11 Dec 2018 3 min read

Why housing associations must focus on their core purpose

By Adil Mirza , Catherine Ogden

Large investors like LGIM play an important role in financing housing associations. With their operating landscape continuing to evolve rapidly, and with the Grenfell Tower tragedy at the forefront of our minds, what are our expectations of the housing associations we invest in?


Since the shift away from council provision, housing associations are responsible for almost half of rented social housing in England and Wales. The pivotal role that they play in UK housing should not be underestimated

Housing associations fund the development of homes through surpluses, grants from the government and debt, with the bond markets playing a crucial role. In recent years the sector has been subject to rent reductions and fewer government grants, spurring a sector-wide drive for efficiency, consolidation and larger private development (‘build-to-sell’) programmes. These programmes are likely to remain a priority for councils in order to fund the development of more social housing. 

Investors play a crucial role in financing housing associations through the bond markets

Building homes for sale on the open market is naturally a more risky activity. The increase in ‘build-to-sell’ homes and schemes has caused a lot of debate with investors and rating agencies as to how far this activity should go. The result is greater scrutiny across the market of both development programmes and corporate governance, as well as lower credit ratings for those associations which have significant revenue from market activities.

At LGIM we encourage the development of mixed tenure housing, an urban planning strategy in which poorer and more affluent residents live in a mixed community, and one recommended by the recent Letwin review. However, caution is required if the market demands of homebuilding are not to encroach on the core social purpose of associations. While self-reliance on capital is important, the risk arises that it comes at the expense of delivering on core business objectives and to the detriment of the overall credit profile.

Caution is required if the market demands of homebuilding are not to encroach on the core social purpose of associations

Delivering social housing is more than just a question of targets and finance. It’s about ensuring the well-being and safety of tenants as well as the provision of social initiatives to help drive regeneration. We are keen to see housing associations think beyond regulatory requirements in regard to tenant welfare – their strategy and capital allocation decisions should reflect this. Following the government’s recommendations in the wake of the Grenfell Tower fire, it is the right time for the sector to take stock.

Beyond risk management, there is growing pressure from the public and from government for the delivery of social value. As investors, we consider it a part of our credit process to engage with housing associations about how they achieve this, beyond the core provision of housing. All of the above explains why strong oversight is imperative; we’re looking for efficiency, centralisation and a board of a housing association equipped with the appropriate skills and expertise to act as a steward of all stakeholders’ interests. This is why we wrote to multiple organisations outlining our principle expectations and why we continue to engage with them on how they are delivering on these.

There is growing pressure from the public and from government for the delivery of social value

Housing associations serve an ever more important role in society. They have had to deal with significant shifts in their businesses, from a financial, strategic and governance prospective. Many are adjusting well, balancing the interests of multiple stakeholders while effectively delivering on their core purpose of meeting housing needs and providing good services to tenants and residents. At such an important juncture in the sector’s development, it is in the interests of both investors and society that this core purpose remains front and centre.

Adil Mirza

Fund Manager, Credit

Adil has worked in the finance industry for over 15 years, with a particular focus on fixed income markets. In his spare time (when he’s not thinking about the world and market impacts) he enjoys cycling up mountains. 

Adil Mirza

Catherine Ogden

Manager - Sustainability & Responsible Investment

Catherine joined LGIM in 2015 to help drive forward ESG integration into mainstream fund research and to strengthen sustainability engagements. Prior to this, Catherine spent four years working with governments in Africa and Asia on the sustainable policy, planning and management of the extractives sector, and five years in sell-side equity research. A keen linguist and sportsperson, she bemuses her colleagues with a love of Capoeira and British Military Fitness.

Catherine Ogden