In a fix

He may have wondered how housing associations and councils, with limited incomes and thousands of properties to maintain, manage to meet the cost of their maintenance responsibilities – especially in the South-east, where a shortage of skilled tradespeople has led to rocketing labour rates. Figures from the Federation of Master Builders show up to 60% of smaller building firms in the South-east have difficulty recruiting skilled staff; meanwhile, self-employed plumbers in London can expect to earn up to £70,000 a year.

The government's emphasis on performance targets has increased the amount of pressure the Audit Commission and Housing Corporation put on achieving repairs and maintenance targets. But local authority landlords can be marginally more shielded from the hike in maintenance costs than housing associations. Diverse income streams, maintenance grants, and possible access to a pool of directly employed labour are available to councils (see "Cutting the costs", page 18).

Impossible inflation
Inflation in the private housing repairs and maintenance market is running at a hefty 13%, according to the Building Cost Information Service. Meanwhile, roofing costs have shot up 20% over the past 12 months and plumbing costs have risen 19%. Although the figure for inflation for public housing repairs and maintenance is lower – 3.3% – that figure includes council stock and is for the entire UK. Registered social landlord gas maintenance contracts, for example, have more than doubled in cost over the past five years (HT November 28, page 11) and hikes of up to 40% a year are being reported for general building work.

The result is that many RSLs, already struggling with rent restructuring and the constraints this puts upon revenue, are trapped between fast-rising costs and near-static income. In some cases, they are being forced to look at axing other services, such as those for the elderly, in order to divert funds towards essential maintenance.

"In the end something will have to give," warns Barbara Thorndick, chief executive of West Kent Housing Association. "There are going to be associations that cannot cope and will go bankrupt. We find that contractors tender on a schedule of rates, and then leave us because they find they can't employ skilled people at a rate which allows them to make a profit. Others simply find they can make more money elsewhere. We had a fencing contractor, for example, who upped and left, saying pay was better on the Channel Tunnel Rail Link."

The fencing problem at West Kent was solved only by raising the schedule of rates a whopping 40%. But RSLs are limited in how such costs can be paid – with virtually no maintenance grants, and income restricted by target rents and rent capping, revenue flexibility is constrained.

"If rental income can only rise by RPI plus 0.5%," says Thorndick, "that gets nowhere near covering the cost increases we are now having to bear. As it is we are having to look at some gardening and decorating services we currently provide for elderly tenants to see if we can still afford them."

West Kent's problems are not unusual. Sonny Karanjia, development and technical services director with Genesis Housing Group, says: "The rises in labour costs present major challenges. We already have to cope with widely varying levels of workload, due to weather for example, and if you add in these dramatic overhead rises it becomes difficult to exercise good budgetary control.

"Tenants expect a good service, and rightly so – and it is very stressful for us if we cannot get the industry to respond at an affordable rate. Gas service rates are a particular problem. We are looking at another 8% rise for next year, with the heavy proviso from the contractor that personnel are difficult to find."

So what can be done? Both Thorndick and Karanjia suggest maintenance grants for RSLs. However, they concede there are practical difficulties in deciding who needs them and political difficulty in appearing to remove from RSLs the incentive to be thrifty.

But this didn't stop the National Housing Federation lobbying for an asset management grant of some £70m a year in its submission to the chancellor's annual spending review this year. Karen Tait, NHF asset management leader, says: "This was requested in the context of specific concerns over pressures being experienced by the sector, including rent restructuring and the need to upgrade property to meet the decent homes target.

"However, where housing associations are experiencing difficulties in funding their planned maintenance this will inevitably impact on responsive maintenance. In that context any steep rises in maintenance costs may strengthen the argument for the grant."

Strategic solutions
While the NHF waits for feedback from government on this proposal, RSLs are having to cope as best they can, and the strategies they are deploying make for an interesting analysis of employment trends in the sector. Most notably the crisis has seen a return to popularity of the once-reviled direct labour organisation, where a housing association employs maintenance workers full-time rather than hiring contractors.

West Kent has a directly employed gas maintenance department, and Genesis has a DLO of 12 staff that carries out 60% of its repair work. Maidenhead and District Housing Association's DLO is so popular, it is hiring itself out to desperate friends and neighbours (see "DLOs and don'ts", page 18). Those who have them commend the surety of service DLOs can offer, though as Thorndick points out, directly employed labour increases administration costs and involves an association taking on more risk.

The other approach is partnering. The idea here is that instead of the RSL undertaking a number of short-term agreements with several contractors, it partners with fewer, larger contractors on a more long-term basis. Classic partnering might involve one organisation undertaking to handle all calls, and deal with all maintenance over a period of at least three years. Its management expertise and large teams of directly employed labour mean cost savings can be made, which are then shared with the landlord through open-book accounting.

If they are not already doing this then many associations are now, out of necessity, considering it. Kent-based Broomleigh Housing Association, for example, has entered into long-term partnering arrangements with three contractors: one for gas and two for general repairs.

Chief executive Neil McCall explains: "Our partnering agreements are five-year rolling contracts, with a review each year. The longer-term nature of these arrangements is crucial: it means our partners can be confident about the future, feel able to directly employ labour, and invest time and money in their staff."

Yet while partnering has a role to play in helping RSLs through the current crisis, it is not a general panacea. Genesis, for example, is looking at partnering, but Karanjia says it is unlikely to provide a complete solution for his association. "For landlords like ourselves, with properties spread over a large area, it is not easy to find a partner that fits our needs."

Also, he adds, partnering does not automatically deliver cheaper services. That depends on the contractor involved and the details of the partnering deal. Get it wrong, says Karanjia, and partnering can become "rather an expensive hobby".

For many RSLs trying to cope with the maintenance crisis, well-structured partnering agreements will be the way forward; but for others, a return to directly employed labour will be the way to go. There's no reason, however, that others should not look at a combination of the two, as Genesis is doing.

What is certain, however, is that RSLs in crisis-hit areas cannot afford to do nothing.

Gordon Brown's satellite dish experience may just inspire him to sanction moneys for a maintenance grant. RSL finances might be rescued by a collapse in the private-sector building boom. Maybe. But we live in the real world, and relying on either of these scenarios cannot represent anything like good governance.