How can smaller providers of social housing grow in the sector?

There are currently 1,758 registered providers of social housing in the UK but the lion’s share of housing stock is owned by the top 20%. The smallest providers, those with portfolios of less than 1500 properties account for less than 10% of total housing stock. At a time when “mega-mergers” are in vogue, and in a sector seemingly dominated by the “big guy” we look at what challenges smaller providers face and what steps they can take to help them expand and excel.

The challenges facing smaller providers, as you’d expect, are products of their size.

• A reduced build capacity
• Smaller workforces
• A reduced ability to absorb risk
• Less attractive lending rates

This, however, doesn’t mean they don’t want to grow. Admittedly they’re not going to be able to deliver 400 units a year like some of the largest providers but they can definitely play their part when it comes to housing supply. For example, Arawak Walton, a Manchester based provider has just over 1000 homes but in the last 15 years has almost doubled their portfolio. A study by The Joseph Rowntree Foundation conducted in 2014 found that the average small provider can expect to grow by 5% a year but given the potential stumbling blocks this might not come easy.

It is important, however, to also acknowledge the fact that “small providers” is a very generic term which covers many organisations, who just like their lager counterparts, have their own strategic directions and ideals. Yet, the difference is they’re likely to be much more apparent and represented in smaller organisations many of whom choose to specialise their services to reflect the needs of their communities. In turn, this can affect their desire for and approach to growth.

Organisational capacity

Finding and retaining staff with the right skills, experience and expertise to properly utilise the available capital and drive the organisation forward can be difficult. Falling short in this respect can leave some providers with unexploited capacity. Having the right team, or in some cases even just the right person with the necessary skills (and in finance development) can be the difference between providers. It can provide better assurances in the consideration of risk, the understanding of processes and the implementation of a credible strategic direction. For providers who do not have the capacity to retain these skills in-house, the ability to build and maintain good working relations with larger associations who do, can be very beneficial.

Understanding risk

Perhaps the biggest stumbling block which comes from organisational incapacity is risk, both the understanding of and appetite for it. The impacts of a project going wrong can be much harder felt by smaller providers and can have a greater impact on their long term prospects which understandably reduce a board’s enthusiasm for such ventures. With a reduced ability to accommodate unexpected costs, the possible exposure to the consequences of a loan breach, seem greater. Being clear and realistic about what can actually be resourced and delivered then becomes essential as well as ensuring the right people with the right skills are in place to complement this.

Playing to your strengths

Many smaller providers often focus on a particular area or servicing a specific need and they can use this to their advantage. From this they would be expected to have a good network of local/relevant contacts which can be utilised to both create savings and ensure the services provided are those which are best suited to the needs of their customers. A strong community ethos is often times repaid in the form of volunteering and such a culture can be very beneficial. Staff who are willing to work on this basis can provide essential support by undertaking the “leg work” as the organisation begins to develop and expand their reach. The ability to operate with these personal local relationships is a resource larger providers find it harder to access.

Working with other small providers

Aligning with organisations with a similar strategic direction can be an effective way of competing with larger providers and gaining access to development grants and attractive lending rates. Skills, knowledge, contacts and human resource can all then be shared amongst the organisations. This could be furthered by the procuring/organising of joint training ventures in which risk, development and finance can all be addressed.

Diversification

Traditionally, you’d expect housing associations to focus on affordable housing for those on low incomes, the elderly or the disabled. Yet, more and more we’re seeing associations expand into the private rental market. The reason for this is two-fold. Firstly, charging rents at the market rate to private clients allows them to offset the financial risk of the obligations placed upon them by changing legislation such as rent cuts. Secondly it can be used as a means to raise funds to bankroll their affordable, more socially conscious endeavours, at a time when the grants available may not meet their requirements. Obviously the scale on which smaller providers could achieve this would be determined by their organisational capacity and their appetite for risk but could certainly grow in conjunction with the latter.