Smaller housing associations’
capacity to develop new homes
Mark Lupton
The key question
• Do the 962 associations owning and
managing less than 1400 units, with a total
of 132,097 units – 6 per cent of
associations’ stock – really have a great
deal of spare capacity?
Who to look at?
• Of those with less than 400 homes many
where already in group structures and had
high numbers of supported housing
• We looked at the 72 independent
associations with between 400–1,399
units
Financial ratios
• Gearing (debt to gross cost of housing
properties basis) - 25%: sector average of
35%
• Interest cover (EBITDA basis) - 250%:
sector average of 197%
• An average operating margin of 30%:
sector average of 23%
What capacity?
• The associations in this study could
sustain future organic growth at a rate of
about 5 per cent a year.
• Using this projected capacity would
potentially increase the number of
association homes built by around 2.5 per
cent -1200 homes.
Not that simple
• To make use of that capacity requires
sufficient organisational capability or / and
suitable partnership arrangements
combined with access to land, debt
finance and grant funding.
Diversity
• Care has to be taken in terms of
generalised statements about smaller
associations;
• Reasons why associations may be unable
or choose not to maximise development
will vary;
• In looking for ways forward to encourage
development, ‘one size fits all’ approaches
are unlikely to be appropriate.
Fanciful solutions
• Major merger activity among smaller
associations given the time and effort that
would be required
• A major centrally determined drive for
smaller associations’ capacity to be
transferred to larger associations
Advantages and challenges
• Smaller associations do have some
potential advantages, their focus in the
main on a particular specialism or locality
• They also can experience challenges in
terms of:
• The right skills
• Properly quantifying risk
The way forward
• To encourage organic growth among
smaller associations and innovative
approaches by larger associations and
potential partner bodies to help them do
this.
• This will not be easy at a time when the
development environment for associations
is particularly challenging.
Mutual respect
• Smaller associations need to be clear about
their role as an effective client - selecting the
right partner and developing skills around the
client role and relationship management.
• Larger associations have to be clear about the
professionalism of their relationship with the
client body. If they are committed to supporting
local associations to develop then they need to
consider what level of “mentoring” this involves.
Skilling up
• Proactively organising and procuring joint
training programmes for staff and board
members around development, finance and risk
• Creating mechanisms for supportive approaches
by developing smaller associations to help those
who want to develop
• Setting up a fund to commission research and
good practice advice specifically aimed at
smaller associations
Not just development
• There are some advantages to smaller
associations purchasing from – or
managing stock for – larger associations
(and others), rather than directly
developing
There are alternatives
• Develop by a mixture of grant, cross subsidy
from asset management and converting social
rents
• Be a local housing provider by building shared
ownership or market rent homes
• A manager of choice for other associations or
bodies who might be rationalising stock or
developing locally
• Develop the business locally in other ways than
building new homes
• Focus on specialised housing and services
A challenge for the sector
• If the sector as a whole does not
demonstrate its effectiveness in releasing
capacity it will face continuing scrutiny
from government
• In seeking to use the spare capacity
available to smaller associations perhaps
the sector as a whole – not just the smaller
associations themselves – needs to
consider how to utilise that capacity
Two questions
1. If the association’s mission is to provide
homes for those in need then should the
development of new homes be a key part
of this?
2. Does the association’s current size,
structure and costs enable it to effectively
achieve its organisational purpose?