Development – rewards, risks and why governance matters
Insiders will know the true story of the troubles that the Cheshire based Housing Association, Cosmopolitan, now face. Others will speculate.
What is in the public domain is that development was at the root of the issues. This is no surprise, particularly since the amount of grant to underpin new developments has decreased dramatically over the past few years, whilst the pressure to deliver has never been greater.
We all know that the current Affordable Homes programme requires greater housing association subsidy and therefore the need to generate additional revenues to support these activities. This requires a more commercial approach to development and, in turn, more risk. More associations are looking at business streams that could generate extra income, such as market rented homes, student accommodation, leasehold for the elderly and, of course, more for sale developments. The reasons are cliché-ridden: ‘you’ve got to speculate to accumulate’, no pain no gain’, you’ve got to be in it, to win it’ and of course ‘we’ve got no option’. That’s the toughest one. The Homes and Communities Agency presses the sector to do more and deliver, deliver, deliver. The Regulator errs on the side of caution and presses the sector to be careful, and the sector finds itself between the proverbial rock and a hard place. But the reality is, if the sector is to be part of the game, it needs to show that it can play in an arena of risk, reward and possible failure.
And if you do fail, it will be no consolation for the Regulator to remind Boards that, thanks to the principles of co-regulation, it’s our fault.
So, having worked with a number of Boards and senior management teams over the past few years, three tips to hopefully avoid getting a new business area wrong:
- Capacity- Boards. Make sure you have a Board that understands risk. That is, risk aware, not risk averse, and which genuinely understands what risk mitigation means
- Capacity- Executive Teams. Don’t be afraid to admit you might not fully understand the new business area. Better to feel a bit of a novice now, than to be proved naive later.
- Do your sums. Assess the costs of entry, costs of exits, contingencies and how much can you afford or are prepared to lose (or invest) in a new activity. In the commercial world, this is your research and development.
Good luck and let’s hope that Cosmopolitan does not start a trend. Boards and Exec. teams it’s up to you.
Steve Douglas can be contacted on 020 7934 0175 or email: email@example.com