Category: Asset Management

Support your housing disposal strategy

The asset strategy of your Housing Association requires the homes in your asset portfolio to meet the needs of your customers, communities and for the owning organisations. 

Adopting a strategic approach to asset management can improve the income generated by existing stock. This is a vital revenue stream for ongoing maintenance and to support further development goals.

Part of the asset strategy often stipulates an NPV tool like SDS StockProfiler is used to support the stock valuation, rationalisation and disposal. NPV modelling helps understand the value of each asset, individually and grouped across the portfolio. Knowledge of this value contributes to the financial and social performance of the business. 

SDS StockProfiler can provide insight and understanding of the asset portfolio. There are a number of ways to do this:

  • What are the bottom 10% of units by NPV valuation
  • What are the top 10% by market valuation
  • Which units represent the top 5% of open market sale valuation

Using SDS StockProfiler enables the strategic asset manager and data analyst to review the units that provide the greatest income over the 30-year life of the Business Plan. Or which assets are a liability, this can be as a cost to the business income or a drain on the Business Plan over the long-term.

When you identify your poorly performing assets, a more detailed appraisal of each asset can be undertaken. Factors including social and non-financial indicators add to the initial review, for example

  • What is the density of owned units in a 5 mile area around this unit. 
  • What is the level of repairs on this unit in the past 3 years
  • What is the expected SAP EPC in 2030
  • Is the property charged, who is the lender 
  • Is there a clawback on any receipts
  • Are there any restrictions on the sale of the property

All this data is mined and consolidated into SDS StockProfiler from internal and external data sources to give one holistic view. With all the information in one place, the asset manager can provide a recommendation to dispose of and use funds to build more affordable homes. 

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Your housing stock is at the heart of your organisation

The financial heart of your entire organisation is your stock - let's make it work.

StockProfiler provides easy access to powerful insights that let you take control of your portfolio, unlock value, cut out the bad properties and invest in the good, to maximise your business.

An organisation’s housing stock is its core asset providing the collateral to borrow against for new development and regeneration, alongside the regular rental income from tenants.  

So, it makes sense to manage this resource with laser precision from across your internal data sources including housing and maintenance systems to external social and geographic indices to name but a few.

StockProfiler is an active asset management system that ranks your housing stock to reflect key performance indicators based on your data, including  Net Present Value (NPV) calculations for each individual rental unit, planned major repairs, and many more categories so you know the exact performance of your assets.

As part of the process, SDS StockProfiler will enable you to quickly aggregate and automatically consolidate across data sources, no more manual spreadsheet vlookups required.  StockProfiler can then slice and dice your data into manageable chunks thus helping to identify dirty data, create priorities and provide powerful insights to help improve value.

 

Simply put, knowing your assets will show you exactly where and how to impact and optimise the financial health of the entire organisation in a relatively short amount of time.  

An example illustration of a Value for Money (invest to save) business case of investing in StockProfiler on a 30,000 unit Housing Association, delivers total savings of £1,450,000 in the worked example available from the SDS team.

To help you achieve this SDS StockProfiler is an active asset management system used to deliver portfolio asset management as part of a property holding organisation’s asset strategy.  

StockProfiler calculates the Net Present Value (NPV) of each individual rental unit of a property portfolio, using unit level income and expenditure cash flows. The user can view the portfolio using a suite of reports and carry out scenario testing.

Financial heart
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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Avoid unforeseen spend on your property portfolio

Stress Testing and Big Unforeseen Spend on Properties

Pinpointing your lowest earning stock looked at how to identify your lowest earning properties, in this next one, we give an example of how you can stress test properties that need an unforeseen investment,

Our StockProfiler tool always allows for you to stress test on –

– CPI

– Rent Uplift 

– Major repairs deferment

– Maintenance and management uplift

– Voids %

  • Propety A
  • Additional Spend - £25,000
  • Current NPV - £85,679
  • New NPV - £60,679
  • Average NPV in area - £44,679
  • Propety B
  • Additional Spend - £25,000
  • Current NPV - £45,884
  • New NPV - £20,884
  • Average NPV in area - £44,679

The two properties have the same additional investment requirement but differing results. Property A still has a good NPV against the average after additional spend, but Property B falls below the average for the area.

