Working it out
Landlords must sweat their assets if they are to get best value from their housing stock but, as Gavriel Hollander learns from a round table of industry experts, there’s more than one way for providers to get financially fit for the future
‘The issue is that while we’re all talking about social housing, I’d rather talk about housing.’
It may seem like Kevin Dodd is just dealing in semantics, but by the general consensus around this meeting room in London’s Park Lane Hilton Hotel, the chief executive of Wakefield and District Housing has hit the nail on the head.
The message from Mr Dodd and the seven other experts gathered for Inside Housing’s round table debate on asset management, convened in association with property services company Apollo Group, is that the language used in the housing sector is changing.
Where once there was social housing there is now affordable rent; the welfare state is morphing into the big society; and asset management itself is no longer just about simple bricks and mortar but encompasses almost every function that a housing provider performs.
With wholesale changes to the regulatory environment, the benefit system and the way local authority housing is financed, all coming at a time of unprecedented economic turmoil and debilitating public sector cuts, providers are being challenged to cut out the fat and adapt in a way they never have before. If there’s one thing those around the table all agree on, it’s that government policy has not made life any easier for many in the sector.
Building up a sweat
So how are landlords planning to get in shape for the future?
‘The government has to decide what it wants us to do,’ insists Mr Dodd. ‘We won’t do anything that destabilises our own business plan, but at the same time government policy is moving forward. It’s like a river; you’re never going to stop a river, you’ve just got to divert its flow.’
‘The political ground has shifted massively,’ agrees Grainia Long, interim chief executive of the Chartered Institute of Housing. ‘There’s no doubt that, whatever your own views, the state has stepped back more than it has ever done. It’s now saying to organisations that they will have to take their own decisions. Housing associations will have to compete in a more business-type way.’
For Bernadette O’Shea, the current climate represents an opportunity as much as it does a threat. As chief executive of arm’s-length management organisation Hounslow Homes in west London, Ms O’Shea must re-evaluate the role the organisation will play in the community.
‘From our perspective, there are some very exciting opportunities to really think about the asset in quite a different way. There are some nutty problems that are not easily resolved and how one plays the asset has a bearing on the future of the organisation.
‘In west London, we have significant under-occupation sitting alongside enormous housing need, and we’ve also got tenants who want to move around. How do we encourage people to downsize? To recycle assets in a different way?’
This is one of many questions grappled with over the course of the afternoon. The biggest problem for everyone present, however, is how to realise the value of assets and make them work towards the stated purpose of their organisations: to supply more and better housing solutions.
For most, it’s about balancing value and values - being commercial without losing sight of the vital social role their organisations play.
‘While trying to sweat your assets as much as possible, you have to stay true to your principles, which are to provide social housing. You can think, “We could sell this or private rent that” but that’s not what we’re here to do,’ sums up Jeremy Kape, director of property investment at 56,000-home Affinity Sutton.
He and Mr Dodd call for the introduction of new affordable housing products to the open market, especially for prospective homebuyers struggling to raise deposits. As well as enabling tenants to fulfil their housing aspirations, this would be a way of moving those who can afford to take advantage of these prospective new products out of their homes, freeing them up to be re-let or sold.
However, while there are some tenants who would be in the financial position to move on, there are many more who are struggling.
Halton Housing Trust is trying to protect tenants from a second successive year of steep rent increases, which could be as high as 8 per cent. ‘We need to create money so that we can use it to mitigate the impact [of increased rents] for our customers,’ says 6,000-home Halton’s chief executive Nick Atkin. ‘We are looking at how we can bring in a system that would either charge a differential rent or provide some form of subsidy rather than just taking tenants to court and kicking them out.’
The Cheshire-based housing association is working on a more ‘sensible approach to asset management’, explains Mr Atkin. ‘Our mission is to be a business with a social conscience. Today we’re [an organisation with] a social conscience that’s tinkered a bit with business - and that’s got to shift.’
Richard Jones, head of residential, regeneration and growth at engineering consultancy EC Harris, believes that housing professionals’ skills need to be developed if the sector’s assets are to be used to their full potential.
‘Our industry, on the asset management side, has been stuck in quite a stagnant skill set for a long time, for all sorts of reasons,’ he suggests.
The need for robust risk management and for being able to drive best value and efficient operations was never as imperative as it is now, and that’s driving new and different ways forward.’
