Housing Associations and the absence of competition

Competition is a fundamental part of a capitalist economy.

Several independent private companies offer products to consumers. Their objective is to make money from selling these products or services. The other side of competition is that consumers choose what they want from a wide range of options. Price is a key determinant, and prices arise are from the costs of production, distribution and sale, but also from the supply and demand for the product.

In order to grow the business or make more money, companies innovate, become more efficient or reduce costs. Challengers – people with an entrepreneurial mindset – can enter the market to offer something new or better. In general, competition works efficiently to bring new or better quality products to the market, or to provide services at lower costs. Companies that make the product better or cheaper than other firms will thrive, but businesses that can’t adapt to changing market conditions or consumer preferences, or who cannot make sufficient profit, will go out of business

Now HAs work under different rules – more like state monopolies. Our product is designed to one basic standard, consumers don’t have choice, prices are fixed by the government and social landlords don’t compete with each other. The lack of competition means there is minimal innovation, and no-one really worries about going out of business. Associations that get into financial difficulty will not fail. They will be acquired or merged.

Competition works almost like an unavoidable force of nature, where the brutal survival of the fittest works to kill off the least efficient companies. So without this battle to be the best, the cheapest or to respond to new demand, what is the force that drives Housing Associations?

I think the answer would have to be Regulation. The Regulator decides how the associations must behave. In the absence of any competitive market it frequently makes new demands on them, as a super consumer might. Associations try to meet the demands to please the super consumer and they may succeed or fail. If they fail the Regulator must decide their fate. This is when there is a downgrade, or a letter of admonishment from the Secretary of State. An improvement plan will be agreed and if it doesn’t improve it will be pushed into a stronger HA.

In the boardrooms of HAs, the Regulator serves as the force which determines the strategy and culture. And while the line is always – you are independent (yes we are independent!), we won’t tell you what to do, HAs operate within the requirements of the regulator rather than focusing on services or products for their “customer” (who of course isn’t a real customer as any tenant will tell you).

This is a difficult issue to discuss and find a way through. Theoretically HAs could be fully privatised, which would completely conflict with their charitable ethos. Or the Regulator could see itself differently. Rather than a “co-regulator” alongside an effective board (its current project) it could become the body which, on behalf of tenants, demands a much better product and service. This is why I would support a stronger regulator – one that engages with today’s challenges and requires the sector as a whole to follow a more effective strategy.

For me I would expect the RSH, supported by the Ombudsman, to

• Rationalise the sector and demand collaboration as the norm
• Open data principles (like the financial services sector)
• Commit itself and the sector to shared, effective technology
• A major investment programme in the existing stock, selling homes that cannot make the grade (warm, safe, desirable homes) and reinvesting the proceeds in new homes
• Standard pro-tenant policies for all providers
• Super transparency between regulator, associations, local authorities with all performance information being available to residents.

What do you think?