The next stage is to investigate the detail of the additional investment on Property B to see if it is changing or eliminating any future requirements for Investment.

Form more information click here

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Combine social and financial Scores of your housing portfolio

Combine Social and Financial Scores for a more holistic view of your social and affordable housing portfolio

Increasingly, SDS is being asked by Housing Associations (HA) for a complete holistic view of their social and affordable housing portfolio. They need Social and Sustainability metrics alongside the financial Net Present Value (NPV) scores to achieve the objective of reporting both financial and social value across their business because as the saying goes “What gets measured gets done”.

Having a combination of financial and social scores enables the HA to better know and understand their portfolio.  They can investigate and plan their strategic and tactical investment responses and act according. For example, an area with a low sustainability score may be experiencing low tenant demand alongside high void rates and above average turnover.  Resident surveys may indicate a desire to live in the area, but a lack of child friendly outdoor spaces. The Provider can invest in local amenities, or youth focussed social programmes to help alleviate this position. This will improve local area sustainability alongside making use of and earning rent from void properties.

Data can be broadly split into internal and external categories. Internal sources will usually be at the unit or scheme level, dependant on the strategy and focus of the organisation. External sources may be limited to Census Lower Super Output Area if from an official Government source, although postcode or unit level data may be able to be purchased from commercial providers.

Take a look at the examples here:

Affordable housing portfolio

Using SDS StockProfiler, the HA can import and consolidate data from a range of sources to give a holistic view of the housing portfolio. In other words the HA can truly know their stock.

Consider an HA who owns about five thousand dwellings mostly catering for older people. They wanted to find properties with poor internal energy ratings (worse than 5 out of 10), low repairs (less than two visits in the reporting period) and high tenant support matrix score from the neighbourhoods team (more than 8 out of 10).  SDS StockProfiler helps them find the specific 517 units that represent the set of Housing for Older People dwellings, and then down to the 13 units of particular concern.

Each of these properties can be reviewed by a cross-functional team from Neighbourhoods, Repairs, Planned Asset Maintenance and Asset Management to ensure the properties each meet both the mission of the organisation and the asset strategy.  While each property had a positive NPV there were further financial hurdles to overcome before all options could be appraised. Each property that matched the selection criteria moved into the next phase to ACT as part of a remedial action plan.  A corrective action plan may include priority Stock Condition Surveys, a re-phasing of planned major repairs to improve energy efficiency alongside a visit from the Neighbourhood team to offer social and inclusion programme support.

Figure 1: StockProfiler showing 517 example Housing for Older People units filtered by 3 variables

An additional benefit of this analysis is the visibility of hidden problems. For example, a property with low repairs visits may be considered a good property that does not give any problems. However, the lack of Repairs Team visits may mask property issues when a resident does not want to bother the HA and the property falls into disrepair. It may be more costly to replace faulty components than service or repair the components in the long run.  

The data sets available on your property portfolio are wide and varied, from internal system generated property data, commercial datasets, to publicly published data sets. The skill is in processing that data so it is meaningful to the person who receives it and turns it into information to KNOW your stock. A clear understanding of the priorities of your organisation will allow the most significant data to be selected and turned into insights to improve the financial and social value for your organisation.

The data sets available on your property portfolio are wide and varied, from internal system generated property data, to commercial data sets, to publicly published data sets. The skill is in processing that data so it is meaningful to the person who receives it and turns it into information to KNOW your stock. A clear understanding of the priorities of your organisation will allow the most meaningful data to be selected and into insights to improve the financial and social value for your organisation.

SDS StockProfiler is a data mining and consolidation tool that combines internal financial alongside internal and external sustainability data to enable a social housing provider to profile, report and map their housing portfolio using financial (quantitative) and social (qualitative) metrics.

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Value for money

VFM from an asset perspective

The Value For Money standard from and asset perspective.

The regulator’s Sector Risk Profile 2018 (published in Oct 2018) has also reinforced the importance of the new VfM Standard and the regulator will be looking for organisations to evidence that they are getting to grips with these new requirements through its programme of in-depth assessments (IDA).

