In the early 1990s social and healthcare was 'revolutionised' following the publication of the Griffiths Report. In its wake, legislation introduced the complexities of market place into health and social care operations - extending activities into the internal workings of Health and Local Authority. It introduced the purchaser /provider split.
At the time, I was working as a service manager in the public sector with strong working ties with both Health and Social services. As a witness to proceedings I saw first-hand how the money was sucked out of front-line services. New well equipped and expensively appointed headquarters were commissioned, each with the seemingly unending appointment of additional tiers of managers. And it was with howling frustration that I learnt how the West Yorkshire Ambulance team had appointed a marketing team. Did, what I would consider an easy sell, really need brand awareness, brochures and posters? And if so, was an entire marketing team required to deliver it?
As months and years passed so did successive reorganisations and restructurings. Each time, the resources that our society had set aside for healthcare were eroded as both people and the treatments they needed were excluded based on "eligibility criteria". Targets were adjusted so that no one noticed how we were getting fewer front-line services for our money. The complexity of the system began to hide the problem and undermine the core of what it was originally created to do.
The same is now the case with social housing stock. Housing providers, led by Large Scale Voluntary Transfers, have for some time now been using complex financial models to fund their housing. Generally it has worked well and seen the birth of some rather imaginative solutions. However, £9billion worth of essential housing stock is now funded by some rather more sophisticated models such as "swaps" and "stand alone swaps". I am no housing finance novice but even I can't explain how they work. And that worries me.
As the biggest social housing provider in the Netherlands faces break-up over a €2.5billion margin call, the UK's social housing press has raised concerns over how "exposure" for associations using this model has reached £1.3billion over here.
I am not equipped with the full picture, but at least one UK housing association faces a £170million margin call. With an incredible sense of familiarity and sadness, I hear the money being sucked out of housing just when we need it most.
My intention is not to criticise for the sake of it. The implementation of the internal market for NHS and Local authorities, and the adoption of financial models by housing providers were attempts to change already existing institutions. Consequently, in each case, they were well thought-out and considered. Unfortunately it is often more complicated, costly and less successful to change something instead of starting from the beginning and inventing something new and better without having to make compromises. Such innovation could be delivered with a fixed financial envelope that cost comes in the way of reductions in direct service provision.
So as we, SAF Housing, prepare to launch our Real Estate Investment Trust with the opportunity to start from scratch, it is vital that we build a structure that is sustainable. It must be one that funnels resources towards housing rather into an elaborate labyrinth of sophisticated financial models and management arrangements. Managing a REIT takes specialist skills and is best kept at an arm's length from the direct provision of housing. Its role in supporting social housing is simply too important to be exposed to "imaginative investment strategies".
The relationship between the REIT's investors and the housing provider must be carefully balanced to ensure the needs of each are properly met. The objective is to produce an investment backed housing provision - this can only be developed if investors exchange big upside gains for the certainty that comes from well-managed and maintained property. This is the province of Housing Associations and for this method of housing funding to work, we need them to focus on that job.
On the part of the REITs the risks have to be objectivity assessed to achieve sustainability and affordability. And yes, there is a need for scale if the management costs are to be kept to a minimum. So we are going to see the rise of aggregator REITs like ours: trusts that work across several housing providers to achieve economy of scale. In fact we have already offered to support other social housing REITs once our blueprint has proved successful.
The point I want to make is that if we have learned anything from the past it should be to Keep It Simple. Let the housing providers focus on the good governance of housing and their relationship with tenants by keeping the financial risks and drain on infrastructure isolated elsewhere. Investors can then yet again put their money into bricks and mortar.
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