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L&Q puts new projects on ‘pause’ as market downturn and cost pressures continue
The sector’s biggest builder is putting a pause on new development projects, as well as introducing a recruitment freeze, as it battles to deal with a “serious downturn” in the market and soaring investment costs.
In an email to staff yesterday, seen by Inside Housing, the 95,000-home housing association said that the whole housing sector “is operating in one of the most challenging environments in recent history”.
Last month, its financial statements confirmed a 42% drop in surplus for 2018/19 to £202m, down from £350m, as turnover fell and costs rose.
In his email, below, David Montague, chief executive at L&Q, said : “We have already slowed our development programme and will now pause taking on new projects for the moment.
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“That said, we remain absolutely committed to tackling the housing crisis and we are on track to hand over a record number of new homes this year and next, so we are certainly not downing tools altogether.”
He added that the organisation has a development pipeline of 50,400 homes, with 16,000 on site.
L&Q was the biggest developer in the sector last year by a margin of almost 1,000 – turning out 2,862 homes, including more than 1,500 for affordable tenures.
The email explained that the uncertainty surrounding Brexit “has resulted in a serious downturn in the housing market”. Like many large London housing associations, L&Q has a major market sale arm which it uses to fund the development of affordable housing – making it vulnerable to a changing market.
Mr Montague also said that costs on fire safety and quality works had risen to £202m, with the organisation anticipating more spend. “We face ever growing costs to meet new government guidelines on fire safety and to deliver on our quality promise,” he said.
“So far this year, L&Q has committed a record £202m to this work – and we need to be prepared to invest more, if necessary.”
The landlord is also placing a pause on new recruitment until the end of the financial year for most roles. It confirmed that this means it will not replace chief operating officer Andy Brown, whose departure was announced in August.
A major IT and change and transformation plan is also being placed under review, with Mr Montague saying it will “slow down or pause projects that don’t contribute to essential improvements for colleagues or customers”.
The email said that nothing would change with its plans to acquire Trafford Housing Trust (THT) as it expands into the North West, adding that “THT fully understand and support the prudent temporary measures we are taking now whilst we continue to plan for an ambitious shared future”.
Mr Montague wrote: “Our focus now is on doing the right thing. We think that prioritising safety, quality and jobs is the right thing to do. I believe you do too, and I look forward to working with you to make L&Q a better organisation, a better service provider and a better place to work.”
In recent years, the housing association has undertaken a major increase in development ambition as it targeted the construction of 100,000 homes over 10 years.
The THT acquisition follows three years on from the acquisition of east London association East Thames. It also acquired strategic land business Gallagher Estates for £505m in 2017.
It is engaged in major development projects, such as the £500m Barking Riverside scheme in east London and the new ‘garden community’ West Tey in Essex.
David Montague’s email in full
Hello,
Next week marks the halfway point in our financial year and I wanted to bring you up to speed on where we are and what we need to do now.
Firstly, let me say that the Executive team and I are keen to respond to what you’ve been saying about the pace of change here. At recent roadshows and focus groups, you told us that we’re moving too fast, we’re doing too much. You’re concerned about the quality of our service. And you want to be involved in the changes that affect you and our customers.
You want to do the best job you can – for us and for our residents – so you’d like us to refocus on getting the basics right.
We’re going to make some changes to allow us to do just that, but this is a tough year and we also need to make some tough decisions.
The whole housing sector is operating in one of the most challenging environments in recent history. Although the outcome of Brexit is still unknown, the uncertainty it has created has resulted in a serious downturn in the housing market.
On top of this, we face ever growing costs to meet new government guidelines on fire safety and to deliver on our quality promise. So far this year, L&Q has committed a record £202 million to this work – and we need to be prepared to invest more, if necessary.
As a consequence of these challenges, we have to take some temporary measures which will allow us time to work with you on our plans for delivering a better, more efficient service over the longer term.
In agreeing these measures, we wanted to protect three things – the safety of our residents, the quality of our homes and service, and jobs.
Here’s what we have agreed.
We’ve decided we’ll review our IT and our change and transformation plans. We’ll slow down or pause projects that don’t contribute to essential improvements for colleagues or customers. We’ll fix what we already have before moving onto the next thing. And we will refocus our efforts on the services which matter most to our residents.
We have already slowed our development programme and will now pause taking on new projects for the moment. That said, we remain absolutely committed to tackling the housing crisis and we are on track to hand over a record number of new homes this year and next, so we are certainly not downing tools altogether. L&Q’s development pipeline now stands at 50,400, with 16,000 new homes already on site. In addition, L&Q Estates currently controls land capable of delivering another 46,500 homes, bringing the total number of plots under L&Q’s control to 96,900. We are in active discussions with our partners and the government to ensure that we can overcome market obstacles and do everything we can to keep building quality new homes.
We’ll freeze recruitment until the end of this financial year. This won’t apply to L&Q Living positions that work directly with service users, Direct Maintenance Operatives and Site Managers. In the last year we have created around 600 new jobs within L&Q. As a result of recruiting to these and other posts, we have recruited over 1,000 new colleagues. This temporary freeze will also allow a period of consolidation while our new people bed into the business. The recruitment freeze will apply to all levels of the business, so this means that for now we will not be recruiting to the vacant Chief Operating Officer role, and the interim reporting arrangements currently in place will continue.
We’ll review the way we deliver repairs to prioritise reactive maintenance and try to improve the way that we do this.
We’ll undertake a review to make sure we are making best use of all our assets.
We’ll work with all budget holders to find even small savings from every directorate.
We’ll be working with the entire business to make sure that the services we deliver are operating as efficiently as they can. As part of this, our Senior Leadership Team will work with colleagues to hear their ideas and create a plan to make sure we are minimising waste and getting the best value for our customers and for L&Q.
Implementing these measures, and making sure we stick to them, will help us stay in the strongest financial position possible. This will help us cope with any challenges ahead.
We’ll hold roadshows in the coming weeks where we can hear from you and you can ask more about what’s happening. Keep an eye out for news of these and make sure you sign up for one.
Please rest assured that none of this changes our ambition to solve the housing crisis. In fact, by taking some tough decisions in the short term, we’ll be sure we can meet our longer-term objectives.
It also doesn’t change our commitment to growth and investment in the North West with Trafford Housing Trust. The acquisition offers an excellent fit over the long-term with both L&Q and THT sharing the same vision and aspirations, enabling us to build upon a very successful joint venture that has been in place since 2016. THT fully understand and support the prudent temporary measures we are taking now whilst we continue to plan for an ambitious shared future.
Our focus now is on doing the right thing. We think that prioritising safety, quality and jobs is the right thing to do. I believe you do too, and I look forward to working with you to make L&Q a better organisation, a better service provider and a better place to work.
David