In terms of the VfM standard from an asset perspective it is worth noting the following points taken from the VfM Standard and Code of Practice and how an active approach to asset management can help you address and embed these points in your strategic approach and service delivery model:

  1.       You must ensure that optimal benefit is derived from resources and assets and optimise economy, efficiency and effectiveness in the delivery of your strategic objectives:

By understanding the actual financial performance being achieved by your assets using modern modelling techniques such as measuring net present value (NPV) you will be able to examine the opportunity cost of using assets and resources in their current function in terms of their worth to your organisation.

  1.       You must demonstrate a robust approach to achieving value for money – this must include a robust approach to decision making and a rigorous appraisal of potential options for improving performance:

By using asset performance to set a policy decision framework, supported by a property option appraisal process several key policy options can be applied to poor performing properties to either invest, change tenure, transfer to a better-placed provider or dispose on the open market that will allow you to compare these alternative options and demonstrate VfM decisions.

  1.       You may at times opt not to receive maximum return from an asset, instead of taking the decision to accept a lower return in furtherance of your social objectives – the rationale for this decision should be clearly articulated and justified:

By modelling NPV performance of your assets you will be able to understand your best and worst performers and apply policy options to improve performance, but importantly demonstrate those circumstances where your business is happy to retain assets with lower financial performance, because  it is more important to your organisation to retain affordable homes in a specific location or where covenants and other restrictions would make it difficult to realise the estimated market value.

  1.       You must also be able to demonstrate that you have a full understanding of the return generated from your assets compared to the costs of maintaining these assets and demonstrate how this return varies across your asset base:

By measuring the financial performance of your assets using NPV modelling you will be able to compare and report performance across your property portfolio against your business archetypes including property type, tenure, and geographical location. When comparing the NPV of these different assets, like a house, flat or bedsit you will be able to demonstrate which asset type is more valuable in financial terms across your property portfolio. NPV modelling will allow you to understand the impact of current day to day maintenance cost and future major repair investment on a financial return by each asset.

StockProfiler

In summary, creating a well-developed asset management strategy is essential.  Supported by well-defined policy, working methods, clear performance measures and that strong focus on value for money in property appraisals, contract procurement and management.

SDS’ recommendation is to always to create a baseline position statement of the financial performance of your assets using NPV modelling and reflect the findings back to the business, Senior Management Team and Board to both inform and determine future business planning priorities based on actual asset performance. This will help your organisation to create the right approach to active asset management and create measures to demonstrate how you obtain the maximum return from your assets and evidence you have VfM gripped.

To help you achieve this SDS StockProfiler is an active asset management system used to deliver portfolio asset management as part of a property holding organisation’s asset strategy.  

StockProfiler calculates the Net Present Value (NPV) of each individual rental unit of a property portfolio, using unit level income and expenditure cash flows. The user can view the portfolio using a suite of reports and carry out scenario testing.

www.s-d-s.co.uk/Products/StockProfiler

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Value for money

Revised Value for Money Standard

Does it feel like you could be going in the right direction at last? As ever, the devil’s in the detail, as Mike Victory Rowe, SDS Asset consultancy, explains…

The Homes England consultation to strengthen the Value for Money (VfM) Standard ended on Wednesday 20 December 2017 and Homes England are currently analysing feedback and the new standard. The proposed Standard would move their regulatory approach away from the existing, primarily narrative, self-assessment to a more focused reporting approach.

Homes England continues to place value for money at the heart of the business, moving away from self-assessment to more outcome-based reporting on targets, including a suite of metrics and new associated Code of Practice.

Julian Ashby’s (Chair, HCA Regulation Committee) opening sentence at the Consultation on the Value for Money Standard was that providers needing to make the best use of every pound and every property is the key to delivering more new homes, improvements to the existing housing stock and better services to tenants without placing an additional burden on the taxpayer. The revised VfM standard strengthens the requirements for Board accountability and enhances transparency through a focused, outcome-based approach to measuring and reporting the value for money gains.

It will be essential to ensure that your Board has both understanding of and confidence in the data and business intelligence associated with your property portfolio performance, investment and appraisal decisions. The revised standard explores in more detail some of the factors that Boards should consider when undertaking a ‘rigorous appraisal’ of all potential options for improving performance and delivering their strategic objectives. Boards will need to consider how to make the best use of its assets in contributing to an organisation’s broad business objectives through retention in their existing use, conversion to another tenure, or outright disposal.

