When we set it up in 2005 it was a fairly unusual organisation, a commercial ‘for profit’ company owned and run by a charity established over 100 years before.
The intention was to develop market sale housing and gift aid the profits to the charitable parent, Southern Housing Group, to be used for social purposes. This was a modern day take on the philanthropic objectives of the charity’s founder, Samuel Lewis. Although from a poor background, Samuel Lewis became very wealthy by lending to the nobility. He left today’s equivalent of £65 million to set up the housing charity which now provides nearly 30,000 affordable homes throughout London & the South East.
Very few open market sale properties were built directly by housing associations at the time Southern Space was formed, so we had to consider how best to set up and run a commercial operation. We decided to appoint a Managing Director from outside the housing association sector, but we recognised this could lead to internal tensions if the individual wasn’t sensitive to the Group’s charitable aims. This was a tricky balance; we had to be profit-driven to maximise returns, but ensure delivery did not clash with our social objectives.
We started off with sites already owned by the Group, which were transferred to Southern Space for private sale development and the profits transferred back. Southern Space quickly found its feet and its operation grew steadily over subsequent years. When the recession hit, and outright sales slumped, we supported the company until the economy improved.
Since it was established 10 years ago Southern Space has contributed nearly £30m profit to the charitable parent, coincidentally very similar to the original charitable bequest. All of this has been used to support social housing objectives.
Times have moved on and reductions in government grants now mean new affordable housing schemes are rarely viable without the sort of commercial activities pioneered by Southern Space. Funnily enough subsidised housing requires subsidy, and if funding is not provided by the state it will shrink even further if housing associations and organisations like them are unable to fill the gap. The London g15 group of housing associations have had to increase the proportion of market sale housing to around one-third of their programmes in the last few years in order to help make up this funding shortfall.
So commercial activity, where housing associations expressly develop to maximise profits, is now essential to maintaining any reasonable supply of affordable homes. However, the disadvantage is that people tend to think we are behaving like developers for similar motives.
This is absolutely not the case. Housing associations recycle market sale profits to support affordable housing which otherwise wouldn’t be funded. This money cannot leak out because the charities are regulated by the state. Private developers distribute their profits to directors and shareholders.
Unfortunately this distinction is rarely recognised by the public and the media, who tend to tar all developers with the same brush. The activity may be similar, but the objectives couldn’t be more different. Both are developing to maximise profits but housing associations use theirs to provide more affordable housing.
Southern Housing Group is ‘a business with social objectives’. It’s as important to recognise the end purpose, as it is to recognise the activity that is undertaken to achieve it.