SHAPINGHOUSINGFUTURES–DISCUSSIONPAPER
BUSINESSDIVERSIFICATIONANDTHEEVOLUTIONOFORGANISATIONALSTRUCTURESINTHENOTFOR-PROFITHOUSINGSECTOR
1.Introduction
AsreportedinNewTimes,NewBusinesses‘move[s]towardsamorebusiness-likeorcommercial
model’havebecomeacommontrendacrossnot-for-profithousingsectorsinAustraliaandCanada
aswellastheUK(Maclennanetal,2013p70).ThegrowinginvolvementofNFPhousingprovidersin
arangeof‘non-traditional’activitieswascharacterisedbytheNTNBreportasamountingto
increasing‘hybridisation’,asorganisationswithquasi-publicsectororiginsbecameincreasingly
engagedindeliveringmarketproductsandservices.Thisalludestothesociologicaldefinitionof
hybridorganisationsasentitiespossessing‘significant’characteristicsofmorethanonesector
(public,privateandthird)(Billis,2010,p3).GrowingbusinessdiversityandhybridityintheNFP
housingworldraiseimportantquestionsforhousingpolicymakersandpractitioners.
InthecaseoftheUKhousingassociation(HA)sectordivergencefromanexclusivefocusonsocial
housingbusinesshasbeenevidentatleastsincethelate1990s.By2013/14,asreportedbyCowley
(2015)‘diverseactivities’accountedformorethanfifthofgrossturnoveramongEngland’sHAs.In
2014/15these‘non-socialhousing’functionscontributed£2.4billiontowardsassociations’annual
grossturnover(HCA,2016).
InAustraliaandCanada,partlyreflectingthesmallerandlesswell-endowedproviderorganisations
thattypifyNFPhousingsectorsinthosecountries,thescaleandsophisticationofbusiness
diversificationis,asyet,farmorelimitedthanintheUK.Nevertheless,thereisevidencethatsuch
activityhasrecentlybeenexpanding(Milliganetal,2015;Pawsonetal,2015;Pomeroyetal,2015).
ToprovideabasisfordiscussioninthecontextoftheShapingHousingFuturescollaboration,this
paperbrieflyreviewsrecent‘businessdiversification’developmentsamongNFPhousingprovider
organisationsinAustralia,CanadaandtheUK.Followingthisintroduction,inSection2thepaper
referencesthesectordiversificationagendaaroundthedeliveryof‘communityservices’.Next,in
Section3,itlooksatNFPhousingproviders’developmentofmarketactivitiesseekingtotapnew
sourcesoffunding,typicallyinspiredbythestatedaimofcross-subsidisingthesocialhousing
function.Section4discussestheorganisationalstructureinnovationsthathavebeenrelatedtothe
‘diversificationproject’.Finally,drawingontheprecedingsections,thepaperraisessomequestions
fordiscussion.
2.Developmentof‘communityservices’
EarlyUKmovestowardsHA‘businessdiversification’wereinfluencedbytheimpetustowards
developing‘communityservices’or‘widerrole’activitiesoriginatinginthe1990sandembodiedin
theslogan‘Inbusinessforneighbourhoods’–adoptedbytheNationalHousingFederation(NHF)in
2003.PartofthiswasaboutrespondingtotheNewLaboursocialinclusionimperative,reflectedin
developmentfundingcriteriaastransmittedthroughtheHousingCorporation’sencouragementfor
‘housingplus’activities(URBED,1998).
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Inanargumentespeciallyrelevanttoorganisationswithgeographicallyconcentratedholdings,the
developmentofcommunityserviceswasalsorationalisedintermsofenlightenedself-interest:
‘…justhousingthepoorwithoutfocusingonthewiderviabilityofneighbourhoodsislikelytoleave
associationswithincreasingresidualisationofstock,deterioratingincomestreamsandassetvalues’
(Lupton&Leach2011p18).
DiverseactivitiescharacteristicofthisUKphaseincluded:
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Financialinclusionprojects–e.g.supportingcreditunionsorotherinitiativesaimedat
connectingimpoverishedtenantswithaffordablecredit
Youthactivitiesincludingsportsprograms
Communitydevelopmentinitiatives
TenantemployabilityprojectssuchasICTtraining.
‘Thepromotion…oftheseactivitiesbytheNHFcanbeseenaspartoftheconstructionofahybrid
identityforthesectorbasedonsocialinvestmentperformance’(Mullins&Pawson,2010).
