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Housing and Community Safety Select Committee Review of Registered Social Landlords Housing Association Sector Restructuring The Housing Corporation Centre for Research and Market Intelligence has produced a study of the recent changes in the Housing Association sector, entitled ‘Sector Study 61: Sector Restructuring’. The following is a summary of the document. The key findings of the research include: Combined with the impact of new developments and the influx of new stock transfer landlords, internal restructuring 2002-07 has resulted in a 50% increase in typical housing association size (from 800 to 1200 dwellings), although the proportion of stock owned by the largest 20 associations increased by only 26-29% in same period. Sector restructuring appears to have entered a new phase in recent years with a growing emphasis on group consolidation (eg. streamlining of structures to reduce costs and/or enhance efficiency) as opposed to group establishment. Thanks to group consolidations and to 27 ‘super group’ transactions (two or more separate groups entering into a collaboration), the overall number of groups existent in 2007 was slightly reduced on the 2002 number. The Housing Association sector has grown from 475,000 dwellings in 1986 to 942000 in 1996, and 1,850,000 in 2006. Stock transfer from local authorities has accounted for a large proportion of this. Alongside these, the existing sector has been subject to substantial re-structuring activity which has largely involved the agglomeration of previously autonomous organisations, including the rise of ‘supergroups’ with ownership portfolios exceeding those of all but a handful of local authorities. The past decade has seen the emergence of group structures; this is where identifiable HAs ally with one another in ‘parent and registered subsidiary’ relationships. Not all group structures involve more than one landlord, but for those that do, there is often some functional integration between group members. A group parent body may provide subsidiary HAs with human resource, finance, or development services. Most constitutional changes require the approval of the Housing Corporation, apart from where internal group structures are established that don’t include the establishment of new social landlord subsidiaries. For example, an RSL may create subsidiary bodies to undertake care home management or social enterprises. The Research paper only covers the type of changes which require Housing Corporation approval; of these, there were 329 ‘change transactions’ between 2002 and 2007. The majority of these involved landlord agglomeration (where two or more HAs join to make a larger group), with the remainder mostly group consolidation, or internal group set-ups. The three main types of group have been identified as follows: Original groups – one stock owning group member linked with subsidiary organisations tasked with non-landlord functions eg construction; 1 Mixed groups – a stock-holding housing association parent and one or more stock owning HAs amongst the group subsidiaries; Umbrella parent groups – a non-asset owning parent agency with ultimate control over group subsidiaries including at least one stock-owning HA. Out of 150 group formations in 2007, 7 were of the original type, 89 are of ‘mixed’, and 54 have umbrella parents. The ‘umbrella groups’ tend to be very large in terms of stock holdings; half of umbrella parent groups controlled more than 10,000 dwellings. Recent changes in the sector have seen an increase in group consolidation, as compared to group establishment. There is also a trend suggesting that all types of restructuring may be slowing (the failure rate of proposals has also been estimated as 30%). During the 2002-07 period, RSLs created by stock transfer, and non-asset holding parent companies, stand out as particularly active in making changes. There is also a higher rate of structural changes amongst the larger organisations. Earlier research has identified some of the reasons as to why associations consider forming groups, and these include having aspirations to: Increase their scale of activity; Spread corporate overheads across larger stock numbers; Access specialist skills and services; Increase influence; Secure more favourable terms from suppliers and funders. The background to these changes includes the trend towards concentrating public funding for social housing towards a reducing number of recipient agencies. Some agglomerations have also taken place due to the need to ‘rescue’ associations with financial and governance problems. Submissions to the Housing Corporation for approval, can be classified under financial efficiency; business/administrative efficiency; positioning for the future; improved service delivery. The Housing Corporation itself has set out criteria that applications would be considered against and these are: evidence of improved services to tenants and others; evidence of significant and measurable efficiency savings; arrangements to monitor outcomes against intended savings; and simple, clear and straightforward governance structures. For those seeking to form a new group (as opposed to mergers, etc), financial efficiencies was seen as a key factor. It was anticipated that these would be achieved through group parent bodies providing corporate, development and financial services to all group members; this could bring tax advantages, reduced management costs, savings from office rationalisation, IT savings etc. Group expansion was seen to be particularly attractive in terms of business/administrative savings. The capacity for larger organisations to provide specialist services of direct benefit to tenants is also often cited. For many associations, admin savings were as important as financial ones, and for the larger groups, financial efficiencies were not particularly significant on their own. Nationally, the stock transfer sub-sector has remained generally identifiable, although there has been a high rate of change activity. By 2007, half of all transfer landlords were operating as group subsidiary bodies. For some this represents a continuation of their original status, though 40% of those set up as independent entities have set up or joined groups. However, the majority of transfer landlords remain totally autonomous, and less than one in eight have ceased to operate as separate entities. 2