City Futures Research Centre Business diversification and evolution of organisational structures in the not-for-profit housing sector Hal Pawson City Futures Research Centre, UNSW, Sydney

Presentation overview 1. Diversification into ‘community services’ 2. Diversification into surplus-generating commercial activities 3. Innovations in organisational structures 4. Issues for discussion

Introduction ‘…move[s] towards a more business-like or commercial model’ have become a common trend across not-for-profit housing sectors in Australia and Canada as well as the UK (Maclennan et al, 2013 p70) NFPs becoming more ‘hybridised’ with growing role in delivering market products and services ‘Non-social housing activities’ >20% of turnover of English HAs by 2013/14 Albeit smaller scale and more recent, some ‘business diversification’ moves made by NFPs in Aus and Canada Important questions raised for practitioners and policymakers

Community services [1] Early phase of ‘business diversification’ among UK HAs (1990s) involved community services or ‘wider role’ activities – ‘In business for neighbourhoods’ NHF 2003 Shaped by New Labour ‘social inclusion’ imperative Regulatory/funder encouragement; funding often leveraged from public sources But also enlightened self-interest for HAs with spatially concentrated portfolios: ‘…just housing the poor without focusing on the wider viability of neighbourhoods is likely to leave associations with increasing residualisation of stock, deteriorating income streams and asset values’ (Lupton & Leach 2011 p18)

Community services [2] Diverse activities characteristic of this UK phase included: – Financial inclusion projects – e.g. supporting credit unions – Youth activities including sports programs – Community development initiatives – Tenant employability projects such as ICT training Recent echoes in Australia with some larger providers creating community development positions and budgets ‘Placemaking’ obligations attached to recent public housing transfer projects in Qld, SA and Tas

Tapping new sources of revenue [1] Motivated by perceived need to reduce dependence on direct govt funding – more pressing issue in England from 2010: ‘…associations [have been] under considerable pressure to diversify their activities to include more profitable but more risky private sector initiatives which might produce profits and thus a stream of income which could be used to cross-subsidise their social rented development’ (Williams & Whitehead, 2015 p 18) Condition of retaining access to v limited public funding Mainly involves new build for open market sale Other activities include: – Nursing home development and management – Development of housing for management as market rental accommodation – Student housing development and/or management But margins may be thin or non-existent: – ‘The surplus coming from diversified activities is virtually zero’ (Pete Redman, Traderisks – cited by Jules Birch, 14 June 2016)

Some of Australia’s larger NFP providers also exploring business diversification to broaden revenue base – Interest expressed in aged and disability services, mixed tenure housing development, home ownership products, strata management, real estate services – BHC recent foray into market rental housing – But ‘…many CEO aspirations for new business developments expressed in [2011/12] had not materialised by [2013/14], suggesting that business diversification was more difficult to achieve than anticipated’ (Milligan & Hulse, 2015 p204) Similar moves in Canada; recent study of NFP housing reported that case study orgs were: ‘exploring and implementing ways to commodify their expertise – selling services in marketable expertise, which their roles as social housing developers and property managers have allowed them to develop’ (Pomeroy et al, 2015 pvi) Tapping new sources of revenue [2]

Innovations in organisational structures Among UK HAs business diversification a stimulus to innovation in corporate structures – Need to quarantine risk – Offloading of commercial activity to retain charitable status For English HAs, two thirds of non-social housing business (especially development for sale) accounted for via subsidiaries Group structures more often developed to facilitate mergers A few of Australia’s larger providers have created group/subsidiary structures linked with mergers or with public housing transfers

Business diversification and hybridisation: issues for discussion 1.Mission creep risk: ‘the key question is whether [divergence from a prime focus on social housing] damages the non-profit performance and ethos of the overall non-profit’ (Maclennan et al, 2013 p81) 2.Organisational culture and salary structure implications of absorbing senior staff with commercial backgrounds 3.What can Australian/Canadian NFPs learn from UK counterparts on: a.The most promising ‘new business’ prospects in terms of leveraging typical social landlord core capabilities b.Priorities for organisational capacity-building to accommodate new forms of business c.Approach to business diversification most suitable for organisations lacking substantial capital assets d.Recommended approaches to structuring entities, risk mitigation and change management e.How best to navigate the regulatory and charitable status rules that limit or shape permissible ‘diverse activities’