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Housing associations are investing their profits back into providing homes and services. Gill Payne argues that this is something to be proud of.

Gill Payne, Director of Policy and External Affairs

28 August 2014

There has been a lot of talk recently about housing associations becoming more commercial. But critics who have lambasted housing associations for their surpluses have missed the point. The fact of the matter is housing associations are social enterprises that create profit for purpose.

It is true that housing associations have become more profitable but these profits are invested back into providing homes and services for people on low-incomes.

When you look at the financial performance of a sector as a whole, youre going to miss the individual stories that paint the picture of whats really going on. So it is with housing associations — the most successful example of private partnership with Government in history.

There are over 1,000 social enterprises across England, each with a distinct mission and values but united by their core purpose of providing affordable homes to those who are unable to meet their need on the open market. And at a time when 250,000 new homes are needed each year, they are organisations that understand the need to shape their plans so they can continue to be the main builders of affordable housing across the country, while supporting their existing residents to meet their life aspirations.

So what is it that enables housing associations to build new homes for rent and affordable home ownership, while at the same time investing in helping their residents develop new skills, find work or start new businesses? Its their ongoing ability to make sustainable profits. Not profits distributed to shareholders but profits for purpose. That means every penny is re-invested in meeting their social values and continuing to deliver their mission.

Like every business in the country, the financial crisis meant housing associations had to re-examine how they operated. A 63% cut in funding for new homes, threats to income through changes in the welfare system and, as a result, the need to borrow more from investors at a time when the banks are crippled (5.6bn in 2012/13 alone) to keep building new homes. Repaying that debt means making surpluses and driving efficiency through the business.

Its easy to look at increasing surpluses and claim that, if they had been capped, existing residents could have benefitted. The reality is that would have meant a collapse in investment in new homes at a time when the economy was in crisis and housing need greater than ever. A roll-back from the improvement and refurbishment of existing stock. That doesnt benefit existing residents and communities, it damages them.

Successive governments have been well aware of the delicate balancing act that housing associations consider every day between affordability and protection for existing residents and the need to maximise the number of new homes. Thats why they set the parameters for housing association rent increases, limiting the increases allowed to be imposed and a system of indicative rents that housing associations should charge. That system could and should be more flexible, allowing housing associations freedom over the rents they charge. That would give them greater control over their business, ensure resources are properly targeted and allow them to be more responsive to local markets and circumstances. That would likely mean different rents for different people with different incomes in different parts of the country.

Housing associations are a success story. Sustainable profits, all of which are reinvested for the purpose of building new and improving the energy efficiency of existing homes, investing in employment and training programmes for their residents and delivering specialist care and support services are part of that success story. Profit for purpose enables the creation of social value. That is something to be celebrated.