Leazes Homes Value for Money Self - Assessment 2017/18 1. Introduction 1.1 Leazes Homes is a small Registered Provider of social housing and as at 31st March 2018 had 718 social housing units. We are a charity, were incorporated in April 2009 and granted charitable status in January 2010. 1.2 Leazes Homes was set up by Your Homes Newcastle and Newcastle City Council to improve the supply of affordable homes. Following changes to the organisation’s Articles of Association, Leazes Homes became a private registered provider of social housing. Your Homes Newcastle provides housing management services to Leazes Homes and Newcastle City Council provides repairs and maintenance services. 1.3 This is the second Leazes Homes Value for Money Self-Assessment. 1.4 We aim to develop and improve our Value for Money Self-Assessment as we grow so we can demonstrate to our stakeholders that we are achieving value for money in delivering our purpose and objectives. 2. Regulation and Homes England’s Value for Money Standard 2.1 We are regulated by both the Charity Commission and the Regulator of Social Housing. The Regulator of Social Housing requires us to comply with their Value for Money Standard and Code of Practice. 2.2 The Value for Money Standard 2018 requires us to demonstrate: • • •
A robust approach to achieving value for money; Regular and appropriate consideration by the Board of potential value for money gains; Consideration of value for money across our whole business and where we invest in non-social housing activity, we should consider whether this generated returns commensurate to the risk involved, and justification where this is not the case; and Appropriate targets in place for measuring performance in achieving value for money in delivering our strategic objectives, and that we regularly monitor and report performance against these targets.
2.3 We must also annually publish evidence in our statutory accounts to enable stakeholders to understand our: 2.3.1 Performance against our value for money targets and any metrics set out by the regulator, and how performance compares to peers; and 2.3.2 Measurable plans to address any areas of underperformance, including clearly stating where improvements would not be appropriate, and the rational for this. 3. Delivering our Business Plan 3.1 As detailed in our 2015-18 Business Plan the strategic objectives of Leazes Homes are to:• • • • •
Develop an operational model which enables the efficient development of new affordable housing; Become a preferred partner of related organisations in the social housing field; Be a landlord of choice for affordable housing tenants in the north east; and Develop a specific focus on special needs developments.
3.2 Our Management Team monitor our operations monthly against the following areas to ensure that we are delivering against our Business Plan. Management Accounts 1. 2. 3. 4. 5.
Income and expenditure account; Overheads analysis; Feasibility costs analysis; Balance sheet; and Cash flow
Analysis 1. 2. 3. 4. 5.
Service charges by scheme; Arrears analysis; Welfare reform and housing benefit; Repairs and maintenance; and Work in progress
3.3 The following tables show our actual spend against our budget for 2017/18 and how that expenditure has increased or decreased in total per property, over previous years.
Housing Management 2017/18 Budget Actual spend 333,000 428,000
Cost Per Property 2017/18 2016/17 653 543
Service Charges 2017/18 Budget Actual spend 1,464,000 1,523,000
Cost Per Property 2017/18 2016/17 2,328 2,159
Repairs 2017/18 Budget Actual spend 574,000 418,000
Cost Per Property 2017/18 2016/17 639 661
Overheads 2017/18 Budget Actual spend 238,000 170,000
Cost Per Property 2017/18 2016/17 260 343
% turnover 2017/18 2016/17 3.29% 4.48%
Overall our actual spend against these categories was lower than budget. Housing Management costs increased by around 20% during the reporting period and service charges have increased by around 8% during the reporting period. During 2017/18 we increased the number of units by 127 with 103 being supported housing units and older persons units. The requirements for these properties in terms of meeting the needs of tenants required additional management resource and service provision than was originally anticipated. 4.
4.1 Leazes Homes added a further 127 units to its housing stock in 2017/18. This included:â€˘ â€˘ â€˘
A 50 unit supported housing scheme for older people; A scheme consisting of 25 bed spaces for people with dementia and 28 apartments for older people; and 14 units of general needs accommodation and 10 wheelchair designed bungalows for shared ownership.
