How many pounds does it take to change a light bulb?

Just how many pounds does it take to a change a light bulb in a social housing development? That is the question some tenants may find themselves asking while looking over their service charge bills.

These charges - the fees tenants pay to landlords for the maintenance of communal areas - have long been a subject of contention. They represent the single largest complaint brought before the Tenants’ and Residents’ Organisations of England.

An exclusive Inside Housing poll of 18 UK housing associations has found that during the past three years housing association service charges have risen nearly 23 per cent on average.

Further breakdown reveals flat-dwellers are hardest hit, with average bills increasing by a third. Charges for houses rose more that 12 per cent in the same period. This is more than rents, which have risen an average of 10 per cent in the same period among those surveyed, and beats inflation, which has fallen 1.4 per cent from its 2006 peak.

Housing associations say the increase largely reflects the increased costs of service provision and refinements in the way charges are set. But while Inside Housing’s survey results come as ‘no surprise’ to a TAROE spokesperson, they raise concerns about the affordability and transparency of these charges.

Affordability

So how bad is the problem? And what explains the fact that some landlords have managed to lower bills?

Inside Housing’s data reveals that some housing associations have increased service charges by substantially more than 23 per cent. Ore Valley Housing Association’s charges, for instance, increased from £4.50 a month in 2006/07 to £25 per month in 2008/09.

Andrew Saunders, director of Ore Valley, says the dramatic increase is due to the acquisition of more new build properties in that period, which have more communal spaces and therefore require more services. But, he contends, ‘our service charge policy is more robust than it has been in the past’.

Other associations give a wide range of reasons for the rises. Service charges for tenants living in Family Mosaic houses went from £3.22 to £4.77 a week, a 48 per cent increase. An association spokesperson says this reflects increases in fuel prices and seems more significant than it is because the original charge was a ‘relatively low’ base figure.

Notting Hill Housing tenants saw a 33 per cent increase in average service charges for both flats and houses, which the association attributes to building to higher densities and an increase in the number of section 106 schemes, where private tenants and owner occupiers often share communal areas. These ‘tend to have higher service charges’, says a Notting Hill spokesperson, as they are ‘managed by external managing agents’.

Meanwhile, Georgia Parkinson, head of housing at Aldwyck Housing Association, where service charges rose 26 per cent for flats, attributes the jump to rising utility costs and general services such as gardening contractors, as well as ‘improved accounting practices’.

She explains: ‘Thanks to a greater concentration on cost management, residents are now charged more accurately according to the actual expense incurred by schemes in their area, and are no longer cross-subsidised by other tenants.’

Understandably, many tenants are angry. Mark Hammill, is chair of a residents’ association created to fight service charge hikes in Salamanca Place, a Notting Hill Housing development in London. One of his neighbours is a social tenant who has successfully challenged service charge increases, which shot up from £500 in 2005 to around £1,800 for this year. 

‘The service charges started at £500, then went up to £850, jumped to £1,600 and then £2,200 before [Notting Hill] pulled it back down to £1,800,’ says Mr Hammill.

But John Bryant, policy officer at the National Housing Federation, stresses that landlords have ‘quite limited freedom of action’ in these increases. ‘Service charges [for landlords] are a bit like somebody telling you to go to down to the supermarket and buy a loaf of bread,’ he explains. ‘It’s not your fault if the cost has gone up 50 per cent.’

Average energy bills, for example, have more than doubled since 2005 according to consumer website Uswitch. And it predicts prices quadrupling by 2020 if current trends continue, pushing the cost to landlords of heating and lighting communal areas even higher.

Mr Bryant notes that landlords are still bound by tenancy agreements to provide certain services despite rising costs and ‘even if nine out of 10 tenants don’t want it’.

‘Landlords don’t have any options. You can’t just decide not to provide [services detailed in tenancy agreements],’ he adds.

Donald Brown, London office manager of the Residential Property Tribunal Service which handles service charge disputes, concurs that situations aren’t always straightforward. ‘It’s rarely a black and white case,’ he says, adding that the tribunal has handled ‘a steady increase’ in service charge disputes over the past two to three years.

