CIH North East Conference 20 th November 2014 Richard Medley, CIH Consultancy Geoff Prior, Thirteen Group

CIH North East Conference 20 th November 2014 Richard Medley, CIH Consultancy Geoff Prior, Thirteen Group Learn with us. Improve with us. Influence with us www.cih.org

Asset management It s a whole new ballgame Learn with us. Improve with us. Influence with us www.cih.org 2

The pendulum has swung Delivering for the customer Decent homes Customer experience Delivering for the asset Asset performance Asset value Learn with us. Improve with us. Influence with us www.cih.org 3

CIH s respected Working together model allows participants to share thinking, experiences and developing approaches with peers from across the sector to produce tangible outcomes for participating organisations and for the wider social housing industry. Learn with us. Improve with us. Influence with us www.cih.org 4

The project members North England & Scotland Dumfries & Galloway Housing Partnership Thirteen Group Magenta Living First Choice Homes Oldham Weaver Vale Housing Trust Incommunities Group Midlands & Wales City of Lincoln Midland Heart HA Mears Group Charter Housing Two Rivers Housing London & South Dacorum Council Spectrum Housing Group Network Housing Group London Borough of Newham London Borough of Barking & Dagenham Willmott Dixon Learn with us. Improve with us. Influence with us www.cih.org 5

The project journey & its aims for the wider sector Delivering for the Wider Housing Sector The delivery of a new asset management model (a Charter?) Strengthening of the profile of asset management by taking the initiative Production of project Learning Report for promotion of the project and participants Aspiration, inspiration & the business case The strategic framework for asset management Assessing the performance of your housing stock Developing option appraisal Unlocking the potential of your housing stock Implementing the new asset management model Learn with us. Improve with us. Influence with us www.cih.org 6

Asset Management - the key drivers Demand & Supply Demographic changes, including ageing population Fluctuations in demand for particular locations and property types (impact of welfare reform) Growing emphasis on choice & increasing customer demands/expectations Stock Condition & Sustainability An ageing stock profile & fit for purpose issues with some property types The pressure to a deliver higher, local determined standard (Decent Homes +) Neighbourhood & economic sustainability Funding, Financing & VfM The imperative for assets & asset planning to support the Business Plan The need to optimise value & use of assets (economic regulation) The need for proactive solutions to improve stock portfolios & their performance Learn with us. Improve with us. Influence with us www.cih.org 7

So what s expected of asset managers today? Irrespective of organisation type or operating location: A robust approach to use of resources A clear understanding of the return on assets Consideration of the use of assets in the round, seeking the best strategy for delivering value from them, whilst meeting organisational objectives To use information on return on assets to underpin strategic decisions (e.g. hold stock in current form, dispose, convert tenure etc.) HCA & VfM Statements In the last set of statements it was on the return on assets requirement where people struggled most Jonathan Walters, Deputy Director Strategy & Performance, HCA Learn with us. Improve with us. Influence with us www.cih.org 8

The challenge of the CIH Working Together project? To work creatively in a positive environment to collectively define and develop a new model for asset management that responds to the challenges and opportunities we face. The aim? To re-define the way the sector approaches asset management, working up a model that is fit for purpose for the new operating environment and which can truly unlock the potential of the sector s housing stock. With the combination of regulatory requirements and the economic climate, the imperative for all social landlords to take a more intelligent approach to asset management has never been greater. Learn with us. Improve with us. Influence with us www.cih.org 9

And the ultimate objective of asset management today? To make sure the sector has the right skills, tools and resources in place to manage assets to create the optimum balance between cost, quality and utilisation in the organisation s own context. Learn with us. Improve with us. Influence with us www.cih.org 10

Learn with us. Improve with us. Influence with us www.cih.org

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So what comprises Asset Management? Strategy Stock condition survey Yield NPV analysis New build Performance appraisal Energy Efficiency & fuel poverty Procurement Stock condition data Housing need & demand analysis Neighbourhood performance Redevelopment Learn with us. Improve with us. Influence with us www.cih.org 21

