Natalie Elphicke is a non-executive director of a leading building society and a published policy writer on housing and housing finance with Policy Exchange and the Centre for Policy Studies. She is co-founder and Chairman of Million Homes, Million Lives.
Following our paper, Nation Rent, we are often asked to explain whether social housing can make money. The results of our analysis from the social housing regulatory returns and statements are in our new paper, A Better Deal for Nation Rent. These findings are startling to some: not only do housing associations make money from social housing, they make a lot of money: housing associations have made a tenfold increase in profits since 2009, to nearly £2 billion, and are on track to make profits of £10 billion up to 2018.
Bedazzled by profits
These profits have been driven largely by above-inflation rent increases on some of the least well-off. A more modest profit, say double the amount of the profit made in 2009, could have been equivalent to social tenants paying around £500 less rent than they do today. Profit margins on social housing are heading towards one-third of the amount of rent paid.
Housing associations have been a great success story of the third sector. They house around 2.7 million households; the businesses are strong and well managed. However, the sheer size of these profits at a time when many are finding things hard must call into question whether some associations have been simply bedazzled by the lure of profit. Moreover, some will ask whether the current housing regulatory system is in urgent need of change.
Housing reform
In our new paper, we set out some of the principles which might underpin such a change in regulatory and corporate behaviour: we call it the Million Lives Three Pillars of Social Value. It seeks to put the tenant back at the heart of the decision-making in boards of social landlords and introduces a new framework to measure value for money.
The three pillars are: Business Value, Housing Value and Housing Social Value. Business Value is the value to the national economy and to the local economy. Housing Value is the value to residents, such as affordability, financial stability, quality of life and wellbeing. Housing Social Value is the value to the residential family unit as a whole, including education and training, money management, care and support, work and volunteering. This third pillar is the one which takes account of the ‘family test’ approach, which the Prime Minister announced recently.
The types of questions which this approach raises are: How much are we increasing rents by and for what purpose? Could we afford lower rent rises? Can we make more impact building in location A or location B? How well do we work with health and care teams in the areas in which we operate? Do we prioritise households with school age children and overcrowding to be moved into larger housing near their schools? Do we make some of our recruitment opportunities open to our residents as they return to the workplace after having children?
Resident first approach
We have addressed the worst excesses of the big banks requiring them to put their customers first. A ‘patient first’ approach in hospitals is beginning to take effect. A ‘resident first’ approach for housing associations could result in better outcomes for residents, and better value for money.
In recent times, some housing associations have argued that they use these high rents to do good things – to deliver benefits to tenants, the communities in which they operate and build new social homes. That many housing associations do good things is undoubtedly true: running academies, skills training, drugs rehabilitation programmes and so on. Such housing associations would benefit from this approach as it would more clearly value their achievements and their investment in their residents and communities. Not every housing association is able to afford to do everything it wants to do: some find times much tougher; the sector is diverse in size and in corporate strength.
However, some housing associations are more commercially than socially active and this may not be good for their residents or value for money. In effect, it could be argued that they are using profits from social tenants to subsidise their wider commercial activities. But is it right to drive up the rents of social tenants to compete with commercial housebuilders, particularly as the regulatory reports show that £2.4 billion has been spent on diversified (commercial) activities producing lower profit margins than from social housing? And if it is the right decision, are housing associations accountable to tenants for it – do tenants know that they could be paying less in rent?
Transparency
Transparency in spending to service users, for example in council tax and national tax statements, improves accountability to those who are being charged. Could better transparency help improve accountability to residents? For example, should housing associations be required to demonstrate a business plan which balances the books with a modest profit, and ask tenants for consent if they want to embark on other activities driven by rent increases? Is the traditional model for housing associations in need of more fundamental change?
In Nation Rent, we set out what fundamental change could look like. An alternative housing approach which funds long term social housing without taxpayer grant subsidy and which caters for a full range of housing needs and wants over time. The application of the social value approach of A Better Deal for Nation Rent runs alongside that financial model to help to shape decisions about where to build and invest in property, and to measure value and investment in people and communities.