Providers will be expected to set targets to measure and evidence performance in achieving VfM to ensure the best value is derived from assets in the delivery of strategic asset management. One of the required outcomes for providers will be to demonstrate that you have a full understanding of the return generated from your assets compared to the costs of maintaining those assets. You will have to show how this return varies across your asset base, according to tenure, stock type or geographical location. There is a requirement in the proposed standard to invest in your existing homes but also evidence your decision to retain assets that don’t maximise their return for your business.

So, what next?

Revised value for money standard

“I don’t need to know everything; I just need to know where to find it when I need it.”

Albert Einstein

In terms of achieving the VfM standard,  knowing where to find your asset data is essential if we are to truly understand your asset performance and deliver VfM solutions. Accessible and relevant data on how your assets perform and the ability to complete rigorous appraisal is critical.

What if your data was meticulously cleansed to ensure it was accurate and accessible, giving you all the information and data needed at the touch of a button?

That would give your board the confidence in knowledge and evidence to set strategic goals that are right, both for now and in the longer term.

So, what can you do to address this?

What if every member of your team had access to the data they needed, when they needed it, across function and level in the organisation? Imagine the greater transparency if it was immediately available how much a property cost to maintain, what should happen to it in the future and what factors were causing it to perform as it does? Then you could model alternative options to either improve the worth of performing assets or realise its value by disposal to build new homes.

SDS StockProfiler can support this process enabling housing associations and local authorities to KNOW your stock, INVESTIGATE anomalies and ACT to deliver value to your organisation. Supporting the change required to improve your VfM strategy and make good strategic decisions regarding future investment, obsolescence, disposal and growth.

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Poor data?

Is poor data holding HA’s back?

Poor Data is holding Housing Associations back from achieving their potential

Poor data and antiquated data systems that are not fit for purpose are a huge challenge to the efficiency of the organisation. Typically, systems are held together by a complicated series of spreadsheets with no golden thread holding them all together. This introduces the opportunity for human error in data collation and extraction. Reports are difficult to run and require talented individuals spending large amounts of time and effort to generate the most basic outcomes. It becomes challenging to assess progress against the business plan and to be agile enough to respond to events decisively.

Data systems
A brave new world of accurate and reliable data

What can be done to address these issues? What if your data was meticulously cleansed to ensure it was correct and accessible? What if you had all the information and data you needed at the touch of a button? This would give your board the confidence to know and understand and the evidence to set strategic goals that are right, both for now and in the longer term.

What if every member of your team had access to the data they needed when they needed it, across department and level in the organisation? Imagine what could be achieved with greater transparency and availability of information. Eg; how much a property cost to maintain, what should happen to it in the future and what factors were causing it to perform as it does?

How do you transform your data?

It is perfectly possible to move to a position where you know your data, have confidence in it and know which strategies to set, to support your business priorities. It is an iterative process starting with an initial cleanse to improve accuracy and understanding, setting out a position, then testing and improving once again. The initial stage is spent cleaning up the various data sources. Typically from Finance, this is:

  • Removing dwellings from their list that have been sold or rebuilt under a different tenure type
  • Correcting rents that have been historically incorrect, e.g. £96 rent charged per month where it should be per week.
  • Correctly calculating three-year average voids for each dwelling

Then the property management data will be scrutinised to ensure:

  • Each unit has a plausible cyclical maintenance plan based on actual historical repairs instead of assumed future spend for archetypes
  • Each unit has an accurate three-year average maintenance cost
  • All the units that are being maintained are serviced by the closest maintenance office/depot
  • All the units where the tenure type is market rent shared ownership, or similar are not being maintained
  • The units where the tenure type is social or affordable rent are being maintained
What can you expect to achieve from this process?

The implementation of specialist profiling software, such as the market-leading SDS StockProfiler, will help you get your data into shape. It will be cleansed and ranked to enable you to start the cycle of knowing your data assets and stock, which properties are profitable, and which ones are unsustainable.

StockProfiler

The data is honed to capture specific, required data points, for example, level of investment, day-to-day repairs, income, value, worth, quantified value, social investment, spend day-to-day, income, Net Present Value, existing use value and energy efficiency.

You can expect to see a one-view report of performance against business priorities at the push of a button.  Data is live, and reports are up-to-date and refresh in real time. From here a position statement (not just a report) is generated to highlight what elements of the asset portfolio needs further investigation and what elements are operating with a good NPV.

