Tenants using the Right to Transfer have many decisions to make, but perhaps none is more important than who the landlord will be. In essence it is a choice between setting up a new stand alone landlord of their own, or joining an existing housing association. Both have pros and cons, tenants in Bushbury Hill have made their decision and in this post I examine the reasons behind this.
Tenants vote to pursue transfer and look for a partner housing association
Council tenants in Bushbury Hill EMB have decided to press on with the Right to Transfer and choose a new landlord. On 13th February 2014 an Extra Ordinary General meeting voted by a very large margin – 40 in favour, 7 against – to pursue the Right to Transfer and look for a partnership with an existing housing association. Tenants are now being advised about this decision and have their opportunity to give their views.
Unless there is a groundswell of opposition to the democratic decision taken by the mass membership then Bushbury Hill will produce and send a Feasibility Statement to the Council. This is the final part of the Feasibility stage of the Right to Transfer.
Governance and tenant control
It may seem counter intuitive for a tenant led organisation to pursue transfer in conjunction with an existing housing association, but there are clear benefits. If Bushbury Hill EMB were to become a landlord in its own right, this would actually be the most disruptive option. At present the board is 100% tenants, this gives tenants maximum control of their EMB. A housing association board would have to contain independents and quite possibly council nominees as well. Even with a tenant majority, there would be fewer places available for tenants to become board members.
No less control than now
Tenant empowerment will be maintained by entering into a partnership with the new landlord on the basis that Bushbury Hill EMB continues to manage the estate and provide services to tenants with a high degree of local autonomy. In fact this is a pre-requisite for any agreement. The Board will only agree to a deal that delivers the same or greater local autonomy than they enjoy now.
The EMB is used to having working with a landlord who retains some responsibilities and has a measure of control. At present the Council decides issues such as the tenancy agreement, tenure, rent increases and overarching allocations policy and Bushbury Hill has worked within this framework for nearly 16 years. The Council is also responsible to the regulator. There is no reason why a similar relationship cannot work equally well with a different landlord.
One of the key reasons to look for a partnership rather than going it alone is to manage financial risk. There are many very successful small housing associations but size is not a key factor in the Bushbury Hill decision. The factors which increase perceived financial risk for Bushbury Hill are:
- Lack of geographic diversity – all the homes are in one estate
- Lack of stock diversity – the estate is virtually all 2/3 bed houses
- Majority of the stock “designated defective” Boswell houses
- Relatively high levels of borrowing in the early years to fund the purchase and deliver business plan
- Being a new organisation with no borrowing track record
- Having a tenant majority board (unfair but tenants face such prejudice)
- Higher overheads/lack of economies of scale
As part of a larger organisation there is more capacity to spread risk across the whole organisation. We would also expect a larger landlord to have more capacity to absorb financial shocks (cases such as Cosmopolitan Housing Group are notable for their rarity).
Consequences in a worst case scenario
If Bushbury Hill EMB was standalone and got into serious financial or governance difficulties, then they would be forced to look at a merger or potentially the HCA would step in and take measures such as replacing the board or ultimately have another landlord take over. In such a situation, tenants would no longer be in a position to negotiate an advantageous deal. It would be highly likely that tenant management would not survive in such circumstances.
On balance it makes sense for tenants to make the best possible deal up front whilst able to choose the landlord and in the best position to reach a mutually beneficial arrangement that enshrines tenant control.
Lack of interest
The cost of borrowing is directly linked to the perceived risk and if Bushbury Hill were to stand alone, lenders would take into account all the risk factors listed above and price them into their lending. This would inevitably mean that more of tenants rent money would have to be committed to repay the debt and nothing is less productive (for the borrower) than money spent on interest.
Choosing the right partner should give comfort to lenders and lead to lower borrowing costs. Over 30 years this will save significant amounts, allowing more money to be spent on tenants and get the debt repaid sooner.
So now to choose
For all of these reasons, the tenants have decided that finding a partner landlord with a complementary ethos and willingness to support tenant management offers the best chance to achieve their long term objectives. It will be interesting to see what is on offer from potential partners.