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Regulator investigates fifth private equity-linked housing association
A fifth housing association linked to private equity has been placed on the English social housing regulator’s watch list, as its ongoing efforts to investigate these organisations continues.
The Regulator of Social Housing has placed Encircle Housing on its ‘grading under review’ list, meaning it thinks it may be in breach of its standards on governance and financial viability.
Encircle was set up in 2011 to house people with learning disabilities, mental ill health, brain injuries, physical disabilities and long-term conditions like dementia.
It is part of a growing sub-sector of housing associations which do not own many properties themselves, but rather leases them from private equity investors and listed funds.
The regulator has been investigating this class of associations since February, when it announced that one of them, First Priority, was non-compliant with its standards.
It censured First Priority for a “fundamental failure of governance” and has since placed four other associations with similar business models on its grading under review list.
Most of the funds engaged in this sector do not publish details of their transactions, but two real estate investment trusts (REITs) – Civitas and Triple Point – have both previously announced deals with Encircle.
Under those deals, Encircle leases supported housing from the REITs, paying index-linked returns to them.
According to the Regulator of Social Housing’s statistical data return, as of 31 March 2018 Encircle was managing only 92 homes. Of these, according to the return, 31 were supported housing and 61 were care homes.
Inside Housing understands Triple Point leases two properties to Encircle, while Civitas, which first struck a deal with the association on 27 April this year, leases between five and six properties to it.
Civitas’ latest deal with Encircle was struck on 31 October, when it bought three properties comprising 23 tenancies and split them between Encircle and another housing association called Falcon.
Two common features of housing associations with this kind of business model have been rents far above the English average for supported housing and an unusually high number of empty homes.
Encircle did not report these figures to the regulator for the statistical data return.
The three other private equity-linked housing associations on the regulator’s grading under review list are Trinity, Inclusion and Westmoreland.
As yet, the regulator has issued no judgements on any of these four housing associations, despite the investigation into Inclusion starting as long ago as May.
As well as these five investigations, it has written to all other housing associations with similar business models warning seeking assurances over financial viability and “conflicts of interest”.
A spokesperson for Civitas Social Housing said: "Civitas Social Housing is one of a number of landlords to have a positive working relationship with Encircle in the provision of specialist supported housing."
An Encircle Housing spokesperson said: "We are confident we will be able to resolve the issues raised by the regulator in a speedy and effective manner. The Encircle team are meeting the regulator on Friday when we will share the measures already put in place.
"Our intention is then to implement a robust and effective plan to address the investigation’s recommendations."
Update: at 9.47 on 6.11.18 This story was updated to include details of deals made with Triple Point and Civitas.
Update: at 9.08 on 8.11.18 This story was updated to include a comment from Encircle.
