HCA publishes new analysis of cost variation in the social housing sector

Analysis shows that providers have achieved real-term reductions in their headline social housing costs per unit over the past 5 years.

The Homes and Communities Agency (HCA) has today published new analysis of cost variation across the social housing sector and announced that it will increasingly challenge registered providers on their approach to efficiency as part of its regulation of Value for Money (VfM).

Delivering better value for money: understanding differences in operating costs is part of a suite of documents published by the Regulator to help boards and executives further understand the main drivers of costs and ensure appropriate strategies are in place to maximise VfM and meet their objectives of investing in new and existing homes and delivering quality services to tenants.

The new analysis shows that providers have achieved real-term reductions in their headline social housing costs per unit over the past 5 years, in large part due to the cost of maintenance and major repairs falling through the near completion of the Decent Homes programme. However, it also demonstrates that the sector will need to significantly increase its operating efficiency over the next 5 years.

Median headline social housing costs are £3,550 per unit in 2015. The regulator’s analysis found significant variation across the sector, with the lower and upper quartiles of headline unit costs being £3,200 and £4,300 respectively. Providers are forecasting making greater cost savings over the coming years, with the headline social housing cost per unit forecast to decrease by 7 per cent in absolute terms.

Fiona MacGregor, Executive Director of Regulation at the HCA, said:

Savings being forecasted between now and 2020 to offset the impact of cuts in social rents are significantly greater than anything that the sector has achieved in recent years. As the sector seeks to produce savings and simultaneously deliver investment in new and existing homes, it will be increasingly important that providers optimise the use of their resources and assets.

However, our analysis shows a significant variation in costs between different providers, only half of which can be explained by observable factors. Boards of registered providers need to understand the costs of running their businesses, how their costs differ from those of their peers and the main drivers of these variations.

Providers will need an intense focus on efficiency: by identifying and reducing controllable variations in costs they can unlock additional resource to invest in new housing supply and regeneration activity. We regard a focus on VfM as a leading indicator of good governance and it will therefore continue to be a major focus for the regulator over the coming years.
Julian Ashby, Chair of the Regulation Committee, has written to the chairs of all large registered providers to draw their attention to the new analysis and emphasise the importance that the regulator places on VfM.

The regulator will be increasingly challenging providers on their approach to optimising efficiency as part of its review of providers’ compliance with the economic standards through In Depth Assessments. These reviews will consider how a provider is maximising the return on its assets and how it makes decisions on the use of resources to maximise delivery of its objectives.

The regulator will use a range of cost data, including those derived from the provider’s accounts and forecasts. Where data identifies that a provider has unusually high costs, the regulator will seek assurance that the provider understands why this is the case, whether this is the result of an informed business decision and, if not, its plans to reduce costs or improve outcomes.

Delivering better value for money: understanding differences in unit costs is available to download from the HCA website, as part of a suite of reports on value for money in social housing.