Recent years have seen a new wave of housing association stock rationalisation transactions and swaps which seems set to continue well into the coming years. What is driving them?
Stock rationalisation is a strategic asset management tool, enabling a housing association to maximise the benefit from its housing stock. Those benefits will vary from Association to Association, but the dominant driver has been and remains to increase the efficiency of management of homes.
The next decade and beyond presents housing associations and their asset management teams with many challenges. It will be intriguing to see if those challenges are reflected in new stock rationalisation trends.
The most common form of stock rationalisation remains competitively marketed disposals based on geographical footprints. Associations can find themselves with a presence in too many local authority areas where the Association has little strategic relationship with the local authority, homes too far dispersed from local offices, and homes in areas where an Association does not target future growth.
The driver for geographical footprint disposal exercises continues to be fuelled by the mergers in the sector, when the newly merged organisation brings fresh eyes to consider its core operational areas.
By disposing of homes on a geographical footprint basis, an Association typically transfers ownership to a landlord with a stronger local presence. In principle, the incoming landlord should always be able to manage the homes more efficiently than the outgoing landlord, driving customer satisfaction and benefits for other local stakeholders. The outgoing landlord can invest the proceeds of sale in the areas in which it plans to focus, traditionally investing in the development of new homes.
But marketed geographical disposals are not the only tool. Stock swaps have seen like-minded Associations working together to swap properties between them to rationalise their stock holdings. This helps sidestep a notion that Associations are overpaying for marketed portfolios in order to secure them from the grasp of competitors.
In addition to geographic drivers, the current wave of stock rationalisation programmes have other underlying drivers:
- the huge bill facing Associations to comply with the new building safety agenda may in itself be the driver for raising capital from asset disposals;
- the net zero carbon challenge may see Associations dispose of void stock out of sector where homes are too difficult or expensive to adapt; and
- tenure-based disposals – Associations will often look at disposing of particular tenures as opposed to geographical areas either due to a withdrawal from certain tenures or seeking to take advantage of high premiums for other tenures
The challenges involved with rationalisations will vary from Association to Association. A disposal of homes is a sale of part of an Association’s business and the issues to be addressed will depend on the nature of the stock and business being sold. However, common themes emerge:
Almost every department of the Association will be affected to some degree or another. Associations will need to engage with all internal stakeholders including:
- Housing management with its specific knowledge of the homes and residents;
- Finance, particularly rents, arrears, grants legal charges:
- IT and the transfer of data;
- HR, where affected staff and contractors transfer to the incoming landlord; and
- Development where evidence of construction in accordance with planning will be required.
And then there is the need to comply with the regulatory standards of the Regulator for Social Housing. The Tenant Involvement and Empowerment Standard looms large, with a requirement to consult with tenants on any proposed change of landlord or significant change in their management arrangements.
There are 1,600 housing associations in the sector and the trend for mergers between Associations is set to continue. We believe that further footprint rationalisations, allied with new drivers to raise coffers for building safety and decarbonisation, will continue to drive activity in disposals of affordable housing.
Whatever the drivers for stock rationalisation it appears the appetite for stock rationalisation and swaps will remain buoyant for the foreseeable future.