Managing housing association risk

  • With decreased government funding, housing associations are turning to commercial activities to fill the revenue void – but this is creating new risks
  • Many housing associations are moving into areas that they are not necessarily familiar with, or experts on
  • Zurich Municipal has a wealth of experience and expertise in dealing with housing association risk management, both operational and strategic

The importance of risk management has never been greater for housing associations.

As government funding for affordable housing decreases, some social landlords have diversified into wider, and often more commercial, activities – such as building homes for outright sale or student rentals – to fund housing developments.

Whilst, nowadays many housing associations offer some form of social care, a selection of associations have taken diversification one step further by branching out into a more diverse array of activities, such as pest control, glass making and even beauty therapy.

With all these additional revenue streams, it is becoming increasingly important for housing associations to review the way they operate, and the services they provide, in order to evaluate key business risks.

“Housing associations may be looking to find ways of generating new revenue streams,” says Steve Hayward, Social Housing, Risk and Insurance Consultant at Zurich Municipal.

“But that brings with it risk; moving into areas they are not familiar with, or experts on. There may also be potential supply chains to contend with – partners or suppliers helping them with the delivery of new services – bringing in supply chain risk as well.”

Welfare reform pressures

As a certain number of social housing tenants will rely heavily on state benefits, pressures arising from welfare reform – such as the controversial ‘bedroom tax’ – are also impacting on receipts for housing associations.

A recent report from the National Housing Federation (NHF) reveals that housing associations say that 64% of tenants in arrears are in that situation because of failing to pay the bedroom tax.

There is also the roll-out of Universal Credit, which promises to be the biggest change to the welfare system in a generation. It sees a number of benefits, including housing benefit, merged into one payment made direct to households, rather than directly to a landlord.

The NHF report showed that 98% of housing associations are concerned about their tenants’ capability to cope with monthly budgeting when using Universal Credit.

“The core business model for housing associations is predicated on collecting rent, which allows them to reinvest in their existing properties, develop new homes, and provide capital for other services and ventures,” says Steve. “If the rent collection process is strained in any way, their whole business model comes under threat.”

Adapting to survive

In short, the challenges faced by housing associations have never been more intense.

Housing associations may be looking to find ways of generating new revenue streams.

Steve Hayward, Social Housing, Risk and Insurance Consultant at Zurich Municipal

This has led to housing associations turning to new commercial enterprises to survive, and, ultimately, prosper. A Baker Tilly study from 2013 found that 77% of housing associations were actively seeking commercial opportunities.

“Housing associations will have a risk-management framework that will be suitable for managing a traditional housing association, including the compounded risk of market rent and competition,” says Steve. “But if they dip into other areas that they are not necessarily experts in; are they fully aware of all the risks that could bring?

“Also, they face the potential risk that if they diversify too much, their focus will be drawn away from their core business.”

Uncharted territory

High-profile failures, such as Cosmopolitan Housing Group, which fell into serious financial difficulties after an ambitious move into student accommodation backfired, show that commercial moves can be fraught with danger.

“Housing associations are on the front line,” says Steve. They are still under scrutiny from the regulator, the media and customers – their tenants – both in terms of reputational risk and failure to deliver a service. Any failures in these areas, perceived or otherwise, or governance failures, can be incredibly damaging and resource hungry.

“On the flip side, if housing associations, like any business, don’t take any risks they may stagnate and struggle to survive in the long term. The housing associations that will thrive are those that seek new opportunities, but carefully consider the nature and extent of the risks that they are willing to take to achieve their strategic objectives.

“Once identified, these risks can be properly managed through a strong risk management framework. The board and senior management team must understand and assess how each risk will impact on the broader organisation – compound risk”

Zurich Municipal has a wealth of experience in dealing with housing association risk management, both operational and strategic – ensuring that customers have the right risk management frameworks, cultures and approaches in place to help guide them through new projects and opportunities.