InAustraliasomelargerNFPcommunityhousingproviders(CHPs)have,overthepastfewyears,
beguntodevelopsimilarservices.RecentresearchfocusedonsixlargerCHPsintwostates,reported
thatsomeofthesubjectorganisationshadsetupspecialistcommunitydevelopmentstaffandhad
budgetsdedicatedtosocialinvestmentactivitiessuchastenantemployabilityandcommunity
developmentinitiatives.Others,however,sawtheirproperroleasbeinglimitedtotraditional
landlordservices(Pawsonetal,2015).Atleastforafewofthelargestproviders(includingHousing
ChoicesAustralia)involvementinrecentandemergingpublichousingtransferprogramsisbringing
withit‘placemaking’obligationswhichmayincludemasterplanningandassociatedresident
consultationaswellascommunitydevelopmentfunctions.Involvementinpublichousingestate
renewalprograms(e.g.theNSWGovernment’sCommunitiesPlusinitiative)islikelytoentailsimilar
commitments.
3.Businessdiversificationtotapnewsourcesofrevenue
Whileoftenledbyprovidersthemselves,‘communityservices’initiativesdevelopedbyUKHAs
underthe‘inbusinessforneighbourhoods’bannerhavefrequentlyleveragedfinancefromother
sources,especiallyfromcentralandlocalgovernmentfundingstreams.Withtheonsetofpublic
financeausterityfrom2010theviabilityofsuchstrategieswillhavebeenbadlydamaged.With
diminishingscopeforco-funding,questionsabouttheappropriatenessofsupportingsuchservices
fromaprovider’srentalrevenuewillhavebecomemorepointed.
Moregenerally,asinAustraliaandCanada,thebusinessdiversificationdynamicamongUKHAshas
beenlatterlymuchmorestronglydrivenbytheperceivedneedtoreduceorganisational
dependenceonpublicfundingand/orcompensateforcutsinsuchfunding.AsnotedbyarecentUK
studyfocusedonthepost-2010period,‘…associations[havebeen]underconsiderablepressureto
diversifytheiractivitiestoincludemoreprofitablebutmoreriskyprivatesectorinitiativeswhich
mightproduceprofitsandthusastreamofincomewhichcouldbeusedtocross-subsidisetheir
socialrenteddevelopment’(Williams&Whitehead,2015p18).
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Puttingthisanotherway,specificallyinrelationtotheEnglishscenario,Mullins&Jones(2015p279)
arguethatgrowinginvolvementinmarketactivitiesisprimarilya‘state-ledpolicy’.Atleastinthis
nationalcontext,NFPprovidersarebeingpushedbygovernment‘…toadoptcommercial
approachestoassetmanagementandsalesandrentsettingandtogeneratesurplusesfrom
commercialactivitiestocross-subsidisehousingforlowincomegroups’(ibid).Suchpracticesare
understoodasmandatoryforHAsseekingtosecureaccesstowhatlimitedamountsofnewpublic
fundingthatremainonofferforaffordablehousingdevelopment.
IntheUKthisphaseofbusinessdiversificationhasbeencharacterisedbygrowingHAinvolvementin
markethousingactivities.Intermsofassociatedincome,aroundhalfofall‘non-socialhousing
activity’in2014/15(generatingsome£1.1billion)involvedhousingdevelopmentforopenmarket
sale(HCA,2016p27).Therecorded2014/15surplusarisingfromactivityofthissortwas£251
million(ibid).
OthermarkethousingactivitiesnowundertakenatappreciablescalebyEnglishHAsinclude:
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Nursinghomedevelopmentandmanagement
Developmentofhousingformanagementasmarketrentalaccommodation
Studenthousingdevelopmentand/ormanagement.
Generally,however,marginsforUKHAnon-socialhousingbusinessmaybeverythin:‘Thesurplus
comingfromdiversifiedactivitiesisvirtuallyzero’(PeteRedman,Traderisks–citedbyJulesBirch,
InsideHousing,14June2016)
UnlikecounterpartsectorsinAustraliaandCanada,theEnglishandScottishHAcohortsinclude
organisationswiththesizeandfinancialweighttoassumethe‘leaddeveloper’roleinlargemixed
tenureconstructionprojects.
Thebusinessriskresultingassociatedwithmarkethousingdevelopmentatscaleisperhaps
evidencedbythe2015rolloutofanewregulatoryframeworkforEnglishHAsinterpretedbyone
seasonedobserveras‘aresponsetolandlordsbranchingoutintoagreaterrangeofactivitieswhich
carrytheirownrisks’(Cowleyp19).
