Cosmopolitan Housing Group: lessons learned

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Housing associations should ensure they have skilled boards, which understand how to run a complex business, according to an independent report into the 2012 near collapse of Liverpool-based Cosmopolitan Housing Group. And the regulator – the Housing and Communities Agency (HCA) – should make sure its judgements truly reflect the position of a registered provider of social housing.

In 2012, due to a number of problems coming to a head, Cosmopolitan almost became insolvent. With the support of the HCA, Cosmopolitan was rescued by Sanctuary Group. The rescue kept much-needed homes in the social housing sector, tenants kept their homes, and tax-payers’ money was protected.

The independent report, by Altair Consultancy and Advisory Services, was commissioned by the HCA and Sanctuary to carry out the review and publish its report and recommendations. The specialist consultancy was also asked by the HCA to identify wider lessons from the case for the social housing sector as a whole, and specific lessons for the HCA as the regulator.

Cosmopolitan’s problems resulted from a combination of individual errors over many years. Cosmopolitan committed to an over-ambitious development programme without funding in place. This led to liquidity problems. Historic leases on student housing had cross-guarantees against social housing assets and were wrongly accounted for in the accounts. Cosmopolitan’s governance and management was weak; problems were not identified and put right.

The report recommends that all registered providers (RPs) of social housing need to make sure that they:

  • have skilled boards, which understand how to govern a complex business
  • have finance and risk expertise at board and executive level
  • retain corporate knowledge
  • have accurate information about business assets and liabilities.

In addition the HCA as regulator should:

  • make sure that regulatory judgements truly reflect the position of the RP
  • have people with the right skills and resources, who understand the sector and have sufficient resources to deal with a crisis
  • prepare for a potential crisis by scenario-testing.

The report’s authors also suggest the Government review the legislative framework to enable the regulator to act much more quickly in a crisis.

Dr Fiona Underwood, Altair Partner and report author, said: “This was a near-miss for the social housing sector that was avoided thanks to the sheer hard work put in by those who brought Cosmopolitan back from the brink of a crisis. The important thing now is for everyone in the sector to take note of and act on the recommendations in the report so that the potential risk of another Cosmopolitan happening in future can be reduced.”

Matthew Bailes, Director of Regulation at the HCA, said: “We welcome the independent report, which acknowledges the role of the regulator in protecting social housing assets but nevertheless contains lessons for all in the sector, including the regulator. The problems that developed at Cosmopolitan demonstrate the importance of our message to Boards that they need to have an iron grip on risk. And as regulator we need to keep pace with a sector that is becoming more complex and diverse, which is why we have already taken action that addresses a number of the report’s specific recommendations, which mean we would expect to identify similar problems at a Provider at a much earlier stage than previous regulators did at Cosmopolitan.”

Download the full report.

“ The Altair report, incidentally, is an object lesson in how to distil a mass of complex information into a concise document of beautifully written, plain English, and is worth reading for that reason alone.”
Richard Petty – Lead Director, Affordable Housing, JLL

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