Merger code could help small providers show their worth

For many smaller housing associations, the Merger Code is too prescriptive but as the pressure mounts to build more homes, Boards could use it to their advantage.

The last 12 months has seen unprecedented change in the social housing sector. In addition to the implications of last year’s summer Budget, the VRTB settlement and ONS reclassification, the government has shone the spotlight on housing associations for not using their public subsidy to build new homes.

Already we are seeing an increase in mega-merger activity, with big registered providers, potentially becoming ‘too big to fail’ providers. A trend which surely wasn’t on the mind of government when it set out its housing agenda. At the other end of the spectrum, there are housing associations which are reluctant to sign up to the Merger Code as they are simply too small to deliver a development programme.

Brexit negotiations may give some housing associations more time to adjust, but housing policy will not be determined by the UK’s relationship with the European Union. There’s a strong possibility that our new Housing Minister and Chancellor of the Exchequer will continue to monitor how many new homes housing associations are building. And if there’s not been enough progress, we could see new legislation that forces them to increase development capacity regardless of their size.

With unpredictable and challenging times ahead, it is vital that Boards show confidence and leadership. Faced with increasing pressure to merge, they must build a strong case that supports their future decisions.

This is where the Merger Code could prove a useful tool. Some may see it as a square ‘private sector’ peg for a round ‘not for profit’ hole, but if every Board was to use the Code to state its appetite for merging, it could offer a transparent way to justify their future existence, whether that be as an independent, or part of a larger group.

Those that are resistant to merging, should develop a unique selling point (USP) as part of the Code such as a business model, specialist client group or geographical anchor. This should be put in writing and supported with evidence, so Boards will need to integrate the Code with their wider corporate plan. Not only will this provide a shop window for other operators and stakeholders to understand their ‘reason for being’ but could also lead to new opportunities, such as joint ventures with others that recognise the benefits of working with niche specialists.

A USP won’t replace the need for a housebuilding strategy or help housing associations avoid merger discussions entirely, especially if another provider is doing something very similar. But it does provide a powerful way of supporting a housing association’s position not to merge. In 10 years time, that means we could still see registered providers with as little as 100 homes continue to operate because they’ve developed a product that they remain best placed to manage.

With so much uncertainty in the market, one thing that’s clear is that we need a sector that’s rich in diversity to meet the different needs of our local communities. A willingness to address the unique strengths of our smaller housing associations should be welcomed to achieve this. And granted, this approach may result in fewer mergers, but at least this will be through a process of mutual understanding, rather than the stick of government.

For further information, please contact company secretarial consultant, Martin Lewis.

This blog first appeared on on 4 August 2016

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