Predators on the Starboard Bow?

Posted: 12 March 2012, in Blog

Predators on the starboard bow?

The Sunday Times Business Section recently carried an article about Housing Associations (HAs) being cash starved. The problems are deemed to be declining levels of government subsidy, unavailability of bank funding and the prospect of rising levels of bad debt. This latter point is related to the government’s welfare reforms that will end direct payments of rent to HAs and place the cash in the hands of tenants. This latter move will have negative cash flow implications if tenants are unable or unwilling to pass on their rent timeously.

The article outlines some consequences and potential repercussions of all this. Rents are deemed to have to rise to nearer market rates, HAs will have to take on more debt to fund their activities, sale and leaseback schemes could be mooted and private equity partnerships and insurance company deals may emerge.

HAs have a history of using debt finance so this is not entirely new. What is new is the scale of what may be required to meet the housing crisis in the UK. The lack of availability of “soft” funding and declining government subsidy means that the gearing of HAs will increase with the “harder” more commercial debt carrying higher risk and greater vulnerability to rate increases. If HAs get this wrong we could be looking at Southern Cross all over again.

I support the efforts of social enterprises to gain access to private capital in principle as this is what is required to get out of the charity mind-set and become scaled up enterprises. However, there are governance and investor costs associated with this. The latter is a non-starter for many folk who do not believe that investors should get any return out of investing in social enterprises.  I regard these folk as principled but short sighted.  We need to generate an ethical investment social norm and culture within the UK investment industry that transforms that relatively small ethical sub-sector into something normal and large scale.

The governance costs are more problematic. The bottom line is that investors would want their say and that carries huge implications for the charitable status of HAs. I do wonder as well what the reaction of local authorities and the myriad range of regulators would be to this sort of thing. Turkeys and Xmas come to mind.

Missing from the Times article was any mention of tenant democracy. Perhaps this is the opportunity for some HAs to consider new CIC and co-op models. 2012 is the International Year of Co-operatives and the co-op sector might be interested in partnerships based on social enterprise principles rather than just bottom line financial returns. Who knows, the Co-op Bank could develop ethical bonds that folk could invest their savings/pensions in and social enterprise leaders could design democratic schemes to keep Gombeen men and carpetbaggers out.

Whatever happens, doing nothing is not an option. Homelessness is only part of the housing crisis in this country. Another challenge is that if HAs are not capitalised to build more subsidised housing, then a rising number of the poor will continue to be corralled into substandard B&B accommodation and decent city centre homes will be a no go area for the lower paid and unemployed.


NOTE: This blog does not necessarily reflect the views of Social Enterprise Scotland or endorse any political position.