4.2 A breakdown of Leazes Homes stock as at March 2018 is detailed below. Type General needs Supported / housing for older people Shared ownership Total
Number of units 366 340 12 718
4.3 The majority of new units completed in 2017/18 were supported housing units, which is in accordance with the objective of the 2015-18 Business Plan to develop a specific focus on special needs development. Focusing on supported housing development helps Leazes Homes to maximise the impact its resources have in delivering against its charitable objects, which are set out in the organisation’s Articles of Association. 4.4 With the exception of 2 schemes totalling 115 units all Leazes Homes units have been built within the last 9 years. All schemes are subject to a rigorous development appraisal with the Board setting the following performance requirements:Benchmark 30 Year Net Present Value 60 Year Net Present Value Payback Year Minimum I&E Balance 30 Year IRR% 60 Year IRR%
0 0 30 0 5.43% 5.43%
Board has discretion to proceed with schemes if these requirements are not met if there is substantial assurance that it is affordable to do so, and the scheme is making a positive impact on delivering the organisations Business Plan and objects. 5. Key Achievements 5.1 During 2017/18, we made progress in delivering against the Leazes Homes 2016/17 Value for Money Statement Action Plan. Progress is detailed below: • • • • •
Completed 2017 VFM self-assessment; Completed procurement exercise for housing management; Complete procurement exercises for grounds maintenance; Revised approach to budget setting for repairs to ensure that budgets more accurately reflect expenditure; and Reviewed scheme service charges.
5.2 The actions we did not complete from the 2016/17 Value for Money Statement Action Plan, the reasons they were not achieved and remedial actions to be take are detailed below: •
Determine VFM targets for inclusion in Quarterly Performance Monitoring Report. The performance management framework is being reviewed following the procurement exercise for housing management services. VFM targets will be agreed as part of this process; Produce Value for Money Strategy. The strategy was not drafted in 2017/18 and will be carried forward for completion; Review allocation process for supported housing schemes. There are nomination agreements in place with Newcastle City Council for all Leazes Homes supported housing units. Newcastle City Council are reviewing the allocation process for supported housing and Leazes Homes will review its approach following the conclusion of Newcastle City Council’s review; and Complete procurement exercise for building cleaning. A review of the current provision identified that several contracts were coming to an end during 2018/19. It is therefore planned to incorporate these contracts into one procurement exercise and run this during 2018/19. This provides opportunities to benefit from economies of scale and scope, and to ensure compliance with procurement regulations.
6. Gains 6.1 During the year cashable gains were achieved because of undertaking procurement exercises. Savings included:•
Reduction in grounds maintenance costs of £35,700 following a procurement exercise.
It should be noted that there was an increase in the costs of housing management services following the procurement exercise, but this has been offset in part by a two-year fixed pricing arrangement. The specification is also a lot more detailed and comprehensive and provides certainty for a key cost element for future years. The performance, both financial quality, will be considered as part of an options appraisal during 2020/21 which is built into the 2018-2023 Business Plan. 7. Efficiency 7.1 The table below details key measures of the efficiency of the organisation.
2018/19 2017/18 2017/18 2016/17 budget budget actual actual £1,442,000 £1,396,000 £1,397,000 £1,306,000
2015/16 actual £925,000
(Turnover less operating expenditure) Operating margin (Operating surplus as a % of turnover) Return on assets (surplus as % of value of homes)
7.2 Operating surplus continues to improve with operating margin performing consistently over the last 3 years. 8. Benchmarking 8.1 As part of the Review of Delivery Models Housing Quality Network (HQN) benchmarked the key cost areas of housing management and repairs and maintenance during 2016/17. 8.2 For housing management costs, HQN reviewed two types of organisations similar to Leazes Homes. These two types of organisation were:â€˘ Councils / Arms Length Management Organisations that have set up local housing companies like Leazes Homes; and â€˘ Registered Providers with a similar number of properties. 8.3 The review compared Leazes Homesâ€™ housing management costs with ten other organisations. The review stated that the current management costs for Leazes Homes compared favourably to small providers with only one organisation with a lower management cost. 8.4 Benchmarking of repairs and maintenance costs included comparing a basket of repair jobs across providers. The review concluded that the rates were competitive and represented good value for money. 8.5 Although the benchmarking undertaken by HQN indicates that the current arrangements for providing housing management and repairs and maintenance services were delivering value for money, the recommendation in the HQN report was that these services should be put out to tender in the market place. Reasons for this include:-
Putting these services out to tender demonstrates Leazes Homes commitment to seeking value for money for the services supplied to its tenants and ensures compliance with requirements; and More innovative means of delivering services might well emerge during the tender process.