The key ingredients of sound asset management 1. A comprehensive, strategic approach The Asset Management Strategy as the essential framework Designed to unlock the potential of the housing stock Delivering for the business & the customer Built around a set of clear strategic priorities Shaped & informed by sound stock condition survey data, supplemented by other data on housing need/demand, socio-economic data etc. Learn with us. Improve with us. Influence with us www.cih.org 22

The key ingredients of sound asset management 2. A clear delivery plan The Asset Management Plan as the delivery vehicle What you re going to do How you re going to do it How much it s going to cost When you re going to do it by Who s going to do it Demonstrably delivering against the strategic objectives Shaped by and shared with residents Learn with us. Improve with us. Influence with us www.cih.org 23

The key ingredients of sound asset management 3. Understanding the performance of the assets The use of Asset Performance Tools but what is performance, what does it mean? Financial performance measures Net Present Value (NPV) Yield Non-financial performance measures Meeting social objectives Meeting political objectives Economic/regeneration objectives But which approach is best? Which value measure should you use? Learn with us. Improve with us. Influence with us www.cih.org 24

Net Present Value Analysis GRANGE VIEW BROADFIELD ROAD SHU BURDETT HOUSE THE BEECHES GEORGE PEARCE HOUSE MALVERN GARDENS THE LONG GROUND CONCORD SPRINGFIELDS COURT ARCHWAY GARDENS SHU GROVE PARK ROAD SHU ST NICHOLAS COURT CAMBRIDGE HOUSE VIZARD CLOSE THE CORRIETT WALTER PRESTON COURT CHAPEL LANE JENNER COURT DRAYCOTT ASHWELL HOUSE GLEBELANDS DRYLEAZE HOUSE HAZELWOOD SHERBORNE HOUSE WILLOW ROAD SHU ASHCROFT HOUSE TANNERS PIECE RINGFIELD CLOSE UPPER PARK ROAD HAMFALLOW COURT DRYLEAZE COURT SHU TRINITY DRIVE SHU GLEBE ROAD Per unit NPVs can vary dramatically within a property group, ranging from + 32k here down to - 5k ( 10,000) ( 5,000) 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Learn with us. Improve with us. Influence with us www.cih.org 25

Net Present Value Objectives Effective asset management will lead to incomes increasing at a faster rate than the level of investment, returning a larger NPV over time Learn with us. Improve with us. Influence with us www.cih.org 26

The Yield Curve How should we go about setting targets and moving the yield to the right? Gross Yield: The annual return on your investment (the income the value) Learn with us. Improve with us. Influence with us www.cih.org 27

The key ingredients of sound asset management 4. Optimising cost, quality & utilisation Using performance information to inform option appraisal Identifying the actions that will generate more value or fresh potential Continue to invest & retain in current use Change of use Redevelopment Disposal Identifying where the potential lies to unlock asset potential, release value, provide for reinvestment Balancing economic motives against social responsibilities Learn with us. Improve with us. Influence with us www.cih.org 28

The key ingredients of sound asset management 5. Accountability providing assurance Evaluating the approach being taken Monitoring its impact/return Increase in average NPV Increase in average yield Meeting tenant needs/demands Impact on neighbourhood sustainability Local economic impact Providing clear information and assurance to boards, elected members, residents & other stakeholders Learn with us. Improve with us. Influence with us www.cih.org 29

The key ingredients of sound asset management 6. Effective, efficient procurement Using approaches that add real value to the asset Shifting the balance of risk to contractors & manufacturers Securing greater inter-organisational and interpersonal trust Promotion of a culture to support innovation, learning and development of mutual advantage Lifecycle considerations Landlords long lifecycle, reduced maintenance, lower carbon and improved NPV Residents safety, great performance, good looks and reduced call outs Contractors easy to fit, reliable and offer savings and predictability when taking on long term liabilities Lifecycle isn t taken seriously by the sector and is not considered a critical component of procurement Steve Coleman, TakeParts Learn with us. Improve with us. Influence with us www.cih.org 30