Information from across the organisation is now accessible in a single point of contact where further investigation and action can be taken.

Examples of data cleansing in action

SDS has been working for several years with some housing providers on improving their data quality and ability to extract the information they need quickly and easily.  

We found numerous examples of how poor data quality and collation were resulting in poor performance and inefficiencies.

We identified a 15% cost-saving for one provider on a £150m+ 30 years planned maintenance program simply through the identification of double counting.

What are the benefits of data you can trust? 

Greater efficiency – huge savings in cost and time
You will be able to generate your performance insights across your business without the need for intermediaries to expensively collect and clean data.

Better decision-making
You will be able to bring together data on tenants or assets quickly and easily and use it to drive decisions in your businesses at a time when doing that right is more important than ever.

Confidence in the data
You will have confidence that the reports you are extracting are correct, up to date and taking all the appropriate data sets into account.

Essentially you can start to get a handle on driving value across your business in ways that haven’t been possible before – or at least not without huge effort – and ultimately this will lead your organisation to long-term sustainability and growth.

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Getting to grips with NPV

NPV is an acronym for Net Present Value, which is a method of assessing the value of money received in the future. This blog will help you understand it.

“The value of money changes over time”

We all know about inflation. Currently in the UK inflation is roughly 2% per year. This means that a grocery trolley at a supermarket may cost £100 now, but come this time next year that same trolley will cost £102. Things generally get more expensive over time.

Another way of looking at it is that next year’s £102 is only worth £100 today.

Once you grasp the concept that money received in the future has a lower value today, you’re done!

Let’s explore this further.

The concept applies to both income and expenditure, assets and liabilities. Arithmetically, you may choose to think of income as positive numbers and expenses as negative numbers, or the other way round. It doesn’t matter. Both positive and negative numbers shrink when you adjust backwards in time, and grow when you adjust forward in time.

How do you adjust for time?

This is a relatively complicated mathematical formula, which is why we let our computer models do this for us. If you want to do it yourself, you will need a business / scientific / engineering calculator (not a standard office calculator) or a spreadsheet.

Now don’t be frightened by this formula, because you don’t need to remember it, and if you do manage to remember it, it won’t greatly increase your understanding of NPV, but we give it here just for your amusement if nothing else…

NPV results by unit, tenure and whole scheme

Going backwards in time:

PV = FV / ( (1 + APR) ^ (t) )

 In this formula:

PV is the Present Value

FV is the Future Value, at some time in the future

APR is the Annual Percentage Rate, where a value of 0.05 means 5% and t is the number of years from today of the Future Value.

Going forwards in time:

FV = PV * ( ( 1 + APR) ^ (t) )

 So where does the “Net” come into Net Present Value then?

The Present Value (PV) is a single value at a point in time. In our supermarket example above, the Present Value of next year’s receipt of £102 is £100. The Net Present Value (NPV) is the sum of a series of Present Values, for example, rental income over five years. In that example, the NPV would be the sum of the Present Values for years 1, 2, 3, 4 and 5.

Rental income example

Imagine you are building a house to rent and you want to work out whether the rental income that you are going to receive during the first 30 years is worth more than the cost of building the house. Assuming the rent will be paid on a monthly basis, that is 30 years x 12 months = 360 individual payments.

Let’s say you start renting out your new house on 1 January 2020. Initially, the rent is £500 per month (paid at the end of the month) and every subsequent year you inflate the rent by 3% (i.e. CPI+1%). Therefore, in the second year the rent will be £515 per month and in the third year it will be £530.45 and so on.

To simplify things we will work with 30 calculations; each calculation representing one year of income. So we are assuming, for this example, that all 12 monthly payments in the year are received in one lump at the end of the year, i.e. 31 December 2020.

We are further assuming that you are borrowing money to build this house at 6% APR and so that is the rate at which we will discount your future annual incomes.

The table on the following page illustrates the figures in each year:

YearMonthly rentAnnual rentPresent Value
2020500.006,0005,660
2021515.006,1805,500
2022530.456,3655,344
..etc....etc....etc....etc..
20481,143.9613,7272,533
20491,178.2814,1392,461
Total 285,452115,478

The first year’s rental income in 2020 is £6,000 (12 x £500), which is worth £5,660 after discounting. In the second year, the annual income is now £6,180 (because of the 3% rent inflation) but discounted back at 6% APR it is only worth £5,500 today.

