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ASSET MANAGEMENT AS A TOOL TO LEVERAGE ADVANTAGE FROM SELF-FINANCING.
DICK JOHNSON – WESTMINSTER CITY COUNCIL
INTRODUCTION
INTRODUCTION
SUPPLY AND DEMAND IN THE HOUSING MARKET
ANALYSIS OF MARKET IN WESTMINSTER
STRATEGIC ASSET MANAGEMENT
ANALYSIS OF CURRENT PRACTICE
APPLYING IT AT WESTMINSTER
OUTCOMES
REALITY CHECK
CONCLUSIONS
WESTMINSTER
Occupies small footprint 8sq km
Lowest ctax and highest social rent
Council faced with significant fiscal reductions
Constant flow of change and re-organisation
Commercial Focus/outsourcing/tri-borough
Identifying HRA Investment opportunities
Growing core competencies
Looking at growing the stock
THE HRA
Achieved decent home 2006
Majority of stock flats 99%
Fully funded stock investment requirements
High performing ALMO
Value of stock
Impact RTB
Two pools for debt
Component accounting
Strategic Asset management plan
INDICATIVE HRA BUSINESS PLAN
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 300
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
HCFR Debt Cap Closing HRA Working Balance Capital Programme
BEFORE SELF FINANCING
• Tight government regulation and control
• National subsidy system
• Lack of incentives to innovate or grow HRA
• RSL’s seen as vehicle for delivery new housing
• The Residualisation of LA Housing via LSVT and funding constraints
• An investment gap of £19bn in 2000
• Although requirement to undertake Business planning fairly light touch applied
• Decision making Time horizon only 1-3 years
POST SELF FINANCING
• More local choice and local control
• Need to be more customer and market focused
• Need to be more strategic and make longer term decisions
• Need to implement better business planning processes
• Need to develop new skills and competencies
But….
• Reduction in Public funding for LA’s and RSL’s
• Need for 240,000 new homes every year
• Constraints on capital receipts and borrowing
• Competing priorities for available investment
ANALYSIS OF HOUSING TENURE 2009
owner_x000d_occupied67%
private_x000d_rented16%
local_x000d_authority8%
housing_x000d_association9%
Total
COMPARISON OF LA & HA STOCK BY AGE
pre-1919 1919-44 1945-64 1965-80 1981-90 post 1990 -
100
200
300
400
500
600
700
800
local_x000d_authorityhousing_x000d_association
TOTAL PUBLIC SECTOR ASSETS BY SECTOR 2009
Central Govt33%
Public Corporations9%
Local Gov-ernment (ex
housing)43%
Local Government hous-ing16%
£bnThe open market Value ofLA assets is in ex-cess of £400bn
PROJECTED HOUSEHOLD GROWTH FROM 2008-2033
199119921993199419951996199719981999200020012002200320042005200620072008 2013201820232026202820330
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0
20
40
60
80
100
120
140
160
180
200
GREATER LONDON WESTMINSTER
HOUSING NEED VS SUPPLY
Bedsit 1 bed 2 bed 3 bed 4+ bed0%
5%
10%
15%
20%
25%
30%
35%
40%
Waiting ListCouncil Stock
RELATIVE AGE OF STOCK
1900-1919 1919-1945 1946-1964 1965-1988 1989 to Date0
1000
2000
3000
4000
5000
6000
2775
1256
2928
5261
30
BREAKDOWN OF STOCK
Flexible Owner
Leasehold
Rented Flats
Rented Houses
Shared Ownership
Temporary Accommodation
SURVEY RESULTS
• SAMPLING FRAME 20% OF LA HOUSING POPN
• 50 RESPONSES
• SURVEY UNDERTAKEN IN JULY 2012
• RESPONSES FROM PREDOMINATELY LARGER UNITARY
• REPRESENTED LA’S HOLDING 30% OF TENANTED STOCK
• 65% RESPONSE RATE FROM LONDON LA’S
SURVEY CONCLUSIONS• In 2012 there was a diversity of asset management
practice in the sector
• More focused on current rather than future need
• Only around 1/3rd of LA ‘s measured the performance of their stock
• Most respondents believed that self financing and localism would lead to step changes in asset management practice
• Majority thought this likely to lead to more of a market Orientation
STRATEGIC ASSET MANAGEMENT IN HOUSING
“The range of activities undertaken to ensure that the housing stock meets the needs and standards now and in the future in the most efficient way” Larkin 2000
“the systematic process of planning, acquisition, transfer, reorganisation and management of physical assets in the most cost effective way”Kenley 2009
STRATEGIC ASSET MANAGEMENT IN HOUSING
THE DECISIONS ARE
????
