shortage of housing across all tenures in this region.
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In the private rented sector (PRS), there are only a handful of large landlords.
Like other UK areas, there is keen demand here for a ‘professionalisation’ of PRS, with more people choosing to rent, sacrificing homeownership in favour of flexible living.
Choice Housing is in the business of solving housing problems, and we have a social responsibility to explore how we can make a difference that benefits people who need new homes, whether that is to rent or to buy.
“There is keen demand here for a ‘professionalisation’ of PRS, with more people choosing to rent.”
At the same time, our sector and customers face very real challenges and uncertainties. Diversifying and broadening our business model to reflect our social enterprise ethos makes sense if we are to insulate our core social housing development ambitions from the effects of austerity and public policy uncertainty.
Earlier this month, we were pleased to announce our latest response to these growing challenges with a £12m investment in our new PRS and affordable homes subsidiary, Maple and May.
The primary driver for Choice is housing supply, but we also feel we can make a return on this modest investment that will enable us to do more of what we really want to do – which is provide more high-quality social housing.
We have carefully studied and consulted with our colleagues in Great Britain to understand how they have used such ventures to support social housing, and how such an approach could be best replicated in Northern Ireland.
Our initial investment has enabled Maple and May to move quickly on a number of sites where development has stalled, bringing more than 70 new homes under its ownership. We anticipate that our mixed-tenure housing stock will exceed 500 units in the next five years.
As the first combined PRS/affordable housing venture by a housing association in this region, Maple and May’s growth strategy is cautious and underpinned by prudent levels of investment and borrowing.
“We have carefully studied and consulted with our colleagues in Great Britain to understand how they have used such ventures.”
Like any new business, there are risks and problems to overcome, and we will progress in a measured way.
The challenges, strategies and resourcing for Maple and May differ from those at the core of a social housing organisation.
There isn’t a one-size-fits-all approach for all dimensions of housing, and we have taken great care to assemble an experienced senior management team and subsidiary board which brings considerable commercial acumen and market insight.
“The challenges, strategies and resourcing for Maple and May differ from those at the core of a social housing organisation.”
Our investment in Maple and May is not a knee-jerk reaction.
We have worked long and hard to plan for the launch and future growth of this venture.
It is part of a dedicated strategy that focuses on meeting housing demand, stimulating economic activity and transforming vacant sites that have remained undeveloped for far too long.
Few would deny that budgetary pressures and political uncertainties have made housing associations’ job of delivering decent and affordable homes more challenging.
It is right that we look at new ways to diversify our reach and augment our core work if we are to really meet long-term housing demand in a sustainable way.
Michael McDonnell, chief executive, Choice Housing
