Why is there such cost variation in social housing?

The Homes and Communities Agency (HCA) has outlined a report into cost variation across the social housing sector. The report; Delivering better value for money: Understanding differences in unit costs is available on the HCA website and sets out changes to its approach to regulating the value for money standard. The report is the conclusion of a recent analysis of cost variation across the sector.

Value for money was first brought in back in 2012. It was created to ensure housing associations are more transparent about their finances, their cost-effectiveness and their services. The standard requires associations to publish a “robust self-assessment”that is transparent and accessible to stakeholders. It was created to better understand return on assets, clearly see the costs of delivering services and show past and expected future value.

What does the analysis show?

The HCA analysis shows that while registered providers have achieved reductions in social housing costs per unit over the past five years, much of these savings are due largely to the decline in maintenance and major repair programmes and the completion of the Decent Homes programme. The analysis also shows the extent of the cost savings that are being planned by registered providers across the sector in order to offset the cuts in social rent. These projected savings are greater than any the sector has seen in recent years.

The question therefore needs to be asked if these savings are realistic and achievable? More importantly if they can be achieved while also continuing to deliver the best service for tenants, new build developments and the maintenance of existing properties.

Inconsistency of costs

Achieving these sort of savings would have been a tough challenge for registered providers in a strong economic climate, let alone a post Brexit economy. However, in addition to the current market conditions is the issue of the cost inconsistencies highlighted within the report.

In short it shows that benchmarking registered providers costs against each other tell us very little about their efficiency

HCA regulation chair Julian Ashby, has now written to the top 350 housing associations to discuss the fact that 50% of the cost variation between landlords could not be explained. While the report takes into account factors such as the level of supported housing activity and difference in regional wages, Ashby states that the variation was “concerning” and “must, at least in part, be due to differences in the operating efficiency of different organisations.”  

This has led to the HCA saying that it will increasingly challenge registered providers on their approach to optimising efficiency against their cost cutting plans. In addition, moving forward, the value for money standard will become part of their In Depth Assessments (IDAs). While they state that they are not looking to specify exactly how registered providers must use their assets and resources, they will now be looking to seek assurances from registered providers on that they are delivering value for money.

The end of benchmarking?

In short it shows that benchmarking registered providers costs against each other tell us very little about their efficiency. In reality, each registered provider is operating in a different environment with completely different tenures, operational complexity, geographic location and size. Cross market benchmarking does not take this into account and shouldn’t be used to record performance. What is key, is value, and simply being below the market benchmark for cost per unit does not mean that a registered provider is operating efficiently.

So what does this mean for registered providers?

Fundamentally the HCA will now want boards to assure it that they have a comprehensive strategy to deliver on-going improvements in efficiency and can prove that they are delivering value for money. This means board members and their management teams will need to be able to categorically prove that that their costs are correct and they are making the most efficient use of their budgets.

Management teams will need to be able to drill down on how their budget is being spent and understand how their costs compare to that of other registered providers .

Registered providers (if not already doing this) should be challenging their management operations in a proactive manner. They need to ensure that they have robust cost data which is reviewed on a regular basis. Good contract management and fully understanding their cost base and will be key to this.

The responsibility is not with the HCA to tell registered providers that their costs are high but with the registered providers themselves. If they cannot prove that their costs represent good value for money they will risk being downgraded, which is not good for their future.

Ken Morgan, head of public sector and asset management, John Rowan and Partners