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‘In the dock on value for money’

October 2012

Julian Ashby - chair of the HCA's regulation committee

Julian Ashby - chair of the HCA's regulation committee

Alistair McIntosh
Chief Executive
Housing Quality Network

Chicken feed is the term Boris Johnson uses to describe his freelance earnings. How much is chicken feed? For him it’s £363,000 a year. All I can say is watch out for the Sumo chickens of Highbury Fields – and God help the scrawny foxes as the chicken coop fights back.

Who else can possibly come close to these earnings? One housing association chief executive earns as much in his full-time job as Boris does in his spare time. As usual the Tories are spot on: we’re all in it together.

This only goes to show that you can make any point you like when you compare salaries. But top pay is contentious. Shareholders said no to the pay deals at Barclays, Aviva and WPP. Should we have debates like this in housing?

Some associations are big enough to be in the top 250 or even top 100 in the FTSE. You can count the surpluses across the sector in the billions. Rival associations bid against each other for sites in the same way that supermarkets do. But what would life be like if associations were analysed like other comparably sized organisations?

Analysts crawl all over big companies like a rash. Are the costs too high? Is the strategy wrong? Where do they sit against the competition? Is the chief executive over paid? Does the succession plan make sense? Overall they are trying to work out if this is the right place to invest money. No one in their right mind would rely solely on what a board told you about their own company.

Yet housing associations are virtually invisible. It is rare to see them mentioned in the business papers.

Of course the credit crunch showed that analysts get it wrong. But you could argue that analysts and investors are now a lot more thorough and sceptical. They can even reject pay deals for chief executives who have made shareholders rich. Jam today may not mean jam tomorrow.

It’s inevitable that the tough questions asked by investors will become more widespread in housing as bonds become more common as a source of funding for associations. Grant Shapps’ approach to challenging the sector was to demand that landlords published all their bills. Where will that get us? We want intelligent challenge not a cloud of confetti.

But I do not think our current system of challenging landlords is working. Let us look at it bit by bit. The Homes and Communities Agency (HCA) pulls together all the accounts. There are two killer facts in the HCA’s analysis of management costs. They cannot explain why costs vary. Bigger landlords are not cheaper. We need to do a whole lot better at explaining what we do. Imagine if analysts found that Tesco was more expensive than a corner shop. The management team and board would get the boot. Where is the clarity on value for money in housing? In fairness the HCA just does not have the resources to get to the bottom of efficiency.

Landlords do a lot of benchmarking. But aren’t we just seeing whether we are the same as everyone else? Housing associations offered huge savings and added value when they bid to run council housing in Cheshire West and Chester. You don’t get this with benchmarking.

For some, tenants hold the key to value for money. They receive the services so they can spot waste. Of course they are in the box seat when it comes to pointing the finger at useless cleaners and contractors. But can they tell you how their service costs compare against others? Only if landlords are really open with them. And if the HCA cannot tell if the sector is efficient how can we expect tenants to do it?

Associations are in the dock on value for money. The answers we are giving to government aren’t good enough. Government’s ideas for sorting it out are just an illusion. We would benefit from the type of challenge from analysts that FTSE companies face. There is nothing to stop associations putting this in place for themselves.