Making sense of the money
Created on Thursday, March 27th, 2014
by Peter McCormack
It was good to see that the housing association sector continues to make significant profits. The HCA’s report on global accounts shows associations making £1.9bn in 2012/13. Our job is to maximise profits and use them for social good; we don’t distribute them to shareholders or line our pockets. We build new subsidised homes and invest in communities.
The sector has 2.7m homes and had aggregate income of almost £15bn in 2013. It provides a range of community services, builds circa 60,000 new homes a year (around half the nation’s new homes!) and creates thousands of jobs including significant numbers of apprenticeships.
But there was a warning in the figures. £466m (24% of the £1.9bn surplus) was as a result of asset disposals – this is the sale of properties owned by associations – and this trend is forecast to continue. The concern is what if the housing market fails? If we really are in a Government fuelled bubble then surely it will? If it does, the global accounts will not look quite as healthy especially for associations in the South East.
At Derwent Living we have focussed our efforts on growing the profit line by improving our operating efficiency and bringing income from commercial sources. After the 2008 crash we took the decision not to rely on asset sales income in our business plan. We still sell properties but if this income were to fall or disappear it would not materially affect our business.
In 2013 Derwent Living’s surplus/profit is projected to be just under £3m and just over £1m was from property sales (subject to final accounts in May). Our 2014 budget projects profit without sales at £3.5m compared to £2m in 2013. This is the direction we want to continue in.We have achieved this by a process of painful cuts in operating costs. There is a view that private housing associations have had it easy. This is emphatically not the case for us. We have lost a significant number of staff in the last five years with our complement falling from over 250 to 132. There is also a view that we pay ourselves too much. Again this is not the case. As chief executive my pay is no more than five times the average salary in the organisation. In the top 100 Housing Associations the average salary is £167k. I am paid well below that. We have had pay freezes and low percentage rises in recent years. We don’t have bonuses or company cars.
Housing association staff perform a valuable job for salaries markedly below those say in the utility and banking sectors. How much good have they done in recent years?
Our motivation is efficiency and profit for social purpose and every pound we make is used to build new affordable homes. The housing association doesn’t reward shareholders. The 250 new homes we provide each year is mostly without grant. That has generated 465 jobs a year plus our commercial activity has brought a further 500 new jobs since 2010 across the Country. And we house 22,000 households who are overwhelmingly satisfied with the homes they live in and the services they receive.We make a real contribution to the UK economy and its social fabric.
At Derwent Living we know we have more to do. Our arrears compared reasonably well to the global position at 4.98% against 4.8% and we were ahead of the game on bad debt (0.84% plays 0.9% across the sector)) and our voids were at 1.7% precisely in line with the global figure, but we want to increase profits further so we can build more new homes.
The sector’s reliance on asset disposals is a worry and I would urge caution on the use of sales in business plans. Maximum effort on operating costs and income, including finding other sources of money, has to be the main focus.
It’s then what we do with the profit that matters. We build 250 new homes a year to create jobs and offer homes at subsidised rents for those that need them.
It marks out housing associations as unique ‘profit for social purpose’ organisations.
Yes, we are successful but we know there is more we can do.