Social Landlords in Scotland: Shaping up for improvement

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Social Landlords in Scotland: Shaping up for improvement.Figure 11: Average rent per unit in real terms2007/081998/99 Ex GHA Inc GHATotal Rent (real terms) £340m £563m £758mUnits in management 131,975 209,074 274,310Average rent per unit £2,580 £2,690 2,765Source: Accounts Consolidation System, Scottish Housing Regulator.6.9 The table illustrates that the average rent paid in non-GHA managed units in2007/08 was, in real terms, £110 per unit more than in 1998/99. When wesurveyed the sector early in 2009 we found that a significant number of RSLsare now seeking to increase rents substantially, at a time when generalinflation is falling. More than one third of those surveyed are seeking toincrease rents by at least RPI+2%. For some this translates into a rentalincrease of 7% for 2009/10 at a time when RPI is actually falling and tenantsmay be facing straitened financial circumstances or the threat of redundancy.6.10 Given the modest increase in average rent per unit in the last ten years, thereis a risk that the current attempt to raise rent levels in the recession may notgrow gross revenues if it also triggers a rise in arrears or bad debts. If thereis also a growing risk that the cost of debt is likely to rise as lenders seek tore-price business, there is an urgent need for the sector to manage its costbase in order to secure a financially sustainable future, to deliver improvedservices, and to contribute to broader objectives.6.11 Our experience through inspection suggests that the sector does not have asufficient focus on delivering core business efficiencies to secure continuedviability should the economic downturn prove more protracted. We rarely findan explicit focus on value for money in all areas of the business. We haveoutlined above our view that there is greater scope for modern methods ofprocurement in asset management, and we believe there are also efficienciesto be gained in a range of back-office functions, for example, through sharingservices and reconfiguring service delivery.35
Social Landlords in Scotland: Shaping up for improvement.Non-rental income6.12 RSLs 3 have been generating substantially more income from non-rentalsources. In 1998/99 rents accounted for around 80% of total turnover but by2007/08 this had fallen to around 70%. Figure 12 below sets out the mostsignificant types of non-rental income within the sector.Figure 12 – Non-rental income in 2007/08Source % £000Support activities 31.8% 47,798Care activities 20.8% 31,236Profit on sale of fixed assets 17.2% 25,814Interest receivable 12.0% 18,018Development for sale to other than RSL 9.5% 14,260Wider role 8.8% 13,270Note: Excludes the Glasgow Housing AssociationSource: Accounts Consolidation System, Scottish Housing Regulator.100 150,3966.13 Substantial and lucrative assets sales have been possible in a growing andbuoyant property market. The downturn in the housing sector, alongside thelikely pressure on other income streams, will constrain the sector’s ability tosecure substantial non-rental incomes from such sources in the comingmonths and years.Private finance 46.14 RSLs have been hugely successful in securing large amounts of privatefinance to deliver the growth in social housing that has taken place since1998-99. In the 10-year period, total long-term debt (excluding GHA) hasmore than doubled, up from £755 million to £1.7 billion, a rise of over 8% perannum. On average, this means Scotland’s RSLs have increased their totaldebt from around £4 million in 1998/99 to £10 million in 2007/08 while, on aper unit basis, debt has risen from £5,725 to £8,025, a rise of over 3% perannum.6.15 The cost of borrowing has fallen markedly over this time and our recentsurvey returns show that RSLs have benefited from these lower debt costs.3 Excluding the Glasgow Housing Association4 Figures in 6.13 and 6.14 exclude the Glasgow Housing Association36
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