Here we go again – another ‘crisis’ in the housing association sector and the ‘solution’ is mergers and bigger housing associations.

Of course, in some cases there may be associations who are unable to remain independent (for instance, because of the rent cuts announced in the July budget) but the general assumption seems to be that fewer, bigger housing associations must be good for the sector. Is this true? And what is the case against mergers?

One can see why any regulator would be in favour of having to regulate fewer organisations and why government (national and local) is sometimes bemused and even irritated by the number of housing associations around. But, in other sectors, for instance banking or housebuilding, the lack of alternatives to the few big players is seen as a problem.

There seems to be little, if any, evidence that bigger housing associations perform better than smaller associations – just as bigger companies don’t necessarily perform better than smaller companies. Comparisons of housing association operational and financial performance show nothing conclusive. Obviously the bigger associations have bigger balance sheets but that does not mean they have proportionally more spare capacity, better gearing or higher interest cover ratios. Nor does it mean that they are better at managing their homes, collecting the rent and letting their empty properties.

When mergers are announced or proposed there are invariably promises of economies of scale but evidence that these economies are subsequently achieved is scarce. And the claim that bigger associations can negotiate better borrowing terms is not borne out by comparisons of the average cost of funds shown in housing association annual accounts.

So what is the case for retaining more, smaller housing associations and questioning the creation of more mega-associations? Here are some arguments:

Risk – it is not good risk management to put ‘all your eggs in one basket’. The impact of one 100,000 unit housing association going ‘belly – up’ would be substantial for the sector compared with the impact of a smaller association failing. An association of 100,000 homes would be much more difficult to ‘rescue’.

Monopoly – a sector made up of a few big associations would be much more able to dictate terms to government, would be able to decide when and where to enter and exit the market and would be more inclined to operate in its own rather than the national interest.

Innovation and Entrepreneurial Drive - smaller associations are likely to be more agile and responsive. They are more ‘hungry’ to succeed and to develop new, innovative services. They are where our next generation of leaders can get experience of running an organisation. Bigger associations tend to be led by older, risk averse people who have acquired all the corporate trappings and are reluctant to relinquish them. Arguably, the sector would benefit from some ‘pop –up’ or ‘boutique’ housing associations challenging the established players….and, by the way, shouldn’t this approach appeal to a Conservative Government?

Governance – the bigger associations are often saddled with complex governance arrangements (frequently arising from various past mergers) and have Boards and senior management that are distant from the communities they serve. Small local associations can have simple governance with Board members from and in touch with the local community and with their ‘customers’. Decision can be made quickly without having to go through multiple management layers. Relationships with local stakeholders are likely to be stronger and more developed.

Overall, however, what is most important is that the debate about the future size and diversity of housing associations focuses on what is best for the sector and the national interest, what is best for our residents and service users and what is best for those who need or will need affordable housing. Mergers may be the best way forward for certain housing associations and there have been many successful mergers in the past (after all, how did we get Hightown Praetorian and Churches housing association!).

But, where there is no pressing financial imperative for merger, my plea to housing association Boards contemplating such a move is that they properly consider the case for and against and do not let the debate be dominated by those who stand to gain from the merger (consultants, accountants, lawyers, senior executives etc.) or by the lazy assumption that big is always better.


David Bogle

Chief Executive

David has been Chief Executive of Hightown Housing Association for over 20 years. During this time the annual turnover of the Association has grown from £2.5 million to £60 million. Before coming to Hightown he worked at Anchor Housing Association for 17 years. He has a B.A. degree from King’s College, London and is a Fellow of the Chartered Institute of Housing.