8.6 The Board of Leazes Homes agreed the HQN recommendations. The procurement exercise for housing management services was completed in July 2018 and a options appraisal for repairs and maintenance is to be completed by March 2019. 8.7 Performance is monitored against several indicators. A summary of our performance against similar providers for some key performance measures is set out below: Comparison against HouseMark (Your Homes Newcastle benchmarking group) Leazes Homes performance 2017-18 The average number of days taken to relet void properties The average number of days taken to complete repairs Rent and service charge arrears on current tenancies Properties with a valid Gas Safety Certificate Void rent loss due to empty properties Overall satisfaction with service (201617 Leazes Homes survey data)
HouseMark benchmarking group Median
HouseMark benchmarking group 2017-18 Lower middle
Upper middle (first let) Top quartile
Performance is at upper quartile or upper middle quartile except for one measure. This is the average number of days taken to re-let void properties. This is an area we will review during the year. Comparison against the 2017 Homes England Global Accounts (Entity Unit Cost 2017).
Management costs Repair costs (Maintenance and major repairs) Service Charge Costs Operating margin
2017 Leazes Homes average cost per unit
2017 Quartile performance
Top quartile Top quartile
Bottom quartile Top quartile
Our management and repair costs are in the top quartile with service charge costs in the bottom quartile of registered providers listed in the 2017 Homes England Global Accounts. We do have a high percentage of older persons housing schemes and supported housing schemes which will contribute significantly to service charge costs, but we recognise this is an area that needs to be kept under review. Around 42% of our stock in 2017 was either older persons or supported housing. This compares against an average of 10% for those organisations benchmarked against from the 2017 Homes England Global Accounts. Operating margin is in the top quartile of registered providers listed in the 2017 Homes England Global Accounts. 9. Regulator of Social Housing Value for Money Metrics Metric 1 – Reinvestment %. This metric looks at investment in properties (existing stock as well as New Supply) as a percentage of the value of total properties held; Metric 2 – New supply delivered. This metric sets out the number of new social housing and non-social housing units that have been acquired or developed in the year as a proportion of total social housing units and non-social housing units owned at period end; Metric 3 – Gearing %. This metric assesses how much of the adjusted assets are made up of debt and the degree of dependence on debt finance; Metric 4 – Earnings before interest, tax, depreciation, amortisation, major repairs included interest cover %. This metric is a key indicator for liquidity and investment capacity;
Metric 5 – Headline social housing cost per unit. Metric 6 – Operating Margin %. The operating margin demonstrates the profitability of operating assets before exceptional expenses are taken into account. Registered providers will report on 2 operating margin rations: a. Operating Margin (Social housing lettings only)% b. Operating Margin (Overall) Metric 7 – Return on capital employed. This metric assess the efficient investment of capital resources.
26.9% 26.9% 2.1
10. VFM Actions 2018/19 10.1 The table below details Leazes Homes value for money actions for 2018/19. Complete VFM selfassessment.
Target date December 2019
Review voids process
Determine VFM targets for inclusion in Quarterly Performance Monitoring Report. Complete options appraisal for repairs and maintenance Produce Value for Money Strategy
Review allocation process for supported housing schemes
Anticipated outcome Compliance with Homes and Communities Agency’s VFM Standard Improved financial performance and more effective and efficient services. Embed VFM in Leazes Homes
More effective and efficient services
Embed VFM in Leazes Homes. Improve and develop our approach to VFM. Improved financial performance