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John Wickenden is a research manager at Housemark
How housing providers can solve the puzzle of value for money
John Wickenden considers the missing piece in the value for money jigsaw faced by social landlords
The value for money (VfM) report published recently by the Regulator of Social Housing laid bare the scale of cost issues housing providers continue to face in managing and maintaining their homes.
The report set out how social landlords expect cost pressures to stay, with landlords predicting headline costs will rise by 38% over the next five years, broadly because of increased repairs, maintenance and investment obligations.
As a result, the regulator has called on housing providers’ boards and leadership teams to make the best use of their resources to achieve their objectives through “effective decisions”. Given these continuing inflationary pressures, how best can landlords approach this?
From our work with clients, we know how valuable it is to build on the regulator’s analysis with deeper understanding.
The key questions for housing providers include: what is driving these costs? How are landlords planning for this increased expenditure? Where is the value for money?
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Current cost picture
The regulator’s report demonstrates how housing associations have bounced back after the pandemic – with four-year trends rather than the customary three to make comparison simpler. We see this most clearly in new supply and reinvestment, with the sector broadly returning to 2019 figures.
Yet, the main story remains: the increase in costs. As well as the headline cost per unit measure, increased expenditure is eating into housing provider surpluses, making for smaller margins, lower interest cover and reduced returns on capital employed.
“Who wouldn’t prefer to be served by a single person who has the time, knowledge and understanding to listen and act?”
There is a further key cost driver facing all housing providers. While the regulator has referenced its 2018 analysis of characteristic cost drivers (location, size, type etc) and highlighted external economic factors, it is also worth reflecting on the increased expenditure required to improve customer experience.
With the regulator’s updated consumer standards imminent and the need to focus on Tenant Satisfaction Measures (TSMs) performance, these changes are likely to have an impact on providers’ bottom lines as landlords consider structures, digitalisation and resident engagement.
Effective expenditure
A good place for housing leadership teams to start getting to grips with this agenda is housing management. Housemark analysis shows that closer customer relationships led by single housing officers covering small patches costs 12.5% more in terms of management than employing several specialists (eg involvement, anti-social behaviour, tenancy) over a wider geographical area.
However, the ‘generic’ housing officer approach pays dividends in terms of satisfaction. We found that tenant satisfaction rates from perception studies averaged 8% higher than landlords using specialist teams. This stands to reason. Who wouldn’t prefer to be served by a single person who has the time, knowledge and understanding to listen and act?
Differentiating staff and services within housing management might be cheaper, but is unlikely to foster the kind of mutual understanding needed for improved tenant perception.
Maintenance matters
With maintenance activities, Housemark’s unique data shows the relationship is not quite so clear cut. We have never found evidence to show that better quality and improved tenant satisfaction comes at a higher cost; if anything, the opposite is true. Value – perceived by tenants – in repairs is built upon individual transactions. Easy repairs reporting makes for a better customer experience and higher satisfaction.
While labour and materials make up most of the overall maintenance costs, investment in the repairs management – ordering, tracking, scheduling, inspecting – is where landlords can make the greatest change in tenants’ perception.
Sticking with maintenance activities, the regulator’s analysis acknowledges safety compliance as another area of increasing costs. While much emphasis has rightly been placed on fire risk, the requirements to assess tenants’ homes for bacteria, such as legionella, is only just coming to light for many providers.
Legionella guidance referenced in the TSMs states that all water systems require a risk assessment. We’ve found that several providers only check higher-risk properties. With private sector landlords paying an average of £75, a housing provider with 15,000 homes could be spending £1m on assessments. This additional work is another priority putting strain on sector finances.
Consider full range of measures
So, while VfM metrics are a useful can opener to fully understand the reasons behind the results, boards need to consider the full range of metrics available – operational performance, satisfaction and detailed costs – cross-referenced with qualitative feedback from across the organisation and wider sector.
With the shift in emphasis heralded in the Social Housing (Regulation) Bill, the value delivered by landlords should be judged through the lens of consumer regulation – in addition to financial measures, business characteristics and market conditions.
Over the course of the 2020s, we expect to see further straitening of providers’ finances as landlords continue to tackle complex challenges and major regulatory change, set against the backdrop of significant market and economic pressures. However, there is evidence that investment in improved customer experience delivers increased value.
John Wickenden, research manager, Housemark
