Tough Times ahead for Social Landlords
Nick Sterling, Managing Director for Osborne Property Services spoke to Construction News recently about his views on tough times ahead for Social Landlords as a result of the Summer Budget.
“George Osborne did not pull his punches on social landlords in his Summer Budget.
Among the key measures introduced that affect local authorities and housing associations were an annual cut in rents worth £1.44bn a year by 2020/21 and a reduction in the £26,000 cap on overall household benefit payments to £23,000 in London and £20,000 elsewhere.
This matters to the construction industry because, according to figures published in June by consultancy HouseMark, UK social landlords spend £3bn a year on 18 million responsive repairs.
They invest at least the same again on planned maintenance and much of this essential work is done by contractors.
Besides helping generate the promised £12bn savings in welfare spending, the chancellor also hopes to make social landlords operate more efficiently.
The impact of the rent reduction alone will cost social landlords 12 per cent of their annual income.
The initial reaction from the housing sector has been mixed, but it seems very likely cost savings will need to be found to compensate for this drop in revenue.
As I’ve already mentioned, repairs and maintenance is a large area of annual expenditure and many landlords will be tempted to seek the necessary savings here. Indeed, prior to the Summer Budget, a number of larger housing associations such as Midland Heart, London & Quadrant and Affinity Sutton – a former client of ours – had already begun taking more of their repairs and maintenance services in-house as they do not then attract VAT.
So will more follow suit and just how worried should contractors be?
I would expect more landlords will expand their in-house direct labour organisations and, for many, this will be the right decision.
For others, however, the hoped-for savings will not materialise as they are eaten up by additional overheads such as on IT investment and health and safety requirements.
The recent HouseMark study also showed that, on average, there is little cost difference between doing repairs in-house or contracting them out.
And what about one of the most crucial performance measures for social landlords: customer satisfaction?
In my experience, repairs and maintenance are often the most important measure for many tenants of how well their landlord is spending their rent.
As I said, some social landlord DLOs will be able to deliver excellent services to their tenants. Others will find this more challenging.
DLO or contracted out, the landlord has to be satisfied that it has the correct delivery partner.
At Osborne, we have overhauled our approach in the past four years and invested in our people and systems to ensure we deliver the best possible customer service.
This has resulted in improved tenant satisfaction scores for all of our clients, as well as cutting costs and generating more income from quicker re-lets of vacated properties.
Osborne and our competitors won’t always have all the answers our clients want to hear.
However, as contractors and large employers in our industry, we must ensure we are in the best shape possible to respond to the tough times ahead for social landlords.”