According to Mr Jones, the challenge is for the social housing sector to move increasingly inline with the corporate world. This means 30-year business plans will be developed and there will be a greater willingness to take risks with different types of development and how they are financed.
He points to a joint venture he was involved in setting up between 67,000-home London & Quadrant and house builder Barratt, which will begin in January 2012 and see 375 homes developed for open market sale with no affordable rents.
‘I had to convince them to go for it,’ he recalls. ‘The reason I was so enthusiastic was that it was a fantastic scheme that was going to earn a lot of money, and what they could do with the surplus money from it was three or four times what they could do if they’d put the same money into a [development] that had 30 per cent affordable homes.
‘The overall outcome for them in delivering affordable homes was a lot greater, but it becomes a hard call at board level.’
Selling this kind of initiative - a radical departure from the way social landlords have operated in the past - to organisations’ boards is essential.
‘Board leadership is going to be critical,’ says the CIH’s Ms Long. ‘Some organisations are going to have to decide whether they expand into new markets or whether they expand their range of products and services.’
Those around the table are sure that housing providers finding new flexible ways to manage services - sharing service provision with other organisations, for example - will save money and also impact on the way they manage their housing stock. What they do not know, however, is exactly how this will play out.
‘For the first time, I’m not sure where the sector is heading in terms of the asset,’ says a concerned David Sheridan, Apollo’s chief executive. ‘So from a building perspective, a rates perspective, a refurbishment perspective, I don’t always know what’s required.’
One thing our round table participants are certain about, though, is that the green agenda is changing the way housing organisations are thinking about their homes. Ever more environmentally friendly building regulations are preoccupying developers, contractors and landlords alike. For example, regulations proposed for 2013 will require carbon emissions to comply with level 4 of the code for sustainable homes.
Mr Sheridan argues that an integrated approach is needed from these different parties if the green challenge is to be successfully tackled, but that simple physical changes to the housing stock won’t be enough.
‘Is putting 12 inches of insulation going to change behaviour or is it peoples’ lifestyles we need to change?’ he asks. ‘I’d like to try to piece together a strategy around where the sector is heading.’
Andrew Eagles, managing director of consultancy Sustainable Homes, suggests that environmental concerns, sustainability and value are all intrinsically linked when it comes to asset management planning. ‘There’s a big change in perspective at the moment and the rental value of properties is going to change fundamentally,’ he states, addressing the likely impact of the green deal and the forthcoming change in emission regulations. ‘And I think it’s wider than just energy; we need providers to look at the risk of flooding, at using sustainable materials for retrofitting or overheating.
‘There’s a lot that can be done around understanding our stock even before we know the outcome of the green deal [the government’s national retrofit programme].’
Mr Dodd, whose own organisation has already pledged to deliver homes to at least code level 4, says the green agenda is putting increasing pressure on the cost of developing new homes.
‘There is momentum around the green challenge, but it’s going to massively reduce the types of properties [we deliver], and it’s something we are failing to address in the current regime where the affordable rent model is pricing us out of the market.’
Making it pay
The statement produces knowing looks all around. The nub of the problem is how to fund everything that housing organisations are being expected to do with their assets, while simultaneously delivering and then looking beyond the delivery of homes with limited capital subsidy through the Homes and Communities Agency’s 2011/15 affordable homes programme.
‘In terms of asset management, the big barrier for us when it comes to future investment is the uncertainty of the rent framework,’ explains Mr Atkin, alluding to the absence of detail of the funding regime for new homes post-2015. ‘That uncertainty is hindering long-term investment plans.’
Instead of being overwhelmed by the strenuous task that lies ahead for housing organisations Mr Kape suggests breaking things down, and focusing on how assets are performing in a micro, rather than macro level - something he says his own organisation Affinity Sutton is doing.
‘You have to look at every community or estate on its own merits,’ he explains. ‘It gives us a lot more choice and it means we’re more informed about how we can use our existing assets.’
EC Harris’ Mr Jones agrees this kind of approach is what is called for. ‘What I’m beginning to see, is that you’ve got to run things like a private business. You have to have a vision to see what the prize is and create a methodology to get there.’
The consensus is very much that rather than attempting to shift government policy or return to an era of easy credit and lazy assets, organisations must change how they think. As Wakefield and District’s Mr Dodd says, it’s not about stopping the river of change; it’s about making it flow the way you want it to.