HOLD/REDFINE USE – AS LONG TERM INVESTMENT
DOG
DIVEST – DISPOSE AND REINVEST FUNDS
CASHCOW
INVEST – TARGET PROPERTY THAT FITS THE STRATEGY
STAR
ACQUIRE - TARGET PROPERTY THAT FITS THE STRATEGY
PORTFOLIS ANALYSIS
PREREQUISITE'S
• COMPREHENSIVE DATA ON ASSET MANAGEMENT INVESTMENT REQUIREMENTS OVER 30 YEARS
• ACCURATE DATA AT BLOCK LEVEL
• AND A METHODOLOGY FOR ALLOCATING TYPES OF COSTS NOT HELD AT BLOCK LEVEL
• RENT DATA AND ASSET VALUATIONS FOR ALL THE STOCK
• PERFORMANCE DATA EG SATISFACATION LEVELS, ABILITY TO REDEVELOP
• UNDERTAKE A COMPREHENSIVE INCOME STREAM/NPV ANALYSIS OF THE WHOLE STOCK
• AN ANALYSIS OF THE LOCAL MARKET AND FUTURE NEED
WHAT WE DID
• In 2011-12 we undertook a comprehensive Income stream Analysis of the whole stock
• Collected non financial data on performance and future use and development potential
• Developed a disposal and acquisition strategy where when a property becomes vacant we undertake an options appraisal if in target group for disposal
• Set targets for a growth in stock and reduction in lifecycle running costs
• Are developing more holistic estate plans
• Looking at meeting future needs of wider group of residents
KEY NPV ASSUMPTIONS
Current Base Model Assumptions.
1. 100% leaseholder recovery of major works
2. Leaseholder recovery calculated by bed space
3. 2.5% contractor inflation
4. 6% discount rate
5. Average management cost, decoration and repair of £1800 per unit
6. Apportioned M&E costs
7. Actual target rents
Income Stream Value model
Where n = 30 years
I = Discount rate = 6%
Rt = Rental income
RV = Residual Valuation
Et = revenue and capital Expenditure
OTHER CONSIDERATIONS
Financial ConsiderationsNPV: is it costing more to maintain than the
revenue it generates?
Business ConsiderationsIs it core business?
Does it meet our needs profile?
Quality ConsiderationsSatisfaction with neighbourhood
Property turnover rateLetting time
Repairs callouts
Development PotentialRemodelling potential
Existing densityPlanning constraints
Value
Decision about future of property
ISSUES/CHALLENGES
Welfare reform
Timing of major works
Estimating residual valuations
Operating in a rising market place prices up 18%
Historic nature – conservation areas and planning regulations
Impact RTB, Cil and Mayors policies
High number Lessees
Improving asset management data
Housing construction Boom
OUTCOMES3 major regeneration projects circa £150m
425 new fit for purpose homes
New significant public realm, employment and skills training
Opportunity for radical public service remodeling
Acquiring 115 additional units including new s106
Stock maintained at decent homes+
Debt largely repaid over life of plan
Headroom for additional investment
BUT also….
An Active programme of strategic asset management focused on voids
REALITY CHECK• The Black Swan
• Limits of rationality
• Sensitivity and risk management
• Behavioral change – competency
• Requires good ITC systems and asset management data
CONCLUSION
• Need for a more market oriented and professional Approach to Asset Management
• Importance of strategic planning (Fail to plan – Plan to fail)
• Dynamic environment – market, govt polices, lifestyles
• Need to develop core competency that support strategic asset management
• Income stream analysis is a helpful tool – but ….