Special report: stock concentration increases 10% as housing associations seek efficiencies

For some associations, merger activity appears to be their main engine of growth. Three associations are the product of three or more mergers since 2012: Platform Housing Group, Karbon Homes and Peabody.

Peabody has boosted its stock by more than 66,000 homes by absorbing four associations in the period of the analysis: Gallions Housing Association in 2014 (which took place in January so is included in the March 2014 figures), Family Mosaic Housing three years later, then Town & Country Housing in 2019. Its most recent merger in 2022 with Catalyst Housing has made it the second-largest RP for general needs units, with 74,330 general needs homes dotted across 92 local authorities.

Joanna Lee-Mills, partner and head of social housing development at law firm Shakespeare Martineau, says the analysis shows how the social housing sector has changed.

“Ten years ago, it was characterised by a high degree of geographic concentration, with many registered providers maintaining a substantial portion of their stock within specific local authority areas or regions,” she says. “This approach was driven by a combination of factors, including historical ties, local knowledge and the desire to establish a strong presence within communities.”

Ms Lee-Mills links the shift towards “greater geographical diversification” to efficiency drives and changes in the funding landscape and access to funding, including social housing grant.

With development in the doldrums, RPs are also looking to expand into new territories through new build or acquiring stock from their counterparts, stock rationalisation advisors told us.

Pressure on RPs to invest in existing portfolios has become a new driver for stock sell-offs, says Will Rutter, partner at law firm Winckworth Sherwood. “Demands for reinvestment have come in thick and fast,” he adds. “The building safety legislation has created financial liabilities of hundreds of millions of pounds in the sector and there is also the work to tackle damp and mould, as well as decarbonisation to achieve net zero.”

Lisa McGrath, associate director at Savills’ Affordable Housing Consultancy, says this focus on decarbonisation and decent homes made the stock rationalisation market more “bumpy”. “It is still very active and there are lots of portfolios coming through for sale, but it is a buyers’ market,” Ms McGrath says. “A number of bidders are being slightly more cautious in their pricing because they want to get their own house in order first.”

An analysis of the spread of housing associations’ stock across local authorities and of their sales to each other has also uncovered some notable findings.

The number of RPs with 2,500 or more general needs units operating in a single local authority area has dropped from 36 (20 per cent of the total) in 2013-14 to nine (six per cent) in 2022-23. Over the same period, the number of RPs with general needs homes in 90 or more areas has increased from seven to 12.

Meanwhile, the number of inter-RP sales has jumped. L&Q sold 1,216 homes to its counterparts in 2022-23 compared with just one in 2017-18. The number of sales in the same category by The Riverside Group jumped from 139 to 398 over the same period.

John Lumley, strategic sales director at L&Q, says that the association’s stock rationalisation programme has seen it divest of homes outside its core areas of Greater London and Greater Manchester.

“[This] is the main driver for the increase in the number of homes sold in the past couple of years, and any future consolidation,” he adds. “We always want to provide best value for money and a consistent customer experience for residents, and sometimes this can be better achieved by consolidating where our homes are located. L&Q acquired Trafford Housing Trust in 2019 and collapsed it into its group structure last year.

592

Average number of general needs units held per local authority in England in 2023

71

Number of mergers of housing associations with more than 1,000 units since 2012

29

Number of local authority areas Clarion has divested from entirely

10,000-plus homes

Clarion is again top of the list in the largest band size with 89,552 owned, self-contained general needs units in the 2023 SDR. A year after it formed, Clarion announced a 10-year plan to sell 10,000 homes as part of a stock rationalisation programme. Seven years on, it has reduced stock in 57 local authority areas by almost 5,000 homes and divested entirely from 29.

In 2013-14, Affinity Sutton and Circle Anglia, the two RPs from which Clarion was formed, owned 87,518 homes across 160 local authorities. This equates to 547 general needs units on average per local authority area. In 2022-23, Clarion had concentrated its stock to 597 general needs units on average per local authority area.

A few of the changes were down to local government reorganisation – Corby, Kettering and Wellingborough becoming part of North Northamptonshire where it continued to have stock, for example – but most of the reduction in local authority areas was down to rationalisation.

Our analysis also shows how Clarion and other major RPs have rebalanced their stock across regions over time. Clarion has reduced the stock holdings it inherited in Yorkshire and the Humber and the East Midlands from a collective 2,971 in 2014 (the total held by Affinity Sutton and Circle) to 1,664 in 2023. Over the same period, it has grown its portfolio in higher-cost areas such as Greater London and the East and South East of England from 74,316 pre-merger to 79,220 in 2022-23.

A spokesperson for Clarion says it regularly reviews how to help more people and provide the right homes in the right places. “When we merged in 2016, we decided to focus on the areas where housing affordability was most stretched, but located around areas where we already had significant local presence,” they add. “This allowed us to tighten our operational footprint and grow sustainably. Although we have withdrawn from some areas of the North East, we have grown across the M62 corridor and this remains a significant strategic growth area for us.”