Natalie Elphicke is a non-executive director of a leading building society and a published policy writer on housing and housing finance with Policy Exchange and the Centre for Policy Studies. She is co-founder and Chairman of Million Homes, Million Lives.
Following our paper, Nation Rent, we are often asked to explain whether social housing can make money. The results of our analysis from the social housing regulatory returns and statements are in our new paper, A Better Deal for Nation Rent. These findings are startling to some: not only do housing associations make money from social housing, they make a lot of money: housing associations have made a tenfold increase in profits since 2009, to nearly £2 billion, and are on track to make profits of £10 billion up to 2018.
Bedazzled by profits
These profits have been driven largely by above-inflation rent increases on some of the least well-off. A more modest profit, say double the amount of the profit made in 2009, could have been equivalent to social tenants paying around £500 less rent than they do today. Profit margins on social housing are heading towards one-third of the amount of rent paid.
Housing associations have been a great success story of the third sector. They house around 2.7 million households; the businesses are strong and well managed. However, the sheer size of these profits at a time when many are finding things hard must call into question whether some associations have been simply bedazzled by the lure of profit. Moreover, some will ask whether the current housing regulatory system is in urgent need of change.
Housing reform
In our new paper, we set out some of the principles which might underpin such a change in regulatory and corporate behaviour: we call it the Million Lives Three Pillars of Social Value. It seeks to put the tenant back at the heart of the decision-making in boards of social landlords and introduces a new framework to measure value for money.
The three pillars are: Business Value, Housing Value and Housing Social Value. Business Value is the value to the national economy and to the local economy. Housing Value is the value to residents, such as affordability, financial stability, quality of life and wellbeing. Housing Social Value is the value to the residential family unit as a whole, including education and training, money management, care and support, work and volunteering. This third pillar is the one which takes account of the ‘family test’ approach, which the Prime Minister announced recently.
The types of questions which this approach raises are: How much are we increasing rents by and for what purpose? Could we afford lower rent rises? Can we make more impact building in location A or location B? How well do we work with health and care teams in the areas in which we operate? Do we prioritise households with school age children and overcrowding to be moved into larger housing near their schools? Do we make some of our recruitment opportunities open to our residents as they return to the workplace after having children?
Resident first approach
We have addressed the worst excesses of the big banks requiring them to put their customers first. A ‘patient first’ approach in hospitals is beginning to take effect. A ‘resident first’ approach for housing associations could result in better outcomes for residents, and better value for money.
In recent times, some housing associations have argued that they use these high rents to do good things – to deliver benefits to tenants, the communities in which they operate and build new social homes. That many housing associations do good things is undoubtedly true: running academies, skills training, drugs rehabilitation programmes and so on. Such housing associations would benefit from this approach as it would more clearly value their achievements and their investment in their residents and communities. Not every housing association is able to afford to do everything it wants to do: some find times much tougher; the sector is diverse in size and in corporate strength.
However, some housing associations are more commercially than socially active and this may not be good for their residents or value for money. In effect, it could be argued that they are using profits from social tenants to subsidise their wider commercial activities. But is it right to drive up the rents of social tenants to compete with commercial housebuilders, particularly as the regulatory reports show that £2.4 billion has been spent on diversified (commercial) activities producing lower profit margins than from social housing? And if it is the right decision, are housing associations accountable to tenants for it – do tenants know that they could be paying less in rent?
Transparency
Transparency in spending to service users, for example in council tax and national tax statements, improves accountability to those who are being charged. Could better transparency help improve accountability to residents? For example, should housing associations be required to demonstrate a business plan which balances the books with a modest profit, and ask tenants for consent if they want to embark on other activities driven by rent increases? Is the traditional model for housing associations in need of more fundamental change?
In Nation Rent, we set out what fundamental change could look like. An alternative housing approach which funds long term social housing without taxpayer grant subsidy and which caters for a full range of housing needs and wants over time. The application of the social value approach of A Better Deal for Nation Rent runs alongside that financial model to help to shape decisions about where to build and invest in property, and to measure value and investment in people and communities.