News and Publications

Regulatory update – adios to ALMOs?

Posted: 26/03/2021

Since 2002, arm's-length management organisations (ALMOs), have been a key part of the social housing sector, providing management for council housing. At their peak there were around 70 ALMOs in the UK, managing half of all UK council housing. We saw a number of ALMO large scale voluntary stock transfers in 2010-2015, with ALMOs becoming stand-alone private registered providers of social housing. The number of ALMOs has fallen further as several local authorities have taken services back in-house, including recent announcements by Manchester City Council, a group of four Kent Councils, East Kirklees Council and Gateshead Council of their plans to close their ALMOs. There are now fewer than 30 ALMOs remaining in the UK. So what is behind this trend?

Many ALMOs were set up by local housing authorities to gain access to additional government funding under the Decent Homes Programme, which largely concluded in 2012. Usually the ALMO would take on the management and improvement of local authority housing stock while the local authority retained ownership. ALMOs also presented the opportunity to adapt council housing management with a view to giving tenants and residents a much greater say in how their estates would be managed. Many ALMOs also diversified and provided additional community services or, in some cases, developed new homes.

However, the ALMO model has drawn criticism in recent years, particularly in the aftermath of the Grenfell tragedy, over lack of oversight, compliance and risk management. Many local authorities have decided to take functions delivered by ALMOs back in house citing reasons such as having better control, saving money and improving services. If the recent numbers are anything to go by, this could be a trend that looks set to continue. Housing policy has changed significantly since ALMOs were birthed in 2002, and with recent developments such as the removal of the local authority Housing Revenue Account borrowing cap which previously restricted local authority investment and spending in housing, many local authorities that have ALMOs will be looking at the long-term suitability of an ALMO set up.

Local authority priorities

Local authorities, alongside all housing providers, must juggle many strategic priorities. These include the financial impact of spending and investment needs relating to fire safety and building safety works; retrofitting housing stock and other works to achieve zero-carbon targets; the upcoming Decent Homes Standard review; and the general continuing need to invest in stock. They must look at how best to meet these challenges and any potential savings that could be achieved. Some councils that have proceeded with closures of their ALMOs have cited significant cost savings which could be recouped and reinvested in helping meet some of these challenges.

Furthermore, recent examples have also shown incidents where ALMOs have faced health and safety issues, including, in some instances, serious fire, asbestos and electrical safety failings resulting in failures in compliance with the Regulator of Social Housing’s Home Standard. Such instances have led parent councils to determine that bringing the ALMO back in house will permit better control of service delivery and compliance with legal and regulatory requirements. It’s worth noting that breaches of the Home Standard are not reserved to ALMOs only and there are examples from across the sector.

The argument for ALMOs

However, many who support ALMOs cite that the reasons for creating ALMOs continue to remain relevant today. It’s argued that ALMOs create organisations focused on housing management and giving tenants a greater role in the services they are provided with. The sector continues to deal with the need to ensure meaningful tenant engagement and accountability, especially following on from the criticisms that came to light following the Grenfell tragedy, the tenant roadshows that informed the Social Housing Green Paper and the Social Housing White Paper.

The sector is also increasingly focused on collaboration, not least out of the need to find innovative solutions to service delivery in a challenging operating environment. In addition, the requirements of the latest National Housing Federation Code of Governance 2020 require organisations to annually consider the role that collaboration may play in delivering strategies more effectively. Some of the commentary within the annual survey from the National Federation of ALMOs discusses the role ALMOs play in facilitating collaboration across the sector. They are often involved in tackling areas such as homelessness, rough sleeping, employability, debt and poor health, issues which, when coupled with the longer-term impact of the COVID-19 pandemic and lockdowns, may only get worse.

The challenges ahead

Bringing an ALMO in house will bring its own challenges as local authorities embed various housing functions they previously outsourced to the ALMO alongside the potential job losses resulting from consolidation of entities. These challenges sit alongside the existing requirement to ensure compliance with the Regulator of Social Housing’s regulatory standards as well as to prepare for the proposals contained within the Social Housing White Paper. This includes a specific requirement for local authority providers to self-refer breaches of the consumer standards as part of the review of the consumer standards.

It will be interesting to see if the trend for closure continues and the impact this will have on driving efficiencies needed for investment, service delivery and tenant engagement, especially in a sector operating post Grenfell, in reaction to the Social Housing White Paper and coping with the pandemic.

Return to news headlines

Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority.

Penningtons Manches Cooper LLP