Australia’sNFPhousingsectorhasonlybeguntotransitionfromits‘cottageindustry’formative
stageoverthelastdecadeorso.Atleastamonglargerproviders,however,interestinbusiness
diversificationrampedupasthepublicfinanceclimatebecamemoreadversefrom2011and
especiallyfrom2013.Inthisenvironment,suchplayershavebeenstrivingtoexpandtheiractivities
beyondtheirsocialhousing‘corebusiness’–e.g.intoareassuchasagedanddisabilityservices,
mixedtenurehousingdevelopment,homeownershipproducts,stratamanagementandrealestate
servicesandothercommercialventures(Milliganetal,2015).ArecentcaseinpointisBHC’sforay
intomarketsalesandmarketrentalhousingdevelopment1.Perhapstellingly,however,recent
researchfocusedonlargerAustralianprovidersfoundthat‘…manyCEOaspirationsfornewbusiness
developmentsexpressedin[2011/12]hadnotmaterialisedby[2013/14],suggestingthatbusiness
diversificationwasmoredifficulttoachievethananticipated’(Milligan&Hulse,2015p204).
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AlthoughBHC’sinitialexpansionofitsdevelopmentremitfromsocialhousingprojectstomixedtenure
schemesresultedfromGovernmentfundingviathe2008NationBuildingEconomicStimulusprogramand
NationalRentalAffordabilityScheme(NRAS)funding.
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InCanada,meanwhile,arecentstudyofNFPhousingorganisationsreportedthatthesubjectentities
were‘exploringandimplementingwaystocommodifytheirexpertise–sellingservicesin
marketableexpertise,whichtheirrolesassocialhousingdevelopersandpropertymanagershave
allowedthemtodevelop’(Pomeroyetal,2015pvi).Insomeinstancessuchventureswere‘lucrative
socialenterprises’(ibid).However,suchdevelopmentswereaboutsocialhousingentities‘notso
muchtransformingasevolvingandadaptingtothenewoperatingenvironmentinwhichtheywill
havetosurvive(minimalnewfundingandexpiringfederalsubsidiesandagreements)’(ibidpvii).
4.Innovationsinorganisationalstructures
IntheUKHAsector,businessdiversificationhasinmanyinstancesstimulatedinnovationin
organisationalstructuressuchastheestablishmentofspecialistsubsidiariesorjointventure
companies.Onefactorherehasbeentheimperativetoquarantinethehazardsinherentinmarket
activitiessothattheseposeminimumrisktotheviabilityoftheorganisation’scorefunctions.
Anothermoreinstrumentalconsiderationhasbeenthepriorityattachedbysomeorganisationsto
theretentionofcorebusinesscharitablestatus(HCA,2016p26).
Withintheoverallnon-socialhousingbusinessrecordedbyEnglishHAsin2014/15,twothirdsof
associatedturnover(some£1.6billion)wasaccountedforviasubsidiaries.Inparticular,thevastbulk
ofoutrightsaleactivityismanagedinthisway.
MoresignificantasadriverofcorporatestructureinnovationsamongUKHAsoverthepast10-20
yearshasbeensectorreconfiguration–theconsolidationprocessoforganisationalmergerswhich
hasresultedinaprogressiveconcentrationofsocialhousingownershipinthehandsofadiminishing
numberoflandlords(Pawson&Sosenko,2012).Inmanyinstances,groupstructureshavebeen
establishedasatransitionalphaseinanamalgamationprocesswherepreviouslyfreestanding
entitiesareinitiallyconvertedintosemi-autonomoussubsidiarieswithinwidercorporate
frameworks,beforebeingsubsequentlyrolledinto‘streamlined’orunitarystructures.
AmongAustralia’slargerNFPhousingproviderstherehavebeenasmallnumberofcasessimilarto
thosedescribedabove.InstanceshaveincludedtheHousingChoicesAustraliagroupstructure
originallyestablishedtofacilitateaninter-organisationalmerger,butwhoselaterevolutionhasbeen
partlyshapedbytheneedtoaccommodatealarge‘interstate’publichousingtransfer.Another
recentcaseinpointistheCompassHousingcreationofaspecialpurposevehicleforapublic
housingtransferproject(asrequiredbyGovernment).Meanwhile,inthecontextofnegotiatinga
largeloanfacility,andasrequiredbythelender,StGeorgeCommunityHousinghasrecentlysetup
anSPVasthecompany’sdevelopmentarm.
