On 19th of April 2022 Grainne Cuffe wrote in inside housing about how the new 77,000-home landlord will work. According to her,
Two of London’s largest housing associations have started merger talks, which, if successful, will result in the creation of a 77,000-home landlord.
In March, Optivo and Southern Housing Group announced that merger talks had commenced. The goal is to have the merger completed by the end of the year.
They also supplied information on the larger association’s tentative top team. The new organisation would be led by Optivo’s chief executive Paul Hackett, with Southern’s boss Alan Townshend serving as deputy chief executive.
Sir Peter Dixon, the chair of Optivo, will serve as chair designate, and a vice-chair will be chosen from Southern’s board of directors.
Southern is the smaller of the two partners, with roughly 32,000 properties in London and the South East, while Optivo is the larger, with 45,000 homes under management.
Both housing associations have stated that they would now initiate a process of interaction with residents, staff, and external partners in order to contribute to the debates.
The merger might be finalised by December 2022 if due diligence and discussions go well.
Mr Hackett discusses the plans with Inside Housing.
What is the reason for the merger?
In terms of cost constraints, there is a lot going on in the housing operating environment right now. We’re witnessing a significant increase in construction expenses, which I believe is currently outpacing headline inflation. On fixed-price contracts, we’re seeing cost increases of 8 to 15%.
The reason for the merger is that the operating climate has become more difficult, with inflation being just one factor.
Then there’s the issue of building safety. There are also [targets] for net zero carbon, EPC C by 2030, and decarbonization by 2050.
We think that by banding together, we can become a more powerful and resilient organisation. We believe that investing in size will allow us to accomplish the best job possible. We can improve the way we invest in our homes and search for ways to speed up our programmes.
“This merger isn’t about geographical growth – it is about focusing on resident services and investment in existing homes”
With over 10,000 homes, we will be the largest housing association in Kent, the largest in Sussex with over 13,000 homes, and one of the largest in London with over 33,000 properties.
Within specific geographies, we’ll be a very large housing association.
We believe this gives an excellent opportunity to engage in a variety of talks with public sector partners in order to ensure that our investment in those areas yields the best potential results for our residents and others in need of housing.
It’s a mix of a more uncertain, more difficult operating climate, rising costs, and the advantages of banding together to establish a smaller, but more powerful housing association.
Some detractors argue that as an organisation grows larger, it moves more away from its tenants. What are your thoughts on this?
This is a unique merger in comparison to many previous significant mergers we’ve witnessed. Rather than geographical development, this is more about consolidating around established footprints.
For decades, Southern and Optivo have collaborated on projects together. We’ve been working in the same neighbourhoods and with the same local government partners, and we feel that by banding together, we’ll be able to establish a more dense footprint.
As a result, we’ll be doing even more within the organisations where we presently work. Because of the densification, concentration of activity, and increased number of our employees operating in certain locations, we are able to deliver even greater services to local inhabitants.
This merger isn’t about expanding geographically; it’s about concentrating on resident services and making improvements to existing houses.
So there are no intentions to expand into other parts of the United Kingdom?
No, this is all about focusing on the areas where we are currently successful, and becoming an even stronger and better landlord and partner in those regions for the benefit of our residents and those who are looking for a place to call home.
What are your plans for growth?
The new organisation will construct roughly the same number of homes as we do now. However, I believe we will be very cautious about how much we develop in the coming years.
If costs continue to rise at their current rates, we don’t want to find ourselves in a situation where our costs are rising while grant levels remain unchanged.
That will entail various discussions with funding organisations, Homes England, and the Greater London Authority, as well as a review of our overall commitment.
However, we feel that by banding together, we may achieve larger and better developments as well as a wider range of developments.
“We are going to be investing much more in our people, in developing our workforce and looking at growing our own workforce”
And we expect numbers to rise as we move over the next few years into what we hope will be a more favourable economic climate.
