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David Montague's February 2012 round-up

Mar 08 2012

February saw more trouble in Europe, with Italy, Spain, Portugal and other eurozone nations having their credit ratings lowered by Moody's. At the same time Moody's placed France, Austria and Britain on "negative outlook", which implies there is a 30% chance of a downgrade in the next 18 months.

Negative outlook for the housing sector?

Chief Executive David Montague 2011As a direct consequence of Britain’s ‘negative outlook’ all 14 housing associations which are rated by Moody’s, one of which is L&Q, were also downgraded from stable to negative. Moody’s justified this move by referring to the close linkage between risks the government is facing and social landlords which receive government funds.

What does this mean for the sector?

First, it is important to stress that the ratings of individual housing associations have not changed, but our fate is closely linked to that of the nation - if Britain loses its coveted ‘AAA’ status, housing association ratings will also be affected.

If this happens, it is possible that it will cost more for housing associations to borrow. But everything is relative. Investors need a safe place for their money, and you don’t get much safer than a housing association.

Over the last four years, since the collapse of the American banking system in 2008 and the global turmoil which followed, housing associations have proven to be resilient, creative and uniquely placed to respond to the housing crisis.

Take a look at the Tenant Services Authority’s global accounts which bring together the results of the sector into one statement. Since 2008:

  • Our operating margins have increased, management costs have reduced and surpluses have grown.
  • We have used our surpluses, combined with an increase in borrowing, to build more affordable homes, with our housing stock growing from 2.32 million in 2008 to 2.62 million in 2012.
  • We have met the Decent Homes Standard in full, and without government assistance.
  • Resident satisfaction has increased year on year, from 78% in 2008 to 83% in 2011. The UK Customer Satisfaction Index sets the bar for 'world class' satisfaction at 80%. There is always plenty that we can improve upon, but world class satisfaction is not a bad place to start!

What other sector can boast this track record during the most challenging economic climate in living memory, and where would you rather invest?

Profits and social purpose

February was also the month when A4E, a private "social purpose company with the sole aim to improve people’s lives", found itself in the headlines. Of particular interest to the media was A4E boss Emma Harrisons’ £8.6 million dividend payment and the money she received from the company as a result of leasing properties which she owned or controlled.

The question on my mind, and no doubt on the mind of others when reading these headlines was "could it happen here?". Does A4E, as a non government organisation undertaking work of a public nature, occupy the same space as housing associations? And what does this mean for the future of social enterprise?

There are a number of key differences between private "social purpose" companies and housing associations. The vast majority of housing associations, L&Q included, are bound by their charitable rules or their status as an Industrial and Provident Society not to distribute their profits to shareholders.

Contrasting this position with A4E, Emma Harrison owned around 85% of the company and so was legally entitled to take 85% of the profit. As the Chief Executive of L&Q, I don’t have any shares, I don’t get paid a dividend (and nor does anyone else), our assets are held ‘in trust’ and every penny of our surplus is committed to more and better homes, better services and better neighbourhoods.

One other key difference is that housing associations are regulated, and if we get viability or governance wrong we will face regulatory action, and this could include replacing the management team or sacking the board.

Whatever the outcome of the A4E episode we are unlikely to see a return to the glory days of government investment for some time, and this must mean that social enterprises such as housing associations are supported and encouraged to thrive. But we will only see this if we can maintain the trust and confidence of our stakeholders, and that requires openness, transparency and a set of values which we all take personal responsibility for upholding.

Also in February

  • I had brunch with Boris Johnson to discuss how L&Q can work with a small number of large London based businesses to tackle homelessness in the capital.
  • I met with the Chair and Chief Executive of the Northern Ireland Housing Executive who own and manage around 90,000 social rented homes in Northern Ireland. Many of the challenges and opportunities they face are the same as us, so there is a lot we can learn from each other.
  • I attended a meeting between G15 colleagues and civil servants to help us understand the way that government investment decisions are made. If we can speak the same language as the Treasury, maybe we can have a better conversation!
  • I attended a fascinating discussion on future housing policy for London with Hilary Benn, shadow secretary of state for communities and local government, Sir Robin Wales, Mayor of Newham, and Anne Power, economic guru at the London School of Economics. Sir Robin shared with us photographs of sheds and roofless, derelict houses where dozens of people were living in overcrowded and inhuman conditions and paying a market rent for the pleasure. Anne Power shared with us the experiences of nations who had depended too heavily on home ownership, including Ireland, Spain and Greece. And Hillary Benn spoke with great passion about the need to connect new housing development with real people – our children, our friends, our neighbours.
  • I spoke at a seminar on governance. It might sound a bit dry, but we had a really good discussion on the demands which are being placed on the boards of housing associations at a time of massive change and increasing risk; how board members could stay in touch with a rapidly changing world without treading on the toes of their trusted officers, and how the private sector board model compares with the model which most housing associations use.
  • And I attended a meeting between housing associations and civil servants to discuss the impact of welfare reform on our residents. While most housing associations support the need for radical simplification of the benefits system, they are concerned about unintended consequences. To minimise the impact for L&Q’s most vulnerable residents we will be recruiting more support workers to help people understand what change means to them and to maintain their tenancies. We are also undertaking a major investment to help residents who are facing fuel poverty. And we will be funding a number of projects with Citizens Advice Bureaux to give resident access to independent support.

