Annual repairs and maintenance costs - the data

The Global Accounts of Registered Providers published each year by the HCA provide a valuable insight into the financial performance of social landlords and more importantly serve as a vital tool for the comparison of similar organisations. Whilst we are aware that providers have differing strategic priorities and objectives and therefore  cost reduction may not be the number one priority, the disparity as shown in this year’s publication, at the very least, begs some questions. As it stands the Value for Money (VfM) measure is still utilised by the regulator as a measure of efficiency in regards to the allocation or resources. Therefore being able to show compliance, or progress towards it, is important for social landlords. As a provider it is important to understand your repairs costs, the difference in those costs relative to your peers and most importantly the drivers of these differences. The data included in this article, a significant portion of which has been sourced from the HCA, can be used to benchmark your performance against social landlords when it comes to repairs.

The graphics above show the cost per unit (CPU) quartiles as reported by landlords managing over 1000 units in the year 2015/16. The CPU are new calculations included in this year’s global accounts and below are the equations used by the HCA to calculate them.

These equations can be used to measure exactly how much each of your social letting units is costing you when it comes to maintenance and repairs and more importantly to evaluate where you stand in relation to other comparable providers. Clearly, any number above the median which cannot be explained should be a cause for concern.

Further substantiating this, the HCA found, in their 2016 regression analysis,  that 50% of the variance in repairs costs could not be explained by the level of supported housing held or regional wage differences. This means that higher repairs costs could not be explained geographically or by organisation size alone and could therefore be an indicator of operational inefficiency.  Being able to both create savings and invest in stock is the challenge all providers are now facing. Add to this the annual rents cuts and it becomes vital that providers are optimising their available resources and assets.

As a point of reference the graph below shows the mean average amount spent per unit in the other assessed areas.

Despite providing a twelve month comparison, the data above, serves only as a point of entry in to our repairs analysis. To fully understand the expenditures of social landlords and the repairs costs incurred we must go further back. The data we've analysed goes back to 2004 for major repairs costs and 2009 for maintenance allowing us suitable time to identify any trends or anomalies which may have emerged.

The graph below (Major Repairs Expenditure) shows that after a spending peak of £1218m during the financial crisis there was a sharp decline in expenditure on major repairs and by 2012 it had more than halved. In fact, the 2016 figure in comparison to 2009 represents a 57% decrease. The optimist may see this as a good sign; it is possible that better planning, investment, and a higher standard of work means tenants are inhabiting more resilient and long lasting properties. On the other hand, the pessimist may point out that due to the pressures on landlords to evidence value for money they may be limiting investment, the possible effects of which could yet to be fully seen. This argument could be strengthened by the 11% decrease in the last year alone - are providers starting to feel the effects of the annual rent cuts? If so, we'd expected to see a further fall in the coming year.

Expenditure on planned maintenance perhaps tells a more reassuring story to date. Firstly, the figures have remained fairly consistent in the last eight years with there having been only a 14% increase over this period. Secondly, the numbers seemed to have remained fairly stable, around £800m mark, since 2014, but what does this mean to the individual provider? This data can be used to benchmark your performance. Through knowing that the sector wide spend has remained fairly constant over the last few years a comparison can then be made against your own costs. Have you seen any particularly large increases or decreases over this period? Or any emerging trends? If so, can these be explained? Clearly, a new investment strategy or a change in direction could affect these numbers but if such a change has not taken place, it could be opportune to review your operational efficiency.

In contrast to the above however, routine maintenance expenditure is steadily increasing having risen 21% since 2009. Again, the optimist might say this is a good sign, clearly there is increasing investment into repairs and maintenance services and as a result provision of a better service for tenants. However, the tenant satisfaction figures reported by the Tenants’ and Residents’ Organisations of England showed that in 2014/15, for example, tenant satisfaction fell as low as 58% in some cases and we have seen above that expenditure in other areas of repairs has fallen.

The pessimist could argue however that in a time when social landlords are facing increasing pressure to evidence savings for their customers their repairs service is lagging behind. If a repair is not classed as an emergency and it does not fall under a planned cycle then it becomes routine. In normal cases it should not take more than four weeks for the provider to complete this work. It is how social landlords approach this work, however, which sets them apart and can cause their repairs costs, and resulting value for money offerings, to differ so greatly. Whether a repairs service is in-house or contracted can, of course, have a bearing on this. For example, does your current labour force have the requisite skills to work efficiently and to an acceptable standard? Furthermore, are your scheduling and planning processes effective - are the right people in the right places at the right time? If you are unable to confidently answer yes to both of these questions then you may be bearing unnecessary costs due to inefficiency. If you are unsure about the answers, then a repairs service review may help.

Below we can see the linear representations of the expenditure on routine maintenance, planned maintenance and major repairs as well as their respective changes over time.

The final graph, showing total expenditure on social housing lettings between 2009-2016, portrays a spending increase of 30% over this period.  It has been included to give context to the data above. Major repairs and planned maintenance may be falling but overall expenditure is on the up. For example, management costs have increased which can be adversely affected through poorly planned and executed maintenance. Through our analysis we've seen that there was much disparity between spending on repairs and maintenance in the last reported year, as shown by the quartile graphics, and furthermore the historical data has shown that planned maintenance and major repair expenditure is down whilst routine is on the up. So, what does this mean for you and other social landlords?

Understandably, there is not an all encompassing answer but establishing your position in the market relative to this data is certainly the first step. For some the answer might be welcome news but for others surprising. Whilst your performance relative to comparable providers is not the ‘be all and end all’ it can provide an important insight into your organisation. If for example, you're spending significantly more on maintenance than a comparable provider then your repairs service may not be delivering the value for money it should be and it may well be time to review its performance.

As a specialist housing consultant we help housing providers understand and better deliver their repairs services.  For further information about how a repairs consultant can help you, please email  JNeville@pennington.org.uk