Our analysis shows that Notting Hill Genesis has reduced stock numbers in the South East and the East of England by 484 homes as it boosted its presence in Greater London by 2,545 general needs homes between March 2018 (a month before its merger) and the same month in 2023.

A spokesperson for Notting Hill Genesis says that the stock rationalisation programme it began in 2018 continues. “Transferring these homes, which are further from our core areas of operation to landlords with greater local experience will maintain or improve the services offered to residents, while ensuring those services are more cost-effective,” they say. The association recently consulted with residents and stakeholders in Hertfordshire about its next transfer.

One Manchester has knocked Rochdale Boroughwide Housing (RBH) off last year’s top slot for the RP with the least dispersed housing. Its entire stock of 11,492 general needs homes is in Manchester. In previous years, it had a small number of homes in a second authority. RBH comes a close second with 11,399 homes in a single area. Both organisations were set up following stock transfers, although One Manchester was originally two organisations: Eastlands Homes and City South Manchester Housing Trust.

5,000-9,999 homes

The largest RP in the middle band is still Curo, which owns 9,901 general needs homes across seven local authority areas. According to our analysis, since 2013-14, Curo has shrunk its footprint by one local authority area, Taunton Deane, which later became part of Somerset Council where the association no longer has stock, while growing stock in six other local authorities by 963 homes. The number of homes in Cotswold was stuck at eight over the nine-year period.

A spokesperson for Curo said that the landlord sold all its Cotswold general needs units in March and has “no further stock rationalisations planned”.

“While our general needs homes are spread over eight local authorities, this is not a large area geographically,” they add. Our analysis shows that Curo has 1,414 general needs units on average per local authority area, compared with an average 6,678 for all RPs in the medium-sized group.

2,500-4,999 homes

Witney-based Cottsway is the largest RP in this group, after previous incumbent Selwood moved up to the medium-size band. Cottsway has bucked the overall trend of this group by increasing the concentration of its stock over the nine-year period of the analysis.

In 2013-14, it had 4,079 general needs homes in 10 local authority areas, giving it an average of 408 homes per area on average. Since then, it has sold off stock in Forest of Dean; reduced its footprint by a single authority; and focused growth in West Oxfordshire, Cotswold and Cheltenham. The latest figures show that it has 544 general needs homes on average per local authority, a 33 per cent increase in stock concentration.

This year, small RP Housing Solutions gained 542 homes in Wokingham, Reading, Oxfordshire and Buckinghamshire from One Housing Group (OHG) in a deal that included general needs and supported housing stock. The sale formed part of OHG’s rationalisation programme, agreed as part of its merger with The Riverside Group.

As in previous years’ reports, for-profit providers have by far the most dispersed stock of all RPs in the analysis. The average number of general needs units per local authority at Sage Rented and Sage Housing in 2022-23 were 34 and 36 respectively. Sage Housing said its strategy since its inception in 2017 was to “provide affordable homes at scale to help tackle the country’s chronic shortage of quality, affordable, energy-efficient homes”. This strategy, which has seen the for-profit build a property portfolio of 22,500 homes in seven years, would not have been possible if it had focused only on particular regions, it told Social Housing.

Shakespeare Martineau’s Ms Lee-Mills links the relatively high dispersal of stock in for-profits like Sage to their “agile and opportunistic strategy”. “A common model among for-profit registered providers involves actively acquiring housing stock from developers or local authorities, often through bulk purchases,” Ms Lee-Mills adds. “These properties are often refurbished, managed, and maintained for a period, during which the provider generates rental income and potential capital appreciation.”

Charles Cleal, director – affordable housing at JLL, says smaller RPs’ stock would thin as they had to spread into different areas to expand. “Smaller RPs, covering a small area, can grow by taking on Section 106 developments or buying up portfolios of homes from other RPs within their region,” he adds. “But that can take quite a while if they are operating within a single local authority as opportunities may be scarce.”

Future trends

Rationalisation advisors are predicting continued growth in what some describe as an “evolving” market with more opportunities for smaller RPs to acquire stock amid an expected greater interplay between non-profit and for-profit providers.

Savills’ Ms McGrath says that a recent trend towards smaller stock sales has widened the pool of bidders. “Bigger portfolios were the trend a couple of years ago; now the prime size of lots is between 150 and 250 units, or a maximum of 400,” she adds. “They are big enough for the large RPs to have an interest, but the smaller RPs can afford to throw their hat in the ring, too.”

Looking ahead, Ms Lee-Mills says that non-profit RPs may have new opportunities to expand portfolios by acquiring homes from their for-profit counterparts as the latter seek to “realise their investment returns” in line with their business plans.

And Mr Cleal predicts that the future of rationalisation may be influenced by a broader debate about the best model for RPs from a tenants’ perspective, as well as a value-for-money perspective. “Is it a big national which achieves costs efficiencies through scale, or is it a small locally based RP with 10,000 to 15,000 homes, or a medium-sized regional organisation?”

Click on the button below to download the data tables for ‘Special report: stock dispersal 2023’*

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