Housing associations target 10-15% savings to address declining rent revenues
Surveys reveal HA's need to make big savings to tackle upcoming revenue challenges
Surveys have revealed that HAs have indicated they need to target savings of between 10% and 15% to deal with the reduction in rent revenue they anticipate over the next few years.
Last year saw two of the largest housing association mergers in recent times with L&Q joining forces with East Thames and Affinity Sutton with Circle to form Clarion. This year has followed suit with the news coming last week that another large merger is on the table with Thames Valley and Metropolitan opening talks about a move that could create in excess of an additional 2000 homes. These mergers are designed to create a financially strong partnership with greater commercial acumen in an already challenging sector.
But what of the rest of the sector?
For those HAs not being courted for a merger, the need to identify cost saving methods is real. House prices aren’t the issue – land prices are. Fergus Wilson, the infamous buy-to-let giant is actively buying more land that is now, he claims, worth upwards of £3m in private development. And herein lies one of the many the problems facing the sector.
Land is worth extensively more when selling to a private developer than to a social housing provider. Therefore housing associations are having to free up additional funds in order to compete in the land buying arena.
A return to CPI+1% rent regime will take some of the sting out, but that won’t come in to effect until 2020. Where are the savings being identified in 2018-2019? Surely the sector can’t afford to take a 2-year sabbatical from government assistance?
Despite the best efforts of housing associations to combat rising debt levels, it is forecasted that debt within the sector will rise to £40bn by the time any government changes appear in 2020. Naturally, the need to build more homes means that HAs are having to spend more money at higher cost.
What can be done?
Undertaking a Spend Analysis across all areas on non pay spend and completing an Opportunity Assessment to provide spend transparency and define savings potential is an excellent way of identifying additional efficiencies.
Understanding your assets is fundamental if you want to maximise the returns. Being proactive rather than reactive to repairs for example, whether it be properties or fleet.
Knowledge of your costs is only one aspect however, with return on investment an often ‘untouched area’ that needs real in-depth analysis, taking in to account the social impact as well as the financial. For example, installing new insulation will not only reduce heating costs and add value, it will also increase customer satisfaction.
With key material prices rising, identifying additional opportunities to control (and reduce) direct spend will also be key. A leading engineering and manufacturing company with high spend on steel raw material, tooling and consumables identified and drove out £1.5m in savings across these areas.
Points to consider
- Where are the savings coming from pre-2020?
- Examining all areas of non-pay spend with a thorough spend analysis and opportunity assessment can uncover big savings
- Organisations’ existing supply chain does not necessarily guarantee the best value for money and future changes will not address all of this issue
- External on the ground support can be tailored to deliver immediate cost savings