Back at L&Q:  

  • I attended our Essex Neighbourhood Committee to see how residents are using their budgets to invest in local community projects and holding us to account over our performance.
  • I attended our Audit and Risk Committee to give my quarterly update on the major risks facing the sector and be held to account over L&Q's overall performance.
  • I attended a meeting of our Governance and Remuneration Committee which ensures that we pay what it takes to retain the best people, and that our governance is strong enough to manage a constantly changing world.
  • And I signed up to this year’s Crisis Square Mile Run on 14th June – a great team event for a great cause. Last year Waqar Ahmed, our Finance Director, beat me by three seconds. This year, it's personal.

See you in March.

David

Comments RSS

  1. Eva S15/03/2012

    I Eva would like to see all Social Housing Landlord's to streamline all board and Group meetings online for the Customer's to take part or put up or under a Blog to listen to the debate and if anything is commercial sensitive can black that part out. With a selection for all to "Having they Say"

    Yours
    Eva Silver a Customer in Westminster

  2. Paul H16/03/2012

    Thanks for your comment Eva, I will pass it to our Executive Group for consideration.

  3. Bernadette L20/03/2012

    Only just discovering David Montague's blog - a great initiative that could help bridging the perceived gap between 'our' realities - i.e. that of the tenants vs that of the decision makers.

    We all live in the same world, yet our respective experience of world events, economic reforms, changes in policy... can be dramatically different, if not at times diametrically opposed: what is a 'challenge' - or its positive thinking alter-ego 'opportunity' - on the big life-like chess game of the socio-politico-economic context for some, is what makes the difference between mere hope and despair for others.

    A forum such as this could prove to be the most beneficial of all methods of feedback and communication, an opportunity for both side to share, explain, understand and question.

    Many times, since Mr Montague's appointment as London and Quadrant Chief Executive (2007?), I have 'threatened' to write him a long letter - I have kept a copy of a feature article in Home Life announcing his appointment where he said he 'wanted to hear from as many residents as possible.' I am glad he has stayed true to his initial wish and found a way of making a dialogue possible [and he should be glad he has done that before having to read through my 'novel -:))) lol]

    I for one, will carefully read through all articles and take the time to give considered responses as and when I feel: a) the need to, b) that I have the knowledge to, c) that I can positively contribute to the questions. In return, I hope I will receive personal, considered, thoughtful and truthful answers/responses - this will be the measure of how much the blog is intended as a true platform for exchange or whether it is a simple exercise in 'communication'.

    This instalment - the February Round-Up - has already prompted a zillion questions and comments - I will post them here soon (hopefully, steamlined into less than a zillion!).

    Bern

  4. Bernadette L21/03/2012

    "We have met the Decent Homes Standard in full, and without government assistance."

    Following on from my previous message, I thought I would start here - as my living conditions have often got me to that point where I thought I should write you that long letter...

    I am pleased to hear that L&Q have met the 'Decent Homes Standards' - yet, I cannot help but feel this is a perfect example of what I was referring to in my first message, the discrepancies between our respective experiences of a common reality.

    In so far as I understand - and of course, being a HA tenant does not make me a housing specialist, I do not claim to be one, so please correct me where I go wrong - the notion that social landlords ought to provide accommodation which meets certain basic criteria of 'decency' or 'fitness' was 'revamped' at the turn of millennium, when the Blair government updated the 'Fitness for Habitation' guidelines and put in place a set of basic standards - pretty much the same as before, but re-packaged and a little more glossy. These standards were in turn updated in 2006. If I have understood well, it would seem that from the Fitness for Habitation era to the current Decent Homes program, the minimum standards used to measure the quality of housing have not improved, but in fact become easier to meet; a property would have to be in much worse condition nowadays before it is considered to fail. For example, under Fitness for Habitation, a home which did not have 'satisfactory facilities in the dwelling for the preparation and cooking of food' would have been deemed 'not fit for habitation', whereas under Decent Homes, this would not in itself be enough, as the dwelling would have to fail, not one, not two, but three of the sub-criteria under the third standard which states that a home must have 'reasonably modern facilities and services'; so now, you would require to have a below-standard kitchen PLUS a below-standard bathroom AND inadequate insulation against external noise to fail the Decent Homes test, whereas before, the below-standard kitchen would have been enough.

    Having spent over 15 years without a kitchen (well I suppose there was a room with a sink designated as a kitchen...) and the last 3 years of these 15 without hot water or heating during the coldest parts of winter, as the boiler would continually break down, I can tell you that 'decent' means something very real to me which any of these official definitions certainly fails to capture. I would be very interested to find out how 'standards' are developed and what input residents / tenants are invited to contribute to their development.

    Another problem stems from the fact that the criteria are assessed and judged by human beings, human beings who are employees, employees who have to balance budgets, make sure they do not over-spend, 'please their bosses' (I don't mean that in a bad way-:), meet targets... and therefore, the standards are not an 'absolute'. Although in my case a formal complaint brought some results, it proved to be extremely hard work and I had to give up on some of the requests which had initially been agreed.

    Another example of how standards can be interpreted differently; I live in New Cross; Tom Dychoff, of The Guardian, described the area where I live on 9th March 2012 - my birthday, ironically - in these terms: '...there's New Cross: only for the intrepid. Initial impressions are not encouraging. A road runs through it. A great, stinking, droning road: the A2.' Lucky me, I live right on the great, stinking, droning A2, and so, I watch TV with earphones on, and programs have to be permanently subtitled. A nasty layer of black soot from car exhaust fumes seeps in and greases my windowsills, my TV screen, my once white walls - and I dare not imagine the state of my lungs... So why, when another of the Decent Homes sub-criteria in that same third standard states that a decent home should have 'adequate insulation against external noise (where external noise is a problem)', am I always brushed off as if I am unreasonable when I ask whether L&Q would consider upgrading my windows to double glazing? I have even offered to repay the costs incurred by L&Q through a temporary rent increase (as I could not afford the full cost in one go) - but so far it has always been met with persistent refusal.

    Let me be clear about one thing, I am not giving these examples to 'get things done for myself', but as supporting evidence of the simple fact that, even when standards are clearly laid out, their interpretation, and implementation, still depends on the perspective and goodwill - plus other budgetary considerations - of those in charge of implementing them. And I also happen to still believe that 'the personal is political'.

    I also wanted to add that the Decent Homes standards are merely minimum standards - wouldn't you agree that, at the end of the first decade of the twenty first century, in the heart of a capital city vying for world's attention this summer, we should have well exceeded them? I do not want to minimize L&Q's positive results, especially considering that some boroughs - including Lewisham where I live - have not met the standards and have asked for extensions to the deadline, but I hope they are seen as a mere starting point.

    As a final point, I would really like to be reassured that the increase in new stock [2.32 million in 2008 to 2.62 million in 2012] will not be at the expense of the maintenance and upgrading of existing stock. At a time when economic crisis is all around us, unemployment is soaring and social benefits are being streamlined and reduced, I cannot help but fear that these new homes may end up empty as no one will have a decent enough job to rent them.... and therefore that they will end up costing me through rent increases to pay off the borrowing. I also would not want to be told that I have to move to one of these new properties if I want to benefit from 'Decent Homes standards' - I like my flat, I like the area where I live, I just wish it was a little more, shall I say... 'decent'...

    I'll stop here and I apologise for the length of this note, and for not simply giving positive feedback on my first (well, second) intervention... I'll try to find only good things to say next time -:)

    Thanks anyways for giving us an opportunity to communicate with you directly.

    Bernadette

    Link to The Guardian article mentioned earlier:
    http://www.guardian.co.uk/money/2012/mar/09/lets-move-to-new-cross-london?INTCMP=SRCH

  5. Paul H04/04/2012

    Hello Bernadette,

    Thanks for your comments.

    I've asked my colleage Matt Drake, who is the person in charge of planning the maintenance of all our properties, to put some together some responses to the questions you’ve asked.

    Whilst we're unable to discuss personal or individual issues here on this blog (see the ‘commenting on blogs’ link in the menu on the left) we are happy to respond to more general themes and issues.

    So, here’s some answers for you.

    How were the Decent Homes standards developed (and did social tenants have a say in this)?
    The Government adopted a Public Service Agreement target in 2000 to bring all social housing up to a decent standard by 2010. This target applies to council and housing association properties.

    As part of the Spending Review in 2002, John Prescott announced that private sector homes occupied by vulnerable households would be brought within the decent homes target.

    There are further details about Public Service Agreements, and how they were decided upon, on the National Archives website.

    Who judges that the standards have been met?
    Social landlords have to monitor this process themselves but are subject to both internal and external audits.

    Shouldn’t L&Q be exceeding the Decent Homes standard?
    L&Q strive to exceed the standard by:

    - undertaking additional insulation programmes.

    - replacing failing windows in UPVC (where planning restrictions allow). 

    - replacing more than one key component (i.e. a kitchen or bathroom) where necessary. The government standard states that landlords only need to replace one key component should two fail.

    - undertaking environmental and communal works.

    Will our increase in stock be at the expense of the maintenance of our existing stock?

    No, when we increase our housing stock, we first ensure that we can afford to do so.

    Part of our current five year strategy is to survey the condition of all our properties. This will allow us to plan an even more effective maintenance programme in the future, and help us to target those properties where work is required.

    I hope this all helps.

    best regards

    Paul Hornsby, Digital Team Leader

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