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Dr Nicky Morrison Department of Land Economy University of Cambridge

Diversifying into private rental investments: Organisational strategies of English Housing Associations. Dr Nicky Morrison Department of Land Economy University of Cambridge Housing Studies Association conference April 2014. Why are housing associations diversifying into PRS?.

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Dr Nicky Morrison Department of Land Economy University of Cambridge

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  1. Diversifying into private rental investments: Organisational strategies of English Housing Associations Dr Nicky Morrison Department of Land Economy University of Cambridge Housing Studies Association conference April 2014

  2. Why are housing associations diversifying into PRS? The push factors • Welfare reform & housing benefit cuts • Affordable rent model = less certain rental income/cash flows • Reduced grant funding • Reliance on bank finance less certain – look to capital markets > organisations’ risk profile changing The pull factors • Generate extra surpluses & cross subsidisation “robin-hood” principle • Fill a gap in the housing market – pent-up demand from ‘Generation rent’ • Montague Report (2012) ‘natural complement to existing activities/HAs are potentially key players’ • Government support ‘Get Britain building’ - £1b ‘Build-to-rent’ / PRS taskforce • YET HCA(2014) Regulations - Need assurances social housing assets not put at risk

  3. Housing Associations’ diversification into PRS Source: HCA Statistical data returns

  4. Research Questions • What were HA’s reasons for diversifying into PRS investment? • What is the business model adopted? • What are the key risk exposures and how are they mitigated? • How does HA manage the tension between social and commercial goals?

  5. Conceptual framework:Institutional logics • How organisations reconcile competing logics – commercial and social goals (Mullins 2006, Mullins et al 2012, Morrison 2014) • Organisations face similar institutional pressures but negotiate logics in different ways • How organisations make strategic decisions in relation to business ethos • Organisational archetypes (Gruis 2008, Czischke et al 2002, Nieboer& Gruis 2014)

  6. Research methods • Case study research - to examine organisations’ decisions: why taken/how implemented/what results (Yin 2012) • Purposive sampling • Criteria: - Operating in same market = London chosen - Focus on `prospectors’ – the front-runners • Distinguish between: (Neiboer & Gruis 2014) (i) Societal innovator: enlarge activity and use financial surplus in interest of society - social returns (ii) Societal real-estate investor: focus on achieving real estate portfolio to provide good financial return – take into account social objectives

  7. Organisational strategies

  8. Notting Hill: Societal innovator Canning Town HCA ’Get Britain Building’

  9. Fizzy Living: Real Estate investor Canning Town Epsom Popular Stepney Green

  10. Lessons learnt from ‘front-runners’ • Uncertain cash flows and reduced grants so need to generate own profits • Diversification allows cross subsidisation to core business – yet need assurances social housing assets not at risk • PRS risks versus AH risks are different • Nature extension of business – yet adoption of different business models in relation to organisation’s ethos • Fills a gap in housing market – especially in London where ‘market risk’ is relatively minimal • Need to focus on a defined market segment and strong branding • “cannot be all things to all people” (TVH) • “Fizzy living winning the brand war” (NH) • Manage the tensions – commercial v social goals..

  11. Key risks in HAs sustaining PRS business • Investors’ appetite growing but complex deals YET like HAs’ asset management skills & professional management services - ‘safe pair of hands’ (TVH) • Funds secured against portfolio of completed and income producing PRS (ring fenced) or SH assets – risks & assurances • PRS returns realised versus selling in open market “sales greater returns and quicker in short run so would consider flogging off PRS” (NH) • Acquiring properties off-plan from developers at discounted prices – unlikely now in TODAY’s market • Build to rent: difficult to obtain land in London – escalating land prices/building costs& fierce competition from other organisations • Public sector land owners reluctant to negotiate reduced price for HAs’ PRS – “best consideration rules”

  12. Purposive exploratory sampling framework: a final point.. • To see if fits theoretical model • Choose variations to capture insights of ‘phenomenon’ from different angles • To illustrate how decisions taken & results • If have same problems then likely all will experience these issues – logical generalisations • to help identify cases subsequently select • and guide future research…

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