Ian McDermott talks Peabody’s big merger and the future of social housing

Tough though it has been, the merger has now bedded in. And Peabody has big ambitions. Mr McDermott’s intention was almost to reimagine the operating model for large associations. The idea was to make Peabody much more responsive on the ground, creating 140 local neighbourhoods, each with their own plans tailored to areas’ needs.

Local focus

Just over 18 months since the merger completed, Inside Housing sat down with Mr McDermott in Peabody’s central London offices, to gather his reflections on the achievements to date and to pass on the learning from one of the sector’s most ambitious mergers.

Given the headwinds, the process of bedding the merger in has taken longer than originally anticipated.

“I think the external environment has slowed things down and also probably the sheer complexity of it,” Mr McDermott says. “Part of my job is to be impatient and want to do things quickly, but we had the mantra throughout the merger process: ‘as quickly as we can, as slow as we need’. We were trying to push things forward, but not at a level that would compromise the quality of the outcome.”

What were the key outcomes Mr McDermott was looking for from the merger in the first place? There were three main objectives, he explains.

“The first was around resilience and building that for the longer term: financial resilience but also operational resilience and depth. The second one was around residents and that local offer. It sounds like a contradiction to get bigger in order to be more local,
but it did mean that we could really heavily invest in the local model and decentralising the organisation.”

While many of the interactions Peabody has with residents can be dealt with centrally, creating 140 neighbourhoods enables the association to understand local areas better and deliver a more tailored service.

“Inverting the organisation to make sure that everything is focused around that locality is quite a task,” Mr McDermott says (with, we suspect, a hint of understatement).

What does that mean in practice? “It looks like somebody who is invested in and understands the locality, and has the information they need to understand where their resources and time need to be spent,” he says. “And – this is really important – you’ve delegated the authority to them so that when things go wrong, they can put them right, there’s not a whole bureaucracy. We’ve got a lot of work to do before we get to that nirvana, but get to it we will and that is our absolute focus.”

If those were the first two goals of the merger, the third relates to greater investment in IT and data, Mr McDermott says. Improving the data centrally is crucial alongside the local focus because “it can help you predict where tensions are and things that are likely to go wrong – where you are going to get damp and mould [for example]”. That data could also help identify localities where things are going particularly well in order to share learning, or uncover complaints hotspots.

Anyone who has spoken to Mr McDermott over a number of years will know that the desire to create a more locally focused service in the sector has been a long-standing passion. It was one of the first things he talked about when he walked through the door at Peabody; while he was chief executive at Catalyst, he was talking about his desire for the new organisation to be “large but local”.

This focus on patch sizes and improving the sector’s local focus has since become much more a part of the sector’s mainstream. In 2022, the Better Social Housing Review recommended that housing associations develop a “proactive local community presence through community hubs”. Other organisations have since been looking to reduce their own patch sizes. Does Mr McDermott feel that has vindicated his own long-standing views?

“Am I a soothsayer?” he responds with a smile. “No, I think it is just an understanding. If you understand housing management – which is what we are trying to do; we want to be really good at managing our homes and supporting our residents – I think you instinctively know you can’t treat neighbourhood managers like automatons. You can’t from the centre say ‘these are the 20 tasks that you have to do today’. What you need is people who are resourced, empowered and motivated to do what you want.”

If all of this gives an insight into how Peabody will work with existing residents and communities, what about its role in tackling the housing crisis? As readers know, some of the external factors mentioned earlier have impacted the financial capacity of social landlords. As a result, along with much greater investment in the quality of existing homes, housing delivery in London is, as Mr McDermott says, “falling off a cliff”. This is a significant concern for a government that has pledged to build 1.5 million homes over the course of this parliament.

We will come to what more the government could do in a moment. In terms of action Peabody is taking, it is looking at “our own assets and disposing of non-core assets”, Mr McDermott says, and it is working with other organisations on delivery.

“We’re working really hard to see if there are other ways, other delivery mechanisms, that we can find. We’re talking to the GLA [Greater London Authority] about different forms of partnership that might actually allow us to carry on building. We’ve got ideas ourselves around bringing in third-party capital and finding different ways of recapitalising.”

The delivery model for affordable housing in England is likely to change significantly in the years to come, Mr McDermott thinks.

“We need to do things differently,” he says. “I think funding ways of bringing in third-party capital is fundamentally important, and working with the for-profits and other sources of patient capital has to be an integral part of what we are doing moving forward.”

High-rise hurdles

What does this future look like? “I think it is an increasing plurality of provision, and that’s a good thing,” Mr McDermott says. “We’re not in competition.”

If that is how the wider operating environment is likely to change over time, there are more immediate concerns occupying the sector – and affecting delivery in the here and now.

One of those issues is with high-rise housing – and in particular difficulties with insuring taller buildings (Peabody currently has 267 buildings above 18 metres in height). These ongoing difficulties may mean changes to how Peabody approaches development. Nothing has been decided yet, but the association is reviewing its strategy when it comes to the delivery of new housing in the future.

“I think we are right to pause and think about what we want to build in the longer term,” he says. “That isn’t to say we’re going to abandon taller buildings, we’ve got them in the programme for future phases, but I think it is also right to pause and think about that.”

There is also a ‘watch this space’ message when it comes to the future approach to insurance.

“What’s clear is that the insurance market is sort of turning its back really on the sector and its willingness to insure. We really struggle to get people to bid. We’re having to look at different models, different ways of insuring.”

When it comes to asks of the new government, one would be “to get their support and help at looking at the functioning of the insurance market and whether it is working well”, Mr McDermott adds.

And when it comes to the government’s stated intention to publish a long-term strategy for housing this spring, Mr McDermott has some big asks. Treating housing as national infrastructure rather than a cost is number one.

Another is a commitment to reform the social rent system in England and return to a system of rent convergence – a policy intended to align rents in social homes so people pay similar rents for similar properties. The policy operated for more than a decade through to 2015-16, with rent increases capped within a formula to make sure the increases took place over time. The G15’s calculations suggest that reintroducing convergence at £3 a week could raise £773m over 10 years.

Reintroducing rent convergence would help simplify processes and, crucially, given the huge fall in starts in London, “create the capacity for us to carry on building”.

Another area where Mr McDermott would also like to see more co-ordination from government is regulation. There have been numerous regulatory changes introduced in the sector in England over the past few years, including a new consumer regulatory regime in 2024, and Mr McDermott is concerned that there is potentially overlap in some part of the system (for example, the relationship between Awaab’s Law and the existing Housing Health and Safety Rating System). Most importantly, he thinks government needs to focus much more clearly on its expectations of the sector and be open to conversations about resourcing.

“I don’t think there is a coherent whole at the moment,” Mr McDermott states. “There is nobody looking at the cumulative regulatory burden for the sector and how we support that financially.”

This is important because “if you take capacity out of the sector through clumsy regulation, the people who don’t have a voice in that are the unhoused” – in other words, the people most impacted by any drop-off in development.

Given the increasingly tricky operating environment, is the big, showcase merger going to become more of a rarity? “It’s a pretty unforgiving environment in which to do a merger,” Mr McDermott suggests.

Nonetheless, the reasons for acting remain, and the ultimate result is worth it, he adds. “There was a very clear reason why we brought the two organisations together and I think we have been loyal to that throughout the process. It is just staying focused on the big prize.”