10 comment COMMENT Money, money, money
Patrick Mooney of Mooney Thompson Consulting comments on how the Government is turning up the heat on social landlords to put the focus firmly on ‘value for money.’
tor look beyond the headline figures to ensure that customer satisfaction and ‘doing the right thing’ share top billing alongside unit costs and operational efficiency? Research undertaken separately by the HCA
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and by Housemark (on behalf of the National Housing Federation) has shown that landlords have already achieved sizeable reductions in oper- ating costs and overheads over the past five years. But under continuing pressure from Govern-
ment ministers, the Homes & Communities Agency is turning up the heat on social landlords. Whether this pressure will turn into stronger reg- ulatory action, such as downgrades in governance ratings remains to be seen. But it shouldn’t take too long before the HCA’s intentions become clear. Its regulation chair Julian Ashby has recently
written to the chairmen of the largest 350 HAs urging them to increase their efforts to save money. It appears they are being asked to per- form something of a minor miracle by delivering the following outcomes:
• Absorbing the annual 1 per cent rent reductions through to 2020
• Increasing the development of new afford- able homes
• Improving services to residents
Mr Ashby has pointed out that with Decent Homes work programmes largely completed, there should be room for cutbacks in expenditure on major improvement contracts and big main- tenance projects. His contract has just been extended so no changes in the message are expected any time soon.
Unexplained differences
Analysis of HA finances by the HCA revealed large differences in landlords’ operating costs and arising from this, several fascinating issues that really do need further investigation. For instance, it appears that only half of the
higher costs can be attributed to factors such as regional differences in wages and the higher unit cost of providing supported housing services for the elderly and other vulnerable residents. So what causes the rest of the difference and can it just be down to the better prices for repairs
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alue for money has returned to the top of the agenda with a bang, but landlords are asking will the social housing regula-
and maintenance works negotiated by savvy pro- curement managers? It doesn’t appear to be that simple. But possibly of most interest given the current
trend for mega mergers, is the finding that larger landlords are not necessarily more efficient, nor do they have lower costs than other housing associations. Although all statements by merger partners
refer to them making financial savings through combining operations to create greater efficien- cies, the HCA say their research found “there was no significant evidence of a clear relationship between scale of a provider and lower costs”. So can we expect more scrutiny of mergers and more detailed follow-up work to ensure the promised benefits have been produced? You would like to think so.
Warning
In an explicit warning to HA boards that they have to step up and get a firmer understanding of their organisations’ activities and costs, Mr Ashby said “We are not mandating a ‘right’ level of operating costs. However, we will seek assurance that
investment decisions to
deliver specified outcomes are rigorous and evidence-based.” It will be interesting if this assurance work
includes obtaining the views of tenants, who are afterall the customers and possibly the best placed to say whether the greater focus on VFM is improving matters for them. For instance - are their phone calls being answered more quickly and by staff who can properly deal with their inquiry? Are services flexible enough to fit in with their specific needs and does their landlord focus on preserving tenancies or evicting those with rent arrears? The HCA said average costs per unit had
fallen slightly to £3,550 over five years. It found the lower quartile cost was £3,200, while the upper quartile cost was £4,300. That difference is equivalent to more than £20 a week, a hefty chunk of the average rent of about £100 a week. A minority of landlords – mostly Supporting People providers – had average costs of more than £10,000 per unit. The research showed the cost of housing man-
agement services stayed relatively stable over the period, dropping just 0.6 per cent while remain- ing at an average of £500 per property. The cost of repairs and maintenance per prop-
erty fell by 11.1 per cent from around £650 per property to below £600, while the average time taken to complete repairs fell slightly from 8.51 to 8.22 days. Tenant satisfaction with repairs and maintenance fell from 83.2 per cent in 2011/12 to 82.3 per cent in 2014/15. However, the overall satisfaction of tenants
with their landlords rose from an average of 86.5 per cent to 88 per cent over the same period. All good news, but it appears the Government wants savings to be ramped up higher so that HAs can invest the money in bigger housebuilding pro- grammes, towards its ambitious target of 1 million new homes by 2020.
Investment
Looking forward, HAs are forecasting making greater cost savings over the coming years, with the headline social housing cost per unit forecast to decrease by 7 per cent. They can expect greater scrutiny of these predictions and detailed checks on their delivery. Fiona MacGregor, executive director of Regu-
lation at the HCA, said “Savings being forecast between now and 2020 to offset the impact of cuts in social rents are significantly greater than anything the sector has achieved in recent years. As the sector seeks to produce savings and simul- taneously deliver investment in new and existing homes, it will be increasingly important that providers optimise the use of their resources and assets.” Separate research undertaken by Housemark
for the NHF found that housing associations managed to reduce their overhead costs relative to turnover over the last six years. The study looked at the benchmarking data from 250 HAs between the years 2008/09 and 2014/15. This showed that overhead costs – covering
such back-office functions as IT, human resources, finance and accommodation, fell from an average 13.6 per cent of turnover in 2008/09 to 11.8 per cent in 2014/15. It also showed that the percentage of spending
on activities like anti-social behaviour, tenancy management and resident engagement had all decreased while spending on rent collection went up.
Question marks
The report said this reflected HAs’ response to welfare reform. While rent arrears fell during the
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