Over the next few years, we’ll be looking at land acquisitions and option agreements in order to build a significantly larger land-led development pipeline.
Optivo was formerly more reliant on package transactions and Section 106, while Southern was more land-based.
The advantages are that we will have greater control and will be able to focus more on service charge affordability, which is a major concern for residents.
We may concentrate on the quality and aesthetics of our projects. As a larger organisation, we aim to design larger plans that represent our placemaking objectives, so that we may create places that are truly sustainable in terms of environmental performance, social mix, and economic performance in the future.
What will you do to assist tenants in overcoming the cost-of-living crisis?
Both organisations have a lengthy history of implementing social impact and financial inclusion initiatives. We think that by banding together, we can do more and greater things.
Optivo assists over 1,000 people each year in finding work and training, and we provide hundreds of hours of financial inclusion, support, and guidance.
When residents were under-claiming welfare benefits, we were able to collect millions of pounds in additional payments. These are the things we feel we can achieve at scale in a far more efficient and effective manner.
How important is it to embrace and encourage diversity as part of the merger strategy?
Both organisations rely heavily on diversity. We’ve both been committed to establishing diverse workforces so that we can provide good services to a broad population of residents.
We’ll be investing much more in our people, as well as expanding and increasing our own workforce. For our in-house contractor, this involves seeking for non-traditional sources of labour, such as more women and people from minority ethnic backgrounds.
We recognise that in the war for talent, which is getting increasingly fierce in the regions where we operate, we must a) provide a wonderful employer offer and b) build our own and create career pathways to develop individuals and guarantee they want to stay with us rather than move elsewhere.
“It’s really important that we all strive as hard as we can to make sure that our workforce is reflective of the areas within which we work, and that includes boards and executive teams”
Within the new organisation, we’ll establish an in-house academy that will serve as the focal point for training and development programmes for our apprenticeship programmes, which will help us build our own talent.
At the same time, we’ll be working on a new culture initiative for the company. We both agree that establishing a strong corporate culture that draws colleagues together and provides them a sense of shared purpose and identity is critical.
With a number of employee roadshows planned in the lead-up to the merger, this will be a major focus. Working together to shape the organization’s culture and values brings colleagues together, making them feel like they have a stake in how the organisation feels, and diversity will be a crucial factor.
How crucial is it for executive teams and boards to have tenants represented on them?
It’s critical that we all work as hard as we can to ensure that our workforce, including boards and executive teams, is representative of the locations in which we work.
Southern and Optivo are both committed to diversity as part of the G15. We will be attending an event on May 11th to honour diversity inside the G15 organisations, where a variety of award categories for Black and minority ethnic colleagues will be presented.
We’ve helped to establish a more diverse group of middle-managers across London and the South East through previous G15 programmes.
“Scale does matter in the housing association sector, in terms of having the ability to hire the best, to create large and resilient teams around specialisms”
What aspects of the merger are you most looking forward to, and what challenges do you anticipate along the way?
The ability to develop something new and greater than both organisations is something I’m most excited about. Rather than attempting to combine the best of both, build something that is superior to both.
Residents’ expectations are constantly shifting. We’ve got the White Paper on Social Housing and consumer regulation to deal with.
This is a great opportunity for me to try something new, to look at how we can enhance the way we deliver resident services so that we can provide the best services possible as a huge organisation operating throughout London, the South East, and the Midlands.
Do you think the mergers and acquisitions trend in the industry will continue?
I believe that the difficult operating climate that drove our choice to consolidate would lead other companies to believe that developing future resilience is critical.
Low interest rates, low inflation, and a relatively stable environment for housing associations have been the norm for a long time. Over the next few years, I don’t believe that will be the case.
In the housing association business, scale does matter in terms of being able to hire the finest people and forming large, robust teams around specialties. In the midst of a nationwide recruitment crisis, the regulatory and compliance environment is becoming increasingly difficult for housing associations.