Cost-cutting

Some housing associations managed not only to avoid increasing service charges, but to lower them over the past three years.

Network Housing Group is one of them. After reviewing its service charge policy and retendering contractors, the association has dropped service charges from an average of £20.13 a month for 2006/07 to an average £13.81 a month for 2008/09. Similarly, Gentoo Group slashed average service charges for houses and flats by 19 per cent over those three years.

The associations attribute the decreases to a policy of charging tenants the actual cost of services, competitive tendering to secure the best service prices and then passing savings along to tenants.

Michael Gelling, chair of TAROE, says he believes other landlords could do more to pass savings along to tenants. But he admits the picture is not clear cut, adding that some increases in service charges should be expected over time. ‘Increased charge levels may be necessary where these have been discussed and agreed with tenants in response to their increased demands,’ he says.

He is more concerned that residents are made aware of why they are having to fork out more in service charges. ‘What is important,’ he argues, ‘is to ensure transparency is achieved to ensure that service charges are not used as a way to increase rents by stealth and avoid the rent restrictions that apply.’

Peabody tenant Matt Joseph is angry that his bill isn’t itemised.  ‘You don’t go into a restaurant and get a bill saying “your meal costs X”. If I pay for a service I want to know what I am getting for it.’

He adds: ‘[Peabody] has just increased the rents and it is mostly from the service charge, so what the hell is the service charge for? If I pay for car parking I should get a space to park my car. Someone comes and cleans the step but not as often as since it went up.’

All of the associations polled which bill variable service charges say residents are automatically offered an itemised cost breakdown. But associations with fixed charges - more than a quarter of those polled - often do not. Three of the five housing associations that charge fixed rates
(Clydebank, Peabody and Gentoo Group) say they do not automatically provide this information to residents.

A fairly standard reason given by associations for not automatically providing tenants with an itemised breakdown of how service charges were spent comes from Peabody. A spokesperson admits that it does not have the procedures in place to do so. The association hopes to be able to change that by 2011.

Transparency

The NHF’s Mr Bryant admits it is ‘easy to see why people find the situation frustrating’ but again emphasises that associations often have little control and are acting as simply ‘a kind of post office’ for charges. ‘It’s not a money-driver for landlords,’ he insists.

He also notes that while landlords can reasonably expect to recoup the losses for the charges they have incurred in providing services outlined in tenancy agreements, tenants can reasonably expect associations to be open about their charges.

‘If those two things were always kept in mind I’d expect there’d be much less room for argument,’ he says.

Similarly, a spokesperson for the Tenant Services Authority notes that service charge inflation can be caused by anything from building type to tenant desire for more services. Though the spokesperson adds that the regulator ‘expects charges to be reasonable, transparent, reflect the cost of service and provide good value for residents’.

Many landlords are aware that inflation-busting service charge hikes are less than palatable to tenants. Some of those surveyed indicate they are taking steps towards making service charge policies more amenable. A spokesperson for Notting Hill Housing - which collects more than £100,000 in service charges from general needs social tenants every week - says the organisation is ‘keenly aware’ of service charge increases and is looking into reducing them.

Corinne Croome, development client manager at Notting Hill, says the association is considering subsidising charges with ‘income from a lump capital sum’. She adds that, in new developments, the landlord tries to ‘design-out costly non-essential features… specifically to reduce service charges.’

But these kinds of changes may not shrink a portion of many service charge bills. Nearly all the associations polled - as well as some of those which have cut charges - include maintenance and administration costs in service charge bills. These costs range from 7 per cent to 20 per cent of the total amount that tenants are charged for services.

Whichever way you cut it, rising costs, the prevalence of opaque billing and a significant variation in billing practices mean the majority of housing association tenants are unlikely to enjoy service charge cuts anytime soon. As for the cost of changing a light bulb - for many the mystery looks set to remain.

Additional research by Keith Cooper and Gene Robertson

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