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Housing Association Case Study of ERM in a Changing Marketplace


Managing Director of Hargreaves Risk and Strategy

This case has two main aims. The first is to help develop an understanding of the importance of enterprise risk management (ERM) in a charitable context, and show that modern charities are often very active organizations that face significant risks. Second, the case aims to illustrate the need for a close relationship between risk assessment and strategy development, particularly in sectors where objectives are defined in social as well as in economic terms. This case features four real-life charitable housing associations in England and Wales, each with a different strategy and risk environment. Simple yet practical tools to assist in risk identification and prioritization are also presented.


The UK housing market is going through a difficult period. The number of households is expanding by 250,000 per year, but the rate of house building is only half of what it needs to be. There is a tradition of home ownership, but the banking sector has recently not been able (or willing?) to fund further growth, and home ownership has fallen to its lowest level for two decades. Young working people who would previously have taken out a mortgage and bought their houses are now turning to renting. There is an urgent need to provide ordinary working people with good quality homes; the private rental market provides homes of mainly low quality, and market rents are increasing to unaffordable levels.

About one-fifth of the United Kingdom's housing is owned by housing associations, independent charities that until recently have specialized in so-called social housing (i.e., rental accommodation for the United Kingdom's poorest people). The quality of this housing has been significantly improved over the past few years to meet the United Kingdom's Decent Homes Standard.[1] There are about 2,000 associations, of which 250 own more than 1,000 homes each. Currently, their tenants are mainly nominated by local authorities using prioritized waiting lists. Their rents are set at about 40 percent of market rent, and quite a high proportion of these rents are paid from welfare payments. However, £10 billion worth of welfare cuts are now being implemented, with a further £10 billion still in the pipeline. This, together with a stagnant economy, means that housing associations' tenant communities are now under significant financial stress. In the past year the associations have built a total of about 40,000 houses, mostly for rental, largely using finance from the bond market, to the tune of over £3 billion.

The building of new social housing stock has historically been subsidized by government capital grants, but these have now been reduced both in number and in value, and a typical grant (with strings attached) now covers only about 15 percent of the building cost. Now only about 40 percent of the housing associations' house building is utilizing the small grant subsidies available under the government's Affordable Homes program, to be let at rents between 60 percent and 80 percent of market rent.

In recent years, housing associations have been expanding into new product areas, including:

• Building houses for sale

• Low-cost home ownership (the association owns part of a house, on which the tenant/owner pays a low rent, and the tenant/owner owns the rest, which is financed by a mortgage; the tenant/owner progressively buys his or her share from the association, and repays the mortgage, usually over a period of 25 years)

• Market renting

• Intermediate market renting, where rent levels are set somewhere between social and market rents, for keyworker tenants such as nurses, teachers, and police officers

• Services for elderly people, such as old persons' homes and visiting support services

• Nursing homes and student accommodations

• Providing services, such as building maintenance and servicing tenant repair requests, on a contract basis for other associations

  • [1] The Decent Homes Standard is a technical standard for public housing introduced by the United Kingdom government in April 2002. It underpinned the Decent Homes Programme brought in by the Labour party, which aimed to provide a minimum standard of housing conditions for all those who are housed in the public sector (i.e., council housing and housing associations). The content of the standard is described in the House of Commons Library Research Paper 03/65 "Delivering the Decent Homes Standard: Social Landlords' Opinions and Progress."
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