The key ingredients of sound asset management 7. Delivering wider sustainability For social landlords the value the assets bring also needs to be measured in broader ways: The cost of energy efficiency works versus the benefits for reducing fuel poverty The value of delivering local training & employment The regenerative benefits of your asset approaches The creation or sustaining of stronger communities But how to measure and monitor progress in these areas and demonstrate VfM? There are many impact tools, but CIH is developing a balanced scorecard approach Learn with us. Improve with us. Influence with us www.cih.org 31

Summarising these initial thoughts Delivering in Asset Management in this new world 1. A comprehensive strategic approach 2. A clear delivery plan 3. Understanding the performance of your assets 4. Optimising cost, quality & utilisation 5. Accountability providing assurance 6. Effective, efficient, procurement 7. Delivering wider sustainability It s not rocket science, but nor is it simple social landlords are complex organisations operating in a complex environment Learn with us. Improve with us. Influence with us www.cih.org 32

Working Together to redefine Asset Management Geoff Prior, Head of Assets

Thirteen Group (Formed April 2014) 4 Stock holding companies: Erimus Housing, Tees Valley Housing, Housing Hartlepool, Tristar Homes. 32,600 homes. Approx. 29,000 Teesside based homes. Currently harmonising asset & delivery approach. Asset Management Strategy December 2014.

Areas of activity we need to consider: Fuel Poverty Strategy and objectives Empty Homes Strategy (inc void specification) Option appraisal of marginal stock Garage Strategy The Thirteen property standard Estate Sustainability modelling Asset Management Strategy Making our homes the preferred choice Stock performance & estate trends Land holdings and potential usage Landlord 30 year Financial Business Plan adjustments Mandatory compliance issues New Development and where

So why did we join the CIH Working Together to Redefine Asset Management project? The social housing rental market has already changed. Bedroom Tax - 3 bedroom homes. Threat of competition from private landlords - i.e. lower standards of our stock (or perception of lower standard). Can we still claim to be the preferred social landlord? Are our standards high enough? We need to better understand the performance of our stock assets i.e. income v. present and future investment. This can only be done in conjunction with the development of a sustainability model. Decent Homes Standard+ - what does it really mean if some types of stock doesn't let or is too costly to run/maintain? New IT systems in July 2015 will provide estate modelling opportunities and as a precursor we will pilot a neighbourhood with CIH.

AMS Planning Progressive Thinking Very old approach investment requirement / annual budget. Old approach stock condition survey and 30 year finance model. Current approach net present value (viability of investment spend). Strategic approach intelligent use of data and asset grading - i.e. Sustainability modelling.

This can be illustrated as follows: Social Bearable Equitable Sustainable Environment Viable Economic

Asset Management and sustainability modelling

Grading & understanding the Assets

Risk questions : Is our one size fits all policy on our stock too restrictive? Can we really claim our properties have `kerb appeal`? Are our lettings policies/ procedure too cumbersome? Do we really protect our investment in our assets? Asset management isn`t just bricks and mortar but is also about : demand, geography and kerb appeal too. Why are some areas in a larger estate better than others in the same estate?

And our pilot areas in Thorntree :

Thorntree facts & figures : 979 properties: estate total approximately 1,400. Approx. 500.000 spend p.a. on repairs. 52 % in rent arrears. 3 bed homes difficult to let. 80% of tenancies in receipt of Housing Benefit. In the top 1% (UK) for Indices of multiple deprivation. In the top 10% (UK) for employment, income (effecting elderly people).

Thorntree Quarter 1 2014 /15 :

Britain's priciest council flat :

Questions & discussion 1. What do you think are the key attributes of effective asset management? 2. What else should asset management consider/involve that it doesn t currently? 3. Are asset managers taking the lead sufficiently? Are they in the driving seat in their organisations? 4. Is the rest of the organisation buying into the new asset management agenda? (because they need to, don t they?) 5. What would be the most useful outputs from the CIH Working Together to Redefine Asset Management project? Learn with us. Improve with us. Influence with us www.cih.org 50

Working Together to redefine Asset Management Richard Medley, CIH Consultancy Geoff Prior, Thirteen Group Learn with us. Improve with us. Influence with us www.cih.org