And so on over the next 30 years.

When we add up all these present values over 30 years, the NPV of the rental income is £115,478.

So what does this mean?

Well, assuming that you can borrow £115,478 at 6% APR over 30 years (and ignoring the impact of expenses), you will pay off your loan completely over that time and break even.  

But at the end of this period, the house is still yours and you continue to receive rental income if you decide not to sell it.

Discount rate

The Discount Rate is a percentage rate that is used to reduce future income. It is made up of two key factors: the interest rate (APR) and the level of risk. In the social housing sector, housing development is considered low risk (as associations receive grant and are regulated), so the discount rate is typically the same as the borrowing rate, hence why we have used APR in the example above. The difference between a traditional NPV Discount Rate and an APR is very small and very technical.

Generally the higher the perceived risk in a scheme, the higher the APR used in the NPV calculations. If this housing project was in an earthquake zone, you may want to considerably raise the rate of discount. If there is a mild risk of flooding or subsidence, you may wish to just add a percentage point or two to the discount rate. As you increase the discount rate, the NPV will be lowered.

Alternatively, you could take out insurance against these risks and deduct the cost of that insurance from the NPV.

What about voids and bad debts?

When tenants move out, they sometimes leave without paying the last month’s (or more!) rent. Additionally, the property may remain empty for a while before new tenants move in. Either way, this leaves you with a gap in the anticipated rental income stream.

Even though this is a risk factor, the general approach to this problem is not to increase the discount APR, but to reduce the rent amount instead.

For social housing, the norm is to reduce the rent by 2 to 3%, depending on tenure. This does not mean reducing the actual rent charged to the tenant by 3 to 4%, just assuming that over 30 years we will lose between 2 and 3% of rent due to periods of no occupancy, and/or unrecoverable rent arrears. A 3% allowance translates into a £3,464 drop in NPV using the earlier example of £500 per month rent inflating at 3% per year for 30 years and discounted at 6% APR.

Voids and bad debts are often modelled at a higher rate for private market rented schemes. It is common to exclude it for shared ownership schemes (as there won’t be a void period between purchasers); however, it is prudent to allow a percentage for bad debt/arrears.

Pulling this all together

NPV is a methodology to calculate the financial return on investment for a project.  NPV is the total future income of your project discounted to today’s values and then compared to the initial investment (i.e. the total cost of the scheme less any initial sales/grant).  A project is financially worthwhile if the NPV of the income is greater than the investment value. If the NPV is negative then the scheme will lose the amount of money represented by the shortfall.

When comparing the NPV of two assets, like a house, the asset with the higher NPV is more valuable in financial terms. Housing Associations can optimise their portfolio by divesting existing properties with negative NPVs and investing in building properties with positive NPVs. This will improve the sustainability of the portfolio over the longer term.

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Data

Using data to future proof your homes

Using data to understand energy performance and future proof your homes

‘This Government is determined to leave our natural environment in a better condition than we found it. Clean growth is not an option, but a duty we owe to the next generation, and economic growth has to go hand-in-hand with greater protection for our forests and beaches, clean air and places of outstanding natural beauty.’

Theresa May, Prime Minister

Future Proof Your Home

This Strategy sets out a comprehensive set of policies and proposals that aim to accelerate the pace of “clean growth”. The Government’s approach is set regarding the context of the UK’s legal requirements under the Climate Change Act, the UK’s approach to reducing emissions has two guiding objectives:

  • To meet our domestic commitments at the lowest possible net cost to UK taxpayers, consumers and businesses
  • To maximise the social and economic benefits for the UK from this transition.

The Government’s key actions are set out in 8 policies and proposals with the aim to drive emissions down throughout the next decade, including improving our Homes, which represent 13% of UK emissions:

  • Improving the energy efficiency of our homes
  • Rolling out low carbon heating

The Government’s aim is to improve the energy efficiency of our homes, with £3.6 billion of investment to upgrade around a million homes through the Energy Company Obligation (ECO) to 2028, to achieve the following:

  • All fuel poor homes to be upgraded to Energy Performance Certificate (EPC) Band C by 2030, with the aspiration for as many homes as possible to be EPC Band C by 2035
  • Offer a smart meter to all homes to help them save energy by the end of 2020 

Not only will this strategy support the improvement of the energy efficiency and future sustainability of the UK’s housing stock, but it will also improve the lives of fuel poor households and the human cost of fuel poverty, including health and education.

