L&Q almost didn’t hire David Montague. The director that interviewed him back in 1988 wasn’t sold by the unqualified PR executive pitching for a finance job at the housing association.
“The story goes that the finance director said to the HR director, ‘If you want somebody to run the finances, he is not your man,” says Montague today. “He saw right through me. But L&Q saw potential.”
A little over three decades later, he is still at the company, spending the last 12 years as chief executive. His rise from questionable candidate to corner office is arguably the ultimate example of what he describes as the L&Q approach to talent development: “See potential in people and invest in that potential.”
Montague says he got through on a good interview but knew nothing about accountancy. Reflecting on those early days now, as he enters his final months with the company, he says the first weeks were the most stressful. A fire destroyed all the ledgers in the finance department. After cobbling together a passable set of accounts, Montague set about getting trained and qualified. “It all started with a pile of ashes,” he recalls.
Montague ushered in a raft of changes at L&Q. He brought the first computer, an Amstrad laptop, then introduced the first spreadsheet, SuperCalc, and finally persuaded his predecessor as chief executive, Don Wood, to start staff using email. It is all a long way from the company today, in which more than half of 3,500 employees across the £36bn business have been set up with all the technology they need to work from home.
Now, he is preparing that business for his departure during the industry’s biggest crisis. The sector has thrived on its financial autonomy and freedoms, he says. But the phase following his departure could be very different.
Find your own way
Montague’s arrival at L&Q, fresh from City Hall and the Greater London Council, coincided with a major change in housing financing. The 1988 Housing Act freed housing associations from reliance on government grants, allowing them to borrow privately against growing rental portfolios.
“It meant that we could write our own future, that we weren’t constrained by the amount of government investment,” says Montague. “It was a really good time to get into housing.”
A decades-long spree of mergers and acquisitions saw a handful of housing association behemoths – of which L&Q has arguably been one of the biggest and boldest – swallowing rivals East Thames Group, Gallagher Estates and Trafford Housing Trust and agreeing partnerships with others, for example the GLA with the 11,000-home Barking Riverside. Since Montague joined, L&Q has grown from 10,000 homes to 105,000. A further 100,000 are in the pipeline, of which 40% will be delivered in joint ventures.
You have to continually stress-test your business to make sure that changes in the market don’t expose your social housing to any unacceptable risk
– David Montague
The housing association has embraced freedom from government grants. “We wanted to find our own way,” says Montague. “If there was a pivotal moment in L&Q’s history, I would say it was the 2008 recession.” The subsequent coalition government cut housing association grants by 60%, which forced the business into commercial development, turning to market sale and private rents to subsidise social housing.
“The world is a much bigger place when you don’t see it through the lens of government funding,” Montague says. “If you do what government funding allows you to do, you won’t do a great deal. If you take government funding away, the possibilities are infinite.”
Montague speaks with passion, praising the cross-subsidy model as “one of the greatest inventions of the housing association sector”. In recent years, L&Q’s expansion has helped housebuilders and developers to de-risk their scheme. It has been bullish, buying swathes of the UK at the top of the market, but it has also been burned.
The Ken Livingstone route
Weakened consumer sentiment in London saw L&Q’s surplus slump to £191m, £150m short of its original £340m target in its 2019 financial year, with an operating margin shrinking from 39% to 33%.
This forced L&Q to review upcoming projects, stepping away from some, including an £82m forward-funding deal for Hub’s 100% affordable housing scheme in Abbey Wood.
“We have struggled a bit in more recent times, but so has everybody,” says Montague. “The key issue is you have to continually stress-test your business to make sure that changes in the market don’t expose your social housing to any unacceptable risk.”
In a worst-case scenario, the market downturn will mean L&Q’s model cannot deliver as many homes. But this doesn’t lessen the company’s ambitions – instead, it is extending its partnerships offering to central government.
“This is a massive opportunity for government to work in partnership with housing associations, local authorities, housebuilders and developers, to invest together in a step-change in new housing supply,” Montague says. “Housing is the perfect economic stimulus and housing associations are the perfect partner.”
He points out that it is “the essential role of government” to maintain production in uncertain market conditions. With new housing supply expected to halve next year, government must step up. “When the money comes back, when the market bounces again, we will make more money from development for sale and government can step away again,” he says.
Putting politics aside and maintaining an “open, transparent, productive” relationship with Westminster is a running theme for Montague.
The day he joined the GLC, Margaret Thatcher announced its abolition following “trench warfare” between the Tory government and the Labour mayor (former mayor Ken Livingstone would taunt the prime minister with a sign on the roof of City Hall projecting the latest unemployment figures). As the government locks horns with metro mayors and unemployment hits fresh highs in the wake of the pandemic, what is his advice for the current mayor of London?
“You’ve got a choice. You can take the Ken Livingstone route and get abolished or you can work together for the interests of London and the nation as whole,” says Montague. “Now more than ever, we’ve got to work together.”
The home straight
Montague planned to leave L&Q after 10 years as chief executive, but has hung on in the face of the industry’s biggest crises – first the Brexit vote, then the Grenfell Tower fire and now the Covid-19 pandemic. “Like every other business we were being hit from all sides and it just wasn’t the time to leave and so I stayed to make sure the organisation was in good shape,” he says. “Organisations need to change and grow and adapt. This next chapter will be someone else’s.”
But as he hits the home straight, Montague hasn’t hung his boots up just yet. Instead he is mapping out L&Q’s strategy for the next five years.
The board, leadership executives and residents are still debating the plan, but there are a few key themes. “The first is that our number one priority over the next five years must be safety,” says Montague. “You’re going to see some big investment from L&Q in safety over the coming years.” L&Q has around 200 towers over 18m, and 2,700 under that height.
Meanwhile, he is signing up for a portfolio career of non-executive housing roles. He is already on the board of the Housing Finance Corporation, which raises bond finance for housing associations, but is also looking to join a housebuilder and a social housing provider, as well as supporting social entrepreneurs. “I’m talking to a few people about supporting new social businesses, to follow the L&Q story from £64 to £36bn,” he says. “We could do with a few more stories like that.”
Initial investment in L&Q came from 32 individuals all buying £2 worth of shares.
Montague has one piece of advice to prospective candidates vying for his current role. “The number one thing everybody wants is for my successor to be as committed to our social purpose as I am,” he says. “That’s the most important thing – and we will cast the net wide.” As Montague himself proved some three decades ago, a seemingly unlikely applicant might just surprise everyone.
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