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Regulator declares fifth equity-linked housing association non-compliant

The Regulator of Social Housing has declared a fifth housing association linked to investment funds to be non-compliant with its standards.

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The Regulator of Social Housing has declared a fifth housing association linked to investment funds to be non-compliant with its standards #ukhousing

Encircle Housing, which manages fewer than 1,000 homes, has been found not to comply with the regulator’s standards on governance or financial viability.

The association, which provides specialist supported housing (SSH) to vulnerable adults, has a business model based on leasing homes on a long-term basis from private investment funds.

This business model has been criticised by the regulator, which said in a recent report it is “hard to see” how any housing association operating it could comply with its standards.


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Encircle leases homes from two real estate investment trusts, Civitas and Triple Point, both of which receive monthly inflation-linked payments from the housing association. It is possible the housing association has deals with other funds, but it is not possible to confirm this from publicly available data.

These lease deals are generally arranged by firms called aggregators. The regulator’s judgement said “a change in control” in December 2017 led to Encircle altering its strategy to follow this lease-based model.

The judgement also revealed that third parties “have been allocating tenants to [Encircle’s] properties without first notifying and agreeing the allocation with Encircle”, a situation which “exposed tenants to health and safety risks”.


Related Files

Regulatory Notice - Encircle Housing Limited.pdfPDF, 94 KB

Like other associations operating this business model, Encircle relies on the higher levels of housing benefit available for SSH to make payments to funds.

The regulator’s judgement said that the association’s business plan is predicated on its rents being “excepted” from various limits on social housing rents “by meeting the [SSH] criteria”.

Encircle, however, is a for-profit provider of social housing, which the regulator said presents “an additional risk” when trying to claim higher levels of housing benefit.

According to the housing benefit regulations, a landlord providing this kind of accommodation must be a housing association or a charity, and according to the Housing Associations Act 1985, a housing association must be a not-for-profit organisation.

In response to Inside Housing asking whether for-profits can claim these higher levels of housing benefit, a spokesperson for the Department for Work and Pensions said this was a matter for local authorities.

Paul Bridge, chief executive of Civitas, said: “The announcement today is as expected and does not affect Encircle’s operations in respect of Civitas; nor do we anticipate any impact on our portfolio.

“Civitas is a firm supporter of the general review which the [regulator] is undertaking. It provides an opportunity for these housing associations, which provide vital homes for vulnerable people, to continue to evolve and improve, and reflects the growing maturity and sustainability of the sector as a whole.”

An Encircle spokesperson said: “Encircle acknowledge the concerns raised by the regulator in its notice and are confident they are all being addressed. Since the review was announced last November, our main focus has been implementing measures to reassure the regulator about the model we operate and we have already made significant changes.

“Encircle are now a charitable community benefit society after converting in March, and we have strengthened our governance with a number of specialist board appointments. The organisation is now in a financially strong position with a robust balance sheet and is asset owning.

“To address some of the regulator’s concerns about the private finance model, we have adopted a mixed-asset approach along with diversity around lease terms.”

In an update to the stock market, Triple Point said it has two assets leased to Encircle worth £3m. It added: “One asset has 5 out of 6 units occupied and occupancy for the other is still ramping up following the recent completion of works. Both assets are of a high quality and are covered by voids agreements, and the rent payable under the leases with the Company continues to be paid.”

Update: at 4.52pm, 10.4.19 This story was updated to include a comment from Triple Point.