Steve Smedley analyses what the Sector Scorecard tells us about the efficiency of smaller Housing Associations and their contribution to the supply of new homes.
A lot has been riding on the development of the sector scorecard. A sector which has been under increasing governmental and regulatory scrutiny to demonstrate VFM whilst contending with an enforced rent reduction has seen – and seized – a chance to take back some control.
Both Acuity and HouseMark have supported the Scorecard, collecting data for its first year. Like many, we were keen to see how the working group fared and what the pilot project showed.
And on the basis of evidence to date, the sector appears to have risen to the occasion in terms of participation and the initial results. For instance, the pilot study shows our sector is punching above its weight when it comes to completing new homes when compared to volume builders such as Barratt Homes, with smaller associations doing particularly well. We can also see that housing associations are committing hard cash to the drive for new homes, spending a median 69p out of every pound generated from operations.
Once again, the evidence does not support the contention that bigger organisations are more efficient.
Key findings from the pilot
It’s worth reading the HouseMark analysis in full, but the key findings tell a positive story.
- 241 participants completed 39,776 new homes in 2016/17. Based on the turnover and output of volume builders such as Barratt Homes, the sector is punching above its weight
- smaller associations delivered 658 new homes, representing nearly 2% of the 35,489 properties they already managed. This actually places their contribution some way higher than the median for all scorecard participants of 1.1%
- the three associations registering the highest proportion of development (relative to existing stock) are all smaller associations
associations invest, on average, 69p of their own money in development for every £1 generated from operational activity, with the top quartile at £1.12. Both figures suggest a commitment to addressing the national housing supply crisis, especially as ‘supply is not the answer’ in all parts of the country
- satisfaction with services for general needs and housing for older people (HfOP) residents is at a median of 86.6% (as it has been for some time), 10% higher than the local authority figure (across all council services)
- tenants in Scotland and the North East tend to be more satisfied than their London counterparts who continue to conform to the ‘London effect’
- smaller associations tend to report higher satisfaction levels, with a difference of almost 3% between those with stock of under a thousand and more than 10,000. This mirrors the findings in the annual SPBM report
Occupancy, rent collection, repairs and costs
- association occupancy rates are impressive – the median stands at 99.5% and sits within a very tight inter-quartile range (ie the top quartile is 99.76% and lower quartile 99%). The North East, East Midlands and East of England tend to report lower occupancy levels whilst smaller associations generally tend to report higher occupancy rates
- associations are continuing a long-term trend of effectively collecting the rent notwithstanding the impact of welfare reform. The inter-quartile range is tight: the median stands at 99.72% whilst top and bottom are 100.21% and 99.23%. If the Universal Credit (UC) pilot exercise is anything to go by, there can be no complacency
- smaller associations measure up well against sector medians on rent collection – theirs is 99.88%, compared to 99.6% for 10,000+ associations
- associations with more supported housing tend to slightly underperform the national median on rent collection (99.4%) whilst HfOP just beats it (99.83%).
- most associations are spending less on responsive repairs than planned: received wisdom is that it is more cost-effective to plan than respond
- the median headline social housing cost per unit is £3,306 (first quartile £2,865 and third quartile £4,371). As with the HCA’s analysis of this indicator, these inter-quartile values sit within a broad range: some providers costing more than £10,000 whilst one recorded less than £1,000.
- Known contextual issues were found to drive costs: associations managing a large proportion of supported housing and HfOP recorded median costs of £5,154 and £4,994 respectively. On average, London associations cost more (£4,995) and the East Midlands the least (£2,605) .
- smaller associations also tend to cost more, at a median £4,247 per unit. It’s difficult to be precise about the reason, as statistically there is a weak correlation between size and cost, which suggests factors such as location or client group may be at play. Around a third of smaller associations in the pilot were in London and a quarter had high proportions of supported housing or HfOP
- average overhead costs (such as IT, HR, finance, office premises and corporate services) as a percentage of adjusted turnover (to exclude non-managed activities) stand at 12.3% with a number of outliers at either end
- London-based associations tend to spend most on overheads and the East Midlands the least
- the smaller association median for overheads is 15.3%, dropping to 10.1% for those with 10,000+ stock. As with headline unit costs, statistically, the relationship between size and cost is weak which means other factors must be at play
- similarly, there is no discernible correlation between the size of a housing association and its overall operating margin which supports many previous findings that bigger doesn’t mean more efficient
- overall operating margins (an indication of efficiency) compare favourably to private sector companies developing new homes or managing or maintaining property
- not surprisingly, those with significant proportions of supported or HfOP tended to have lower margins (around 10% lower) due to the higher service costs
Context is key
- smaller associations tend to have more capacity to cover their loan interest payments from earnings (as measured by EBITDA MRI) than those associations with over 10,000 stock (medians of 246% and 205% respectively). This is definitely one of those indicators that needs to be seen in the context of the business in question – a high score could mean a prudent approach to mitigating risk or that the organisation isn’t actively thinking about using its headroom
- those associations with more than 5,000 stock tend to be more highly geared than those below this figure. Like EBITDA MRI, gearing needs to be understood in context – in this case a low score might be deemed prudent given the risks faced by an association, or alternatively, failing to sweat assets
So, in all, a promising beginning which tells a good story about the efficiency and activities of housing associations – signalling an increasingly mature relationship with government and regulators.