Knowing the stock is an asset in itself
These days managing assets is as much about market intelligence and financial performance as it is repairs and maintenance to the housing stock
By Mark Cantrell
From Housing magazine, April/May 2014
There’s a difficult balance to be had for social landlords these days, between maximising the commercial potential of assets in support of their social purpose – but not taking things so far that the bottom line becomes the purpose.
Like it or not, this tension goes to the heart of asset management processes; it’s no longer just about repair cycles and maintenance timetables, but targeted investment, knowing the value of stock and its likely returns, calculating the numbers to find ways of gaining more bang for the buck, and ensuring resources aren’t wasted.
“The role of asset management within housing associations has never been more important,” said Sara Woodall, director of corporate housing services at the Accord Group. “Across the sector, and partially as a result of the changes to benefits, there has been a renewed emphasis on asset management that delivers increasing value-for-money, whilst meeting customers’ diverse needs.
“An important way of making the most of assets is to regularly review them, their costs and their benefits, and to ensure asset management and stock disposal strategies are intrinsically tied into business objectives. We have developed a model which allows us to do this successfully, while also supporting our wider goals of creating jobs and stimulating local economies by investing in them and local businesses.”
These years of austerity have certainly taught the sector lessons in change, across a wide swath of activities, and asset management has been no different in terms of the shifting culture. As Mark Kirkham, a director with assets and facilities management software firm, Service Works Group (SWG) has observed, there has been a definitive shift from the passive to the “pro-active” in asset management.
“The fundamental principle of asset management is to intervene at strategic points in an asset’s normal life with optimised repair and maintenance activities, in order to maintain the performance of an asset and extend its life. Proactive asset management provides a holistic view of what the organisation owns (or leases), where it is, what state it is in, and when it will next be maintained or replaced,” he said.
“Social landlords are now increasingly focusing on the concept of active asset management. The previous modus operandi was largely passive and focused around a ‘rip and replace’ every five years. If something broke down in the meantime it was repaired, but there was little notion of routine inspection and pre-planned preventative maintenance.
“That is changing, with social housing landlords offering a whole package of lifestyle support to their tenants to enable them to look after the properties and associated assets. The pressure to reduce costs and waste is also forcing a change in the ‘rip and replace’ strategy to ensure assets perform to their life expectancy.
“Proactive maintenance is at the very heart of asset management. A well-thought-through maintenance plan will improve the condition of, and extend the life of the asset. Conversely, poor maintenance can reduce the useful life of an asset. Although an asset may be designed with a life of 20 years, good maintenance may mean that it could perform well beyond that period.”
Meanwhile, as the sector seeks to enhance and tighten up operations, one small group of social landlords are pushing the boundaries of this culture shift by experimenting with the Investment Property Databank (IPD). This is a commercial benchmarking database created for the commercial sector, which it is hoped can be put to work for the benefit of social housing.
“It is a crucial tool in the ever-increasing commercial and value-for-money landscape of the sector,” said Steve Coffey, chief executive of Liverpool Mutual Homes (LMH), one of the organisations leading on the pilot programme. “This will allow landlords to take a comprehensive view of their assets to optimise value and take a more strategic approach to asset management to ensure portfolios best meet the various demands placed upon landlords. It will also help position organisations to attract new investors.”
The aim is to get a better understanding of the social housing stock in terms of its financial performance: what each property is costing the organisation on its upkeep, what it is earning in terms of rent, and how its capital value is behaving in regard to the market, that kind of thing. LMH is working with fellow RSLs Genesis, Helena Partnerships, Spectrum, Gallions, Circle and Orbit, to carry out the three-year-long pilot.
As Maggi Howard, LMH’s director of assets and enterprise, said the IPD is a “can opener” to understanding the how and why of stock performance.
“We need to make sure we are managing our assets as effectively as we can and we need the tools to be able to do that,” she said. “The idea of Investment Property Databank is about measuring your total return on investment and understanding how your stock is performing.
“IPD was established for benchmarking in the commercial sector, it talks the language that investors understand. I think investors find housing associations and their way of working a little bit alien. This will help investors understand how individual housing businesses are performing, which could help us attract investment. And if we can demonstrate we manage good performing stock, we might get better rates than an outfit that doesn’t rate such a healthy return.”
The use of IPD is something of a first for the sector, and if applied beyond the initial pilot partners, Coffey said it has the potential to “go down as a key milestone in social housing’s history”. The end to these means, of course, is to lever in financial investment – to create the conditions for LMH and others to “better fulfil our social purpose”.
“Our sector talks a different language to the capital markets and this is partly due to the lack of economic understanding of our assets,” Coffey added. “The index lets us communicate in their terms; it allows them to read the sector better and understand our values more. Not only does it allow us to understand our costs and returns but it will also aid us should we want to raise funds on the market... The benefits for the sector are significant and the more landlords that take part, the greater the opportunities for all.”
Assets speak louder than words, you might say; in both the commercial and the social sense.
This article was first published in the April/May 2014 print edition of Housing magazine. It subsequently reappeared on the Housing Excellence website, 27 May 2014