Costs soar 8.8%: What happened to value for money and how do YOU compare?

Based on the RSH’s worksheets, HQN’s model will help you evaluate your own VfM across the regulator’s metrics against any mix of peers you choose, generating graphs you can put straight into board papers or annual reports to tenants.

It’s a depressing time of the year, isn’t it? After the joys of Christmas, all the big bills thump onto the doormat at the same time. Wait till you see the Manila envelopes coming in from our housing associations. According to the latest global accounts from the RSH, the costs of running your homes has gone up by a whacking 8.8%. And this was while the rent cut was meant to be driving down costs. What’s going on?

HQN has analysed the data to give you the first report on the new VfM metrics. The RSH says it’ll put out their own calculations later this month. But we know you’re impatient to see how you’re faring. Let’s dive in.

The RSH prefers to zoom in on the median rather than the average for the headline cost per unit. That figure went up for groups from £3,397 in 2017/18 to £3, 695 in 2018/19. Why?

One obvious explanation is the costs of making homes safe after Grenfell. This is essential spending, so no one will quibble with it - unless you’re sorting out jerry-built new blocks that no one in their right mind would have bought in the first place. And we’ve seen some of that.

Support costs also skew the figures. There are 60 or so associations with fewer than 2,500 homes and many of these smaller outfits provide much-needed intensive support to people. Amongst this group, 11 have headline costs of over £10,000 per home while four come in at more than £20,000 per home. Keep an eye on this as new associations target this market. It’s a growing sector.

There are all sorts of factors that drive the national costs up, down and sideways. What you’ve got to do is look at a peer group that makes sense to you. It could be that you need different peers for different bits of the operation. But don’t try and cherry pick the ones that make you seem good, as the RSH knows this data inside out.

Whenever the figures come out, a few questions pop up. One of these is always whether bigger is better: surely with scale we get savings? That’s why we had the push for mergers. What’s the truth of the matter? Well, the biggest associations are also the most expensive (if you leave out the smalls due to the support effect). Will we ever see the benefits of those new-fangled IT systems that were supposed to be the answer to everything? Here’s the league table:

Table

Size of association (homes)

Median headline cost per unit at group level

2500-5000

£3869

5000-10000

£3522

10000-20000

£3534

20000-30000

£3367

>30000

£3881

So, where are the biggies winning? They do enjoy the highest operating margin when it comes to social housing. But they are back down to bang average in line with the pack when you look across all of their activities. You have to ask if those burgeoning development departments are pulling their weight. Some of the costs you see there do seem chunky.

OK, so that’s a few of the highlights out of the way. What should you do with the global accounts?

  1. Be clear about why your own costs have risen or fallen: make sure that maintenance spending is in line with a credible stock survey; don’t stint on safety
  2. Compare yourself to peer groups: pick those that share similarities to you; examine why you’re behind any high performers; say what you’ll do to close any gaps
  3. Prepare a report to board on all of this with recommendations for any improvements; keep this in your back pocket for when the RSH comes to call
  4. Explain your costs and trends versus peers in plain terms in the annual report to tenants: don’t hide behind infographics

Please don’t forget that these are old figures. They go all the way back to March of last year. A lot has changed since then.

Boris is in and he wants all new homes to be low carbon by 2025; he wants the same to apply to all your homes by 2050. Where’s the money coming from for that? Have you put this into your business planning and stress testing?

While we’re still carrying on with the silly idea of tracking associations costs but not those for councils, this will change. They’re doing the exact same job after all. What will it mean for the VfM league tables when the councils join the fray? Could it drive the median down? How will you react?

If your costs look sick, then sort them out or explain them properly. But if you shape up well don’t rest on your laurels. The global accounts contain a tremendous amount of useful data. Get to grips with it today before someone sharper gets in first. The new breed of super civil servants that Dominic Cummings is recruiting will cast their beady eyes on your figures at some point. Now, that’ll be a stress test!

In his latest blog, Dominic is saying he wants to bring in “data scientists”. They’re bound to alight on the fertile ground of the global accounts. And he wants us to work at “the frontiers of the science of prediction”. Can you show that you’ve called it right in the past? Will you get better at this in the future? Saying you’ve been surprised by the rent cut or falling sales will be like putting a nail in your own coffin. And heaven help you if you didn’t see Brexit coming! (Disclaimer: I don’t make the rules.)

Use the data in the global accounts to get ready for the new world. But remember that these static past tense numbers will soon be Betamax.

What’s my new year prediction? Real time benchmarking and regulatory interventions based on it are not far away. Be quick or be dead. Happy New Year!

How HQN can help

The data in this blog are taken from a model produced by Ian Parker of the Housing Finance Network based on the RSH worksheets

You can get this easy-to-use-model to help you evaluate your own VfM across the RSH metrics against any mix of peers you choose

The model generates graphs that you can put straight into board papers or annual reports to tenants

The model will be updated as and when the RSH issues the final version of their metrics

We’ll be tracking and getting ahead of the new government’s approach to housing

The HQN Global Accounts model is available exclusively for members of the Housing Finance Network. Please contact networks@hqnetwork.co.uk or call 01904 557 150 for more information on joining.

Attendees at the HQN stress testing events will be given a chance to try out the model for themselves. For more information on our upcoming event in London on Tuesday 21 January 2020, and to book your place(s), click here