You are viewing 1 of your 1 free articles

Olivia was appointed as Chief Executive in April 2017. Previously, Olivia was Finance Director at Dolphin Living, providing financial ...more

As the cost of living crisis bites, we need to talk about service charges

Comment06.01.22by Olivia Harris

The impact of the looming cost of a living crunch on residents will be huge. That’s why the spectre of high service charge inflation needs much more serious thought, argues Olivia Harris

Picture: Getty

Sharelines

The impact of the looming cost of a living crunch on residents will be huge. That’s why the spectre of high service charge inflation needs much more serious thought, argues Olivia Harris from @dolphinliving #UKhousing

Following intense coverage of surging gas prices and rapidly rising inflation, the cost-of-living crisis may have receded from the news headlines in recent weeks. But it certainly hasn’t abated for Dolphin, our residents and many others in the housing sector.

The squeeze on living standards for many is likely to get worse, when factoring in the continued effects of the pandemic on supply chains, labour shortages and key skills gaps within the economy, and an upward pressure on energy costs.

When one also includes the recent loss of the Universal Credit uplift, as well as likely increases in taxation and other associated costs early next year, then for many the situation becomes bleak.

It is within this context that we must also look at other factors that may start to have a significant impact on the housing sector, specifically any monetary response by policymakers in relation to interest rates as inflation continues to remain stubbornly high and is predicted to do so throughout most of 2022.

However, it isn’t always the headline-grabbing cost pressures that receive attention.

Those comprise many of our residents, and indeed those across the housing sector, who can often just afford to pay their rent and struggle to meet their basic living costs. Undoubtedly, it will be these people who will feel the squeeze the hardest and knowledge of this makes our annual rent increase decisions harder than ever.

However, what often hits the hardest are those unexpected increases, or those without any apparent predictability or, at times, rationality. One of the most pertinent cost issues in housing is the issue of service charges.

The costs of fire safety and cladding included in service charges have been reasonably well documented in recent months from a resident’s perspective. Yet the issue of service charges in the context of affordable housing providers as long leaseholders has received little attention.

“We have experienced what many individual leaseholders have faced, namely an extreme difficulty in being able to extract information from the managing agent regarding the basis for the service charge, or a detailed breakdown of costs”

Our recent experience at Dolphin is that these increases have been significantly above Consumer Price Index inflation. Luckily for our tenants, our rents are inclusive of service charge, however this does impact our spending decisions as a landlord and our surplus, which is reinvested in delivering more affordable homes.

Here we have experienced what many individual leaseholders have faced, namely an extreme difficulty in being able to extract information from the managing agent regarding the basis for the service charge, or a detailed breakdown of costs.

Perhaps even more disturbingly – and on more than one occasion – we, as an affordable housing leaseholder, have not even received the same service from the managing agent as the individual market leaseholders despite paying our share of the costs and management fees.

The managing agent is appointed by the freeholder, which is their client. However, it is the leaseholders, including housing providers, that bear the costs of the service charge.

What is perhaps most worrying are the significant increases on service charges in new build developments. We review in detail the initial service charge estimates and frequently identify cost lines that are missed or costs that are understated, hence we are forewarned of the significant cost increases in the early years of operation.

While some may argue that as a customer we should have choice and some control, in reality we have little option other than to pay what we are asked.

We fear the impact is much greater on individual leaseholders, including social tenants and those who have purchased through shared ownership, who have less resources and whose voices may not be heard.

“While some may argue that as a customer we should have choice and some control, in reality we have little option other than the pay what we are asked”

Aside from the financial burden placed on us as a charity, there is also the major issue of a developer, having sold all the long leaseholds, having little or no incentive to manage well, provide value for money, or mitigate costs. This, as you would expect, often has a significant impact on both the quality of service we and our residents receive, and the value we derive from those services.

Of course, to highlight the issue is one thing, but to provide a remedy is another matter altogether. However, given the scale of the issue, and the number of people the issue of service charges impacts, we strongly suggest that the government reviews this in earnest – in the context of its continuation towards increasing housing supply, greater levels of homeownership and in terms of attempting to “level up” communities in the context of an impending cost of living crunch.

Olivia Harris, chief executive, Dolphin Living