In a fix

The original eight Arm’s-length management organisations, set up in April 2001, are at a crossroads. Now in their fourth year of operation, the end is in sight for their original remit of meeting the decent homes standard for local authority housing. Over the next one to three years these programmes will wind down. At the same time, as the right to buy diminishes local authorities’ rented stock, the fee paid by local authorities to ALMOs will represent poorer value for money, meaning ALMOs must either become more efficient or find income from elsewhere.

Standing still is not an option: ALMOs must diversify into new services in order to survive longer term. The government knows this – the possibility of giving financial freedoms to authorities with high-performing ALMOs was raised by the government in 2003 and is to be discussed in an OPDM consultation paper due out early this summer. And some ALMOs are testing these waters already: Derby Homes, for example, is hoping to manage some schemes developed with non-registered social landlord social housing grant, and others are investigating small-scale development of council land and property. So if ALMOs have little choice but to become more entrepreneurial, what are the options and obstacles they face as they try to adapt?

Carrying out services for other social landlords on “added value” services will be one of the most likely types of diversification: in particular, existing ALMOs are already looking into managing tenancies and investment programmes (particularly tenant-in-place refurbishments), and handyman and tenancy support services.

Another option is the possibility of developing their own services with non-housing revenue account funding, such as Supporting People or as partners in regeneration. But having ALMOs develop and own their own housing does not appear to have government support – it also seems unlikely that these projects could ever be on a scale to replace council homes lost through right to buy, allowing them to balance their books.

Most ALMOs would present a strong alternative to local authority or RSL in-house management services if the opportunity arose: ALMOs have one of the most impressive track records of sustained performance in the industry. And their geographical compactness and local awareness mean they should offer better value for money in management than national or regional landlords.

But even if opportunities are plentiful, growth will be limited by money. To expand into the entrepreneurial world, ALMOs may need to invest in new financial and risk management systems – not rely on those of the local authority – and in staff training. Most ALMOs have no financial reserves and none has significant property assets, so finding funding for investment and as a cushion against risk will be a problem.

Existing ALMOs are already looking into doing tenancy management, refurbishments and handymen services

To make the most of existing funds, ALMOs should focus on efficiency, especially inefficiencies created by the split of responsibility between council and ALMO. Even so, the potential to apply cash gains from more efficient management of the council stock to new ventures would be limited. The ALMO board and local authority would need to authorise use of any gains for a longer-term vision.

The best hope is the government’s promise of financial freedoms for local authorities with high-performing ALMOs. This has not been forgotten, especially by authorities with ALMOs near completion of their decent homes programme and looking forward to the first review of the management agreement with the council. The Chartered Institute of Housing and National Federation of ALMOs have suggested these freedoms take the shape of the ODPM reducing the debt of each qualifying authority’s housing revenue account. This would allow the authority to fund its ALMO sufficiently to be able to expand its services. This could enable the authority, through a more secure ALMO, to enhance services to tenants and invest in improvements to the housing stock.

So, how ready are ALMOs to face these challenges? The first eight are already exploring new opportunities, and will gather momentum quickly if the proposals on financial freedoms are realised. The 41 other younger ALMOs, set up after April 2001, will follow suit as they complete decent homes and achieve three stars at inspection over the next one to five years.

One thing is certain: having successfully established new businesses, improved services and become industry leaders in approaches to building works partnerships, all ALMOs will be keen to grow and diversify. How many will have the opportunity, financial capacity and freedom to do so remains to be seen.