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Stock rationalisation: scatter or gather?
With stock rationalisation deals expected to soar, Nick Johnstone and Luke Barratt cast an eye over the lay of the sector’s Monopoly board
If you want to win at Monopoly, Park Lane is less use without Mayfair. Three stations are only half as good as four. The same logic informs housing associations’ strategies. The sector has long been swapping and selling properties to get complete sets - perhaps not Park Lane and Mayfair, but a historic portfolio of five homes in, say, Lincolnshire when the majority of stock is in London.
Stock rationalisation, as it’s called, is a priority for associations looking to sort out a portfolio of properties spread too thinly as they seek efficiency savings.
“Holding low numbers of units in a local authority area is one of the most obvious drivers for rationalisation,” says Charles Cleal, head of stock rationalisation at JLL. “There is a direct correlation with higher management and maintenance costs and lower levels of tenant satisfaction where lower unit numbers are held.”
The coming year is expected to see a sharp increase in activity of this kind, with JLL predicting a doubling of sales.
This may be overdue. Inside Housing has crunched data from the Homes and Communities Agency to reveal the scale of inefficiently held stock across England.
Our analysis reveals 204 housing associations have 50 properties or fewer in multiple local authorities. Meanwhile, 43 operate in local authorities where they own just a single property and 28 housing associations have 10 properties or fewer in five or more local authority areas.
So should housing associations be pursuing efficiency more aggressively in straitened times? And will the predicted fire sales come to pass?
Geographical oddities
The picture is inevitably mixed. Some big stock rationalisation processes are taking place already. To name a few, over the coming years, Your Housing Group is looking to offload 4,000 units and Moat is in talks to sell 250.
Leading the pack is Clarion, the product of the recent merger between Affinity Sutton and Circle, which is looking to dispose of a mammoth 10,000.
Sometimes, however, a housing association’s specialist area will mean wide dispersal makes sense. Sue Chalkley, chief executive of rural landlord Hastoe Group, says the idea that a widespread geographical footprint makes you less efficient is actually an “urban myth”.
She says: “I would challenge the assumption that it means we’re inefficient. Hastoe has properties in 75 local authority areas and 250 different villages, but our tenants are less landlord-dependent than others, and it works well.”
In numbers: stock efficiency
204 associations with 50 properties or fewer in multiple local authorities
43 associations that own just one property in a local authority area
28 associations with 10 properties or fewer in five or more local authority areas
Source: Homes and Communities Agency
Similarly, supported housing often requires smaller sites. If a small number of people in an area have a learning disability, they still need suitable housing, however inefficient it might be financially.
For this reason, our statistics refer only to general needs properties. However, we have also excluded from our analysis areas where an association owns large numbers of supported housing and only a few general needs properties.
Some smaller housing associations with wide dispersals, such as Action and TCUK, have accumulated stock through their specialisms in bringing derelict homes back into use, and therefore have no intention of rationalising.
Delving into the rest of the data throws up some outstanding geographical oddities. Riverside, a large association based mostly in London and the North West, has two properties near the Scottish border, as well as a couple just south of Hull.
Ian Gregg, Riverside’s executive director of asset services, says: “I’ve got a map on my wall here and you look at some of the stock and you think ‘that makes no sense whatsoever’, particularly when I’m looking at North Yorkshire: one property in Ryedale, one in West Lindsey, one in North East Lincolnshire.
“Very often somebody would leave the old vicarage or a house to the poor and needy.”
Riverside is currently in 163 local authority areas, down from 207 since it started stock rationalisation four years ago.
While tiny enclaves in England’s hinterlands provide more extreme examples of inefficient stock, JLL’s Mr Cleal says that any housing association with 50 units or fewer in a particular local authority area is ripe for rationalisation.
He describes it as a “tipping point for rationalisation making sense”.
Furthermore, if historical peculiarities are one driver of some of these strange arrangements, a more modern trend could be an even more significant factor, with some recent mergers yielding thinly spread footprints.
Growing need
Clarion, a prime example, holds 50 properties or fewer in 26 local authorities, from Ribble Valley to Basildon via West Oxfordshire. It is planning a major sales drive as a result, and hopes to pump the proceeds from sell-offs into reaching its target of building 50,000 homes in 10 years from 2020.
Stonewater - the result of a merger between Raglan and Jephson in 2015 - is near the top of the list on this measure. It has 50 homes or fewer in 34 different local authorities, from Portsmouth to Manchester.
Scott Baxendale, executive director of assets at Stonewater, admits that it operates across a “wide geographic spread” but says it has an “active disposals strategy” in its corporate plan, having offloaded 252 properties in 2016/17.
Genesis, which has 50 properties or fewer in 14 local authority areas, confirms that it is rationalising. Its 2015/2020 corporate strategy commits it to “reviewing and potentially withdrawing from some peripheral areas”.
While approaches differ, it seems clear that as mergers increasingly become the order of the day and budgets become tighter, rationalisation will be needed more. Expect the sector’s Monopoly board to become much neater in years to come.
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