Capex vs Opex: the ‘value for money’ conundrum in social housing

In most RPs, the development and asset management teams operate in different directorates with their own leadership, objectives, budgets and KPIs.

Additionally, many development teams have been deskilled by decades of Section 106. And by not fully specifying their new housing there have been unrecognised repercussions as there are significant differences in retained assets, as opposed to market stock, which means the ‘discount’ may not represent a cost reduction at all.

Brand new kitchens and bathrooms are habitually ripped out and replaced, doorways are widened, and other modifications are required for tenants with specialist needs, with those costs falling to the asset budget.

The carbon, time and monetary costs eclipse Section 106 ‘discounts’. Another common occurrence is for tens of thousands to be spent post-completion, knocking together and reconfiguring semi-detached properties for larger or multigenerational families.

If five or six-bed homes are needed, then why aren’t they built, rather than the carbon and financial cost of reconfiguration?

The lack of flexibility is palpable, although interestingly some RPs are now refusing to take Section 106 stock because they realise it is a false economy. In response, some developers are acquiring small RPs to manage their obligations.

This is a purely transactional strategy that should cause concern in the sector and provide further evidence that the system is broken.

Ideally, new build acquisitions or procurement would be informed by detailed data analysis of the composition of households on the waiting list and ‘needs-led’ design would be standard practice.

Section 106 is unfit for purpose, but if it must remain there should be more specification flexibility, quality accountability and performance guarantees for this model to work.

We know that the specification of ‘affordable’ homes is nearly always different to the developers’ open market stock, so the ‘discount’ is mostly under-specification.

RP development teams justify this by hitting a cost per square metre target with the flawed belief that this is providing best value.

They are literally forcing the race to the bottom by not considering the lifetime cost (or even the short-term hit) of their perceived discount.

The asset team should be their best friend in this regard. If the house builder cannot co-specify for appropriateness and robustness, then the transaction should simply not happen.

The on-cost to asset management budgets is significant as inadequate fixtures and fittings often need to be replaced within months.

One landlord calculated that it cost around £800 to replace a kitchen tap if you included all the direct and indirect time and charges.

Other common failures are door handles, kitchen cabinets hung on cheap hinges, and flimsy plasterboard that is easily damaged.

The false economy screams out; social housing needs robust fittings from the outset. Are clear records kept of premature repairs and is this quantified in relation to the target cost per square metre that drives specification?

Additionally, there is the issue of snagging and defects. On transfer, the landlord assumes all responsibility for the stock.

This has been so onerous that many landlords have been left with multimillion liabilities for latent defects, including flats acquired in the past 10 years and not limited to fire safety. How is this allowed?

How many landlords undertake full structural and energy performance surveys before transfer to verify as-built performance?

The long-term impact can be significant, especially as sub-contractors are habitually incentivised to hit a completion deadline, not deliver best quality.

The repercussions include social housing new builds displaying damp and mould within two years, often associated with cold-bridging from poor construction.

This leads to health risks and higher energy costs for the customer, and significant on-costs for the landlord to rectify. Awaab’s Law implementation starts far earlier in the process.

So how do we reverse these false economies?

• Boards must proactively lead a culture of collaboration to recognise false economies.
• Data is king – know the true cost of new stock and where poor specification leads to increased Opex.
• Ensure continual communication between development and asset management teams for minimum specifications. Include factors such as poor acoustics, which cause significant on-cost to RPs dealing with neighbour disputes. Think laterally when assessing the most common costs associated with housing specification/performance.

Sarah Daly, head of strategic partnerships and sustainable communities, Agile Property & Homes