5.Possiblequestionsfordiscussion
Missioncreeprisk
Thedevelopmentofmarketproductsandservicesnotdirectlyrelatedtotraditional‘corefunctions’
mayreflectahousingprovider’swishtocross-subsidiseitssocialhousingactivities.However,asin
therelated‘sectorconsolidation’trend,thismayraise‘missiondrift’questionsasanorganisation
growsgeographicallyand/orinbusinessdiversity.CommentingonAmerica’scommunity
developmentcorporations,forexample,Bratt(2012)arguedthatgrowingfinancialdependenceon
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theprivatesectorhadresultedinCDCsbecomingdetachedfromtheirconstituentsandinthelossof
theiradvocacyroles.
AsposedbytheNewTimes,NewBusinessesreport,‘thekeyquestioniswhether[divergencefroma
primefocusonsocialhousing]damagesthenon-profitperformanceandethosoftheoverallnonprofit’(Maclennanetal,2013p81).
RelatedUKcontroversyarosein2015whenGenesisHA,oneofEngland’slargestproviders,
announcedthatinresponsetodiminishinggrantratesandtheassociatedneedforcompliancewith
prescriptiveregulation,itplannedtoexitentirelyfromsocialandaffordablerentdevelopment
(Apps,2015).
CommentingonthisissueintheCanadiancontext,Pomeroyetalreportedthat–atleastatthe
currentstage–providersengaginginbusinessdiversificationarenevertheless‘remainingfirmly
committedtotheircorevaluesandmission(providinghousingopportunitiestolow-andmoderateincomehouseholdsinneed)’.Asnoted,inthecourseofsuchchange,itisimportantto‘articulate
andrecommittoorganizationalvalues…asawaytokeeporganizationsgrounded’(Pomeroyetal,
2015pvii).
Onasimilartopic,recentresearchinvolvinginterviewswithCEOsofAustralia’sleadingNFPhousing
providersreportedcontrastingemphasesbetweenthoseemphasisingthat‘…socialpurposeshould
neverbecompromisedbybusinessdrivers’andthosearguingthat‘…havingabusinessethos[is]
criticaltooptimisingsocialoutcomes’(Milliganetal,2015p7).Nevertheless,whiledevelopmentof
‘affordablehousing’andotherbusinessdiversificationhadsomewhatbroadenedclientmixforsome
ofthesubjectorganisationsmostCEOs‘continuedtoasserttheprimacyofamissiontoexpand
assistancetothoseonthelowestincomesandthehomeless’(ibidp67).
Possibleimpactsonorganisationalculture
Relatedtotheaboveissue,therearequestionsaboutthe‘organisationalculture’impactsofshifting
asociallandlord’scorporatefocustowardsmarketproductsandservices.Forexample,ifsucha
providerfindsitnecessarytorecruitspecialistpersonnelwithrelevantcommercialexperience,what
isthebestwaytomanagetheconsequentialimpactsontheorganisation’ssharedobjectivesand
values?Howcanprovidersbestaccommodateassociatedsalarydifferentials?
Scopeforinternationalknowledgeexchange
WithUKhousingassociationsmuchfurtherdownthetracktowardsbusinessdiversificationand
hybridisationthantheirAustralianandCanadiancounterparts,thereisanobviousquestionastothe
extenttowhichthelattermaybeabletolearnfromtheformer.Thiscouldinclude,forexample:
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Themostpromising‘newbusiness’prospectsintermsofleveragingtypicalsociallandlord
corecapabilities
Prioritiesfororganisationalcapacity-buildingsuchthatnewformsofbusinessmaybe
confidentlyembraced
Theapproachtobusinessdiversificationmostappropriatefororganisationslacking
substantialcapitalassets–thetypicalsituationforAustralia’sCHPs
Recommendedapproachestostructuringentities,riskmitigationandchangemanagement
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Howbesttonavigatetheregulatoryandcharitablestatusrulesthatlimitorshape
permissible‘diverseactivities’?
Inconsideringsuchissues(especiallythelastnamed),itwillofcoursebenecessarytorecognise
materialdifferencesinthelegal,regulatoryandadministrativecontextswhich,ifoverlooked,could
renderanypolicytransferinappropriate.
Communityservices
Regardingcommunityservices,towhatextentisitappropriateordesirableforsociallandlordsto
undertakesuchactivitiesdirectlyasopposedtocommissioningservicesfromspecialistagencies?To
whatextentarecommunityserviceslegitimatelyfundedfromrents?Whateconomicproductivityor
‘spendtosave’justificationscanbemadeforsuchservices?
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