Nobody currently active in the housing sector needs reminding that these are challenging times. Rarely has the sector faced such fundamental threats to its revenue stream as those posed by the advent of welfare reform and the extended right-to-buy. Housing providers are increasingly looking at other activities, some previously considered ‘non core’, to help bolster income levels. But another focus that must be considered is the maximisation of the asset base; ‘sweating your assets’ as you may like to term it. That’s where I want to start in this examination of how technology can help the sector to focus on the longer term view of its assets as, well, assets.
I have been lucky enough to have been employed for some time by a company, Aareon, which provides software for housing providers not only in the UK but also in Germany, France, the Netherlands, Sweden, Norway and other countries. And in my dealings with colleagues from these countries, I have been able to gain a picture of how housing management works outside our home market.
Renting vs. owning
It’s safe to say that, apart from the obvious language differences, the key differentiator that affects the software that Aareon provides in each market is tenure. While we in the UK have pretty much become Mrs Thatcher’s ideal of a ‘property-owning democracy’ (in aspiration, if not in reality), with all of its attendant pluses and minuses, some of our other operating countries in Europe see renting as the normal mode of tenure. Flexibility, mobility and downright cultural normality have driven this, but it means that there is no real social stigma in renting a home in Europe, and so there are also very different organisations providing these rented properties.
Commercial real-estate models
Let’s go back to the idea that, unlike the UK, a significant number of housing providers in Europe operate either as fully private sector organisations, or as housing associations but along much more private sector lines. In fact, many see and term themselves ‘real estate’ companies. Hence, if you visit our international websites, you will see that term used a lot. Many housing associations offer not just rental services, but also property management for third parties, build for sale and management services. Rather than periodic charging of rent, which is the dominant practice in the UK, charges are invoiced and managed as aged debts.
However, it’s not just about money. There is also, I have observed, a much greater focus on the long-term management of the property as a financial and social asset than has been the case in this country. In the Netherlands, for example, there is a significant emphasis on quality of life, which is summed up by the Dutch government thus: “Housing associations are partly responsible for the quality of life in a neighbourhood. They prevent crime and remove graffiti, help organise street parties and other activities and provide money for play areas and sports facilities. The quality of life in a neighbourhood is also strengthened by the construction of schools and community centres.”
And this requirement is where I am leading us to now, to get back to my original point.
Asset forecasting
For some years, we attempted to generate interest in the UK market for one of our group products, an asset-forecasting tool which brought with it the concept of long-term return on investment on a property or group of properties. This was being used in Germany by a number of housing providers as a strategic tool for high-level planning. In the UK, while we received some interest, the general reaction from the sector was that nobody could really see a use for it.
The general idea was that for a unit or scheme, you could combine ‘hard’ measures, such as future maintenance spend, rent charges and void losses, loan costs and other incomes/expenditures, with ‘soft’ measures such as quality of life issues; transport, schools, employment opportunities, and generate ‘what if’ scenarios to work out favourable scenarios for investment/divestment. So, for example, you could model the effects of a new school, transport route or employment area on your stock. I think this admittedly commercial approach put off a lot of people in the UK – the term ‘portfolio management’, which is what this is all about, was seen as rather a dirty word (or words).
Fast forward to 2015. We have found an increasing desire from some of our user base to provide a similar solution to the one I have just described. And, having done so, it’s heartening for me to see that it is now being taken up, with some creative ideas about the kind of factors that some UK providers are wanting to model.
Planning ahead
I see this as a very powerful tool because with the financial squeeze comes an increasing imperative to manage your stock as a sustainable and relevant asset base and to inform a holistic view of asset management; for example, the system might tell you that you need to spend £500,000 on new boilers in 2017, but the bigger question is “Is it going to provide a long term return, not just in pure spend, but will these properties be desirable and relevant to local needs? Or should we tackle quality of life issues such as local ASB before investing? Or should we look at changing the properties’ use to cater for a different group’s needs?” And when you also consider the non-financial aspects of the process, you will likely also want to look at social as well as financial value as a factor in your calculations. That is when your asset data, which is more than just the narrow stock condition information, begins to become really powerful.
Move forward another few years, and consider the potential of data gathered automatically by smart devices such as sensors, which is then passed back to your core system. In this scenario, far more granular and accurate data will be available on both the performance of ‘things’ and the behaviour of people. This makes the potential of portfolio management even more exciting as a strategic tool, enabling housing providers to see more clearly the environment they are operating in and the effects of both their strategic decisions and the behaviour of their tenants.
Because real people live real lives in your properties, all your data is actually your asset data. And it might be one of your most powerful tools in the new climate that the sector faces, if you gather it, own it and manage it well.
Paul O’Reilly is a senior consultant at Aareon.
