Statement of Intent
LSH has been working through a period of recovery resulting from a substantial downturn in its financial strength that has, inevitably, restricted its business opportunities during the last two years. Having reduced its cost base and tackled low occupancy levels LSH has stabilised its position whilst developing a more entrepreneurial culture.
Looking at LSH’s current status this paper concludes
There is a long term need to provide affordable working for Key Workers in the London and South East, which is LSH’s current preferred geographical heartland. Whilst policy variations may require some adaptation of LSH’s activities from time to time, its core service provision has a long term future.
LSH is eager to grow through participation in new developments and entering into new areas of business where it can support fellow Network Housing Group members as well as seeking joint ventures with other organisations.
The document focuses, from a planning perspective, on a three year time horizon. However, given the board’s confidence it the attractiveness of its chosen market place in the long term, the LSH’s vision stretches to a ten year time horizon. If that vision is supported by the Network Housing Group the board will work with the executive to present a more detailed 3-10 year plan over the next 12 months
1.Executive Summary of recent Performance
1.1 LSH has experienced a substantial downturn in its financial strength that has curtailed its business opportunities
1.2 The principal catalyst for this lies outside LSH’s direct control. Government’s decision to phase out the ability of NHS Trusts to carry forward budget deficits has forced the Trusts to respond by adjusting their recruitment and staff management practices. The impact of this new human resources climate has been to substantially reduce the flow of re-housing nominations of NHS staff to LSH.
1.3 As an organisation whose principal activity is to accommodate NHS staff, often on hospital based locations, LSH has had to respond to the challenge of the NHS slow done in recruitment which led to a substantially reduced level of occupancy and a reduction in rental income.
1.4 LSH’s financial outturns for 2006/7 showed a trading loss of 5% of overall tirnover and lender covenant on profitability was only achieved with the financial support of the group. The budget for 2007/8 was set allowing for a 3% trading loss and the budget for 2008/9 is being set to achieve a breakeven position.
1.5 For the last twelve months LSH has been focused on reducing its cost base, widening the skill base and improving value for money by staff restructuring, implementing tighter controls over expenditure particularly with repairs and recovering previous levels of income through reducing void levels. During the third quarter of 2007/8 occupancy started to show an upturn as a result of focused marketing and success in establishing relationships with new nominating partners. Marketing and sales will continue to remain a key priority for LSH which has set itself a target to drive occupancy up to an average of 95% within the next thee years.
1.6 It is clear from research and from LSH’s client experience that many key workers aspire to living in self contained accommodation rather than cluster type arrangements with shared facilities. LSH’s high proportion of cluster accommodation (86% of the housing stock) is going to have to be addressed over the next three years if LSH is going to remain a sustainable provider of key worker accommodation in the long term.
1.7 The inappropriate portfolio mix will be addressed through the disposal of the least viable schemes and expanding through management agreements with other landlords and through provision when LSH is able to secure funding for development. The Business Plan explains how LSH will increase the percentage of self contained accommodation from 14% to 35% and work towards achieving its ambition to own or manage 5000 – 7000 properties within the next ten years.
1.8 Throughout the period of this Business Plan, LSH’s commitment to providing high quality, responsive and good value services to residents will remain our principal priority.
2. History & Structures
2.1 The Network Housing Group’s involvement in key worker housing started in 1996. Following rapid growth over the first three years, LSH was established to lead the Group’s key worker activity, and in 2000 was registered as an Industrial and Provident Society. In 2002, LSH became the first housing association created specifically to provide key worker housing to be registered by the Housing Corporation under its current entry requirements.
2.2 LSH was established within the Network Housing group with 100% debt finance, essentially as a start-up standalone business operating within a developing marketplace. Many competitor associations offered similar services as an add-on to their social housing portfolio whilst pursuing grant funded developments at the behest of government.
2.3 LSH now provides over 1,800 homes in London and the Home Counties. This includes over 600 units of accommodation which LSH manages for Stadium.
Overall the quality of the stock is good, with most of the stock being built within the last ten years and it all conforms to the Government’s Decent Homes standard. The stock is concentrated in east London in Hackney and Islington, in west London in Brent and there are just over 100 units located in St. Albans, Hertfordshire.
2.4 LSH’s customer base includes the NHS trusts, staff employed in the trusts, teachers, emergency services employees, local government staff and students.
Approximately 60% of the housing stock is covered by void guarantees which vary between trusts but typically guarantee void losses of between 70 – 90%. It is important to note however that, at the moment, LSH has an unacceptably high level of dependency on NHS staff residents and an inappropriately high level of ‘cluster’ accommodation, both of which need to be addressed in the context of the product offering.
2.5 The Group’s first key worker project was a transfer of the Hackney Nurses Home, comprising 282 shared units of accommodation, which was comprehensively refurbished on transfer. Across east London, we have developed a further 300 cluster flats and on-call rooms on four sites in Hackney and 230 cluster flats on two sites in Islington. Self-contained family homes are also provided at one of the Islington schemes.
2.6 In the west of London, LSH’s largest new build scheme at Northwick Park Hospital provides 670 homes, with a mix of cluster flats and self-contained accommodation. LSH has 110 homes in St Albans, acquired through a combination of stock transfers from the NHS and from new development benefiting from Section 106 planning gain. In 2005, LSH completed its first Social Housing Grant funded development under the Key Worker Living initiative. This scheme in Harrow comprises 80 flats offering a mix of intermediate rented, shared ownership and general needs accommodation.
2.7 The Housing stock is managed from two area offices located at Homerton in Hackney and Northwick Park in west London and a sub office in St Albans. The management team will be relocating to offices in Bethnal Green in 2008 in order to bring the team together in one central office. These offices will also provide accommodation for the staff that will need to be relocated from Kenworthy Road