The Department for Business, Energy & Industrial Strategy (BEIS) analysis of the English Housing Survey data forecasts that upgrading energy efficiency from an EPC Band E to C reduces energy costs by £650 per year on average. Given residents’ concerns about the cost of heating their homes, demand to replace electric storage heating along with ensuring their homes are well insulated, it is clear that keeping £650 a year in a resident’s pocket is a great result given the increasing cost of energy prices and impact of welfare reform.   

So, how can you use your data to understand energy performance and support the Government’s ‘Clean Growth Strategy’ now?

Using SDS StockProfiler and our active asset management methodology: to KNOW your stock, INVESTIGATE anomalies and ACT to deliver value to your organisation.

KNOW

  • Consolidate within StockProfiler existing internal Asset and Finance data about each unit to understand the existing worth of each unit.
  • Use current and potential Energy Performance Certificate (EPC) information to add an additional dimension to the dataset and enable in-depth scenario modelling of future potential investment projects.
  • Where internal EPC data is not complete,  we can fill data gaps using the Department for Communities and Local Government (DCLG) EPC data to populate our asset management model.

INVESTIGATE

  • Model actual or archetype investment options, then assess the impact on the worth of this investment on your assets to the business.
  • Examine and report the investigated options to enable the business to take a planned and considered approach to the investment, planning and implementation.

ACT

  • Support the project management and delivery of the investment, along with updating the datasets to ensure the business KNOWledge is up-to-date and accurate.

Linking the analysis of energy performance to wider economic performance such as net present values (NPV) and social intelligence such as resident satisfaction with the quality of their home enables you to make better decisions regarding future investment, obsolescence, disposal and growth across the wider portfolio of your assets. Overall driving the value of your assets whilst delivering sustainable green investment.

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Why bother having software that integrates?

The basics of housing are unlikely to change as the goal of providing safe affordable homes for everyone is not easily achieved. The UK homelessness charity, Shelter, estimates there are 320,000 homeless people. However, the technology behind developing, allocating and managing all these properties, tenants and their needs is changing.

It’s not just about creating a great website and digitising communication channels. Technology can be embraced to improve the way we work from initial land appraisal for development, financial viability reports for Board approval, project management of build, and then finally selling or allocating the finished units. Technology can be harnessed to improve efficiency and reduce risk throughout your development process. 

This is great except you can often be left with numerous specialist pieces of software which don’t talk to each other. That leads to data duplication, or worse, conflicting data in different applications. The HACT data standard is raising the bar for data in the housing sector, by ensuring software tools use a common, agreed, terminology.

Integration is the linking of different software packages together so the system is able to provide a broader function while maintaining the individual specialities. Using software platforms that integrate enables them to work together as a whole, providing a holistic, harmonised view, with all data aligned. This overcomes issues that arise from holding duplicated data. This, in turn, leads to more reliable results and better credibility for individuals and teams within the organisation.

The opportunities created through smart systems centralising the data not only saves time and is more efficient but can improve the trust and the integrity of the information held as it is more up to date and accurate.

For example, if your development appraisal software integrates with your project management application, which in turn integrates with your sales process management software, this builds a complete picture. The process doesn’t stop there, information from housing management systems and finance systems can be linked, eliminating data entry and improving reliability.

Ultimately, systems integration improves productivity, communication and collaboration between departments and of course quality of data. All of these benefits ultimately reduce the organisation’s costs and help deliver safe affordable homes for everyone.

SDS is continuously looking at integrating with other software housing associations and local authorities use and have had great success with our Brixx, Orchard and QL integration. 

We take a complete approach to the Development Process and support your entire development process from the initial assessment of the land (Landval), through testing the viability of a number of development options varying tenure and unit mix (ProVal) and managing the project through the development phase (Sequel) to matching potential clients with sale properties (HomeMatch) and then sweating all your assets with our asset management software (StockProfiler).

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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