Is the social housing sector ready to tackle the Private Rented Sector?

Phil Morgan

Phil Morgan

In his first speech as Housing Minister Mark Prisk threw down a challenge to the social housing sector to do more to provide new homes for rent. Not just social housing but homes for private rent as well. He argued that, with years of experience and expertise in providing affordable homes to rent and buy, Housing Associations could both continue delivering services for social tenants and offer homes for private tenants.

So who are these social landlords, coming into our sector, taking our homes and tenants?

For social landlords such as Places for People or Derwent Living the answer is simple: money and mission. Whilst it might seem like some of the motivation is around generating new streams of income, to replace others threatened by welfare reforms, the reality is that this is a long term project.

Places for People are a social housing landlord. Although, you wouldn’t necessarily get that from their website which states “We are one of the largest property management, development and regeneration companies in the UK. We own or manage over 81,000 homes and have assets of more than £3bn.”

Last year Places for People acquired Touchstone – a property management company responsible for managing 21,000 properties for a range of clients. Whilst the scale is different, Places for People have had a Private Rented Sector subsidiary since 1999. Is this a take-over? Their ambition is to see “…the growth of the Private Rented Sector”.

Housing Associations, and the remaining Arm’s Length Management Organisations (ALMOs), are increasingly looking to diversify. But this is not just about the current tightness of welfare reform (which is a real driver for Housing Associations to diversify), nor just about the Private Rented Sector alone.

Derwent Living were formed in 1964 and their website manages to avoid the social landlord tag and instead states “We manage both rented and owned affordable housing.” Their ambition is to work without Government funding and to support this they have three main areas of commercial funding – student accommodation, market rental and facilities management. This is proving to be successful- to the tune of £2m a year. This profit, in turn, allows Derwent Living to build 500 new homes a year without any Government subsidy. Some 40% of Derwent Living’s activity is commercial.

Whilst both Places for People and Derwent Living have clearly been looking to diversify, many other social landlords are also doing the same and are drawing on their own strengths in, say, repairs and maintenance or ‘man with a van’ activities. Other landlords in supported housing have always worked wider than the social housing world. The point is that social landlords will continue to look beyond that world and some of their interest will fall on the Private Rented Sector.

There is also increasing fluidity about what were previously clear divisions of social and private rented housing – private providers can now register to be social landlords.

Social landlords also operate in an increasingly joined up policy world. Local Authorities take a strategic view of housing, including the role of the private sector, and invite local stakeholders (including Housing Associations) to contribute to their plans.

The Chartered Institute of Housing (CIH), the housing professional body, has taken an increasing interest at a national level; including commenting on the recent Lords amendments to the Estate Agency Act 1979. This should be seen in the context of both the existing ‘organic’ interest by the sector in the Private Rented Sector and the issues raised both by the Rugg Review (commissioned but not enacted by the last Government) and similar points raised more recently by Ed Miliband under his ‘rogue landlord clampdown’.

The tests arising from these issues are “Can the Private Rented Sector match the social housing for delivering the same quality of homes and security of tenure” and “How best can managing agents be accredited or regulated?”

The current Government has shown little interest in further regulation of the Private Rented Sector. However it is plausible that the tests will remain and bodies such as the CIH may see a role in providing support in meeting those tests whether they form part of government policy or not.

Another national mutual policy area where there is increased fluidity is housing benefit. It is a curiosity that housing policy is effectively split between ‘housing’ based in Communities and Local Government (CLG) and ‘housing benefits’ based in the Department of Work and Pensions. Over time housing benefit has become a net funder of improvements to social housing, hiding the costs of meeting the Decent Homes Standard in the social housing sector from CLG’s budget. Yet housing benefit has also grown with the size and availability of the Private Rented Sector for middle and low income families unable to buy or access social housing. So any government has an interest in the size of the housing benefit bill and finding ways, as the current government has done, of capping benefit in areas of higher rent.

So social housing is coming into the Private Rented Sector. But just how well equipped is social housing to play a major role in the Private Rented Sector?

The regulator ensures there is coverage of both governance and financial viability for all providers. Lenders like this coverage and it gives them confidence to lend at more favourable rates. Social housing landlords are active borrowers, using an increasingly diverse portfolio; including traditional lending from banks, pension funds and Real Estate Investment Trusts. This has been successful over the past 30 years although one landlord – Cosmopolitan, based in Liverpool – is currently in problems over its student accommodation and if it fails then that confidence will take a hit. That said, social landlords can work with funders and investors.

Social landlords provide services on an increasingly commercial basis. Although far from being perfect (and I expect welfare reform to highlight a number of landlords who are not well run) expectations from social housing and their tenants are high and the sector is increasingly prepared to look at benchmarking (including with private companies), peer reviews and increasingly commercial approaches to drive improvements and efficiencies. So social landlords can be competitive (although some more than others) in providing services as a landlord and a contractor.
In conclusion social housing is taking an increasing interest in the private rented sector. They are increasingly motivated and well placed to do so, and even encouraged by Government ministers. They are here to stay.

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Phil Morgan was recently In Conversation with PRSupdate.

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