The Finance View From The Housing Sector: Fire Safety
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Part 3: The Finance View from the Housing Sector: Fire Safety and Compliance

28 November 2019

We talked to senior finance directors from ten different housing associations about three key topics. We investigate how they are finding opportunities during this period of change, and what decisions they are making to achieve the best outcomes for their residents and associations.

In the final blog in our series, we look at fire safety and compliance. This is one of the major concerns for most Registered Providers (RPs) currently, and an area where organisations are feeling very exposed and vulnerable. The Hackitt report means most organisations have been mapping the internal and external layout of buildings, and conducting detailed intrusive inspections. The reality being that as soon as you look, you will find something.

Liability

Previously, many building companies have hidden behind insurance, they didn’t take on the checks themselves and snagging wasn’t conducted properly. There has been a reliance on external companies and waivers, and this has led to all parties being exposed.

There are concerns that organisations are arguing with contractors over where liability falls and whether contractors can afford liability or if they are in danger of collapsing. The mentality being pushed by legal teams is to make a claim before someone else does, which is speeding up this process and creating some urgency. There is huge uncertainly and intrusive surveys are identifying extremely worrying findings.

‘Stay put’ rule

Advice given to residents needs to take account of this uncertainly.  For example, ‘stay put’ has been the rule, even where buildings have not been compartmentalised properly. This has led to the need for associations to question their moral compasses, with many organisations now employing waking watch services at the cost of many hundreds of thousands of pounds. Until the findings have been made good, this is an essential service to keep residents safe.

Volume and funding issues

The issue of fire and safety is primarily a volume one as it is physically impossible to do everything to address this quickly enough. Organisations are now faced with the issue of how they fund the amount of work needed to get to a safe position. The work is essential, but the cost of compliance is infinite, and the trade-off is that there is less funding available to develop new housing.

This leads onto the sustainability question – how much can organisations build to meet supply (and for cross subsidy) versus investing in existing buildings? It boils down to quality of life versus new investment, but this has major considerations for finance departments. They may not get the same returns by investing in existing stock versus the impact of new build programmes, but the priority should be safety for tenants and not profit. This attitude of safety first is mirrored by all boards, and there was unanimous agreement on this point.

Stock rationalisation

Each housing association has an asset management strategy and one consideration is the cost to bring assets up to a good safe level. Once a net present value (NPV) has been established on a property, it may not be worth holding onto. The scale of costs to ensure units are fire compliant is different now to five years ago and there may be a need to dispose of the buildings that are most costly to keep. This also leads to a balance between the ratings agency and the financial plan – it’s a trade-off and there needs to be a social impact analysis when considering stock rationalisation and NPV values.

Social purpose versus commercial realism

Housing associations exist for social purpose over commercial purpose, but commercial realism still needs to prevail. In high stress situations, associations are turning off development in favour of focussing on asset management and landlord maintenance.

The key factor to keep in mind is that their primary purpose is to provide people with housing, but the debate is fast becoming what is the most deserving good - affordable rent versus social rent, and what should the blend be for most RPs?

The key standout findings from our finance directors were as follows:

  • Be clear about your organisation’s purpose and function
  • Be as efficient as possible
  • Embrace technology where it adds value
  • Manage front and back office costs well with customer service at the heart of decision making
  • Offer value for money by providing the best possible service
  • Stay true to your principles but keep a strong financial head through change

Read our first blog in the series on Preparing for Brexit 

Read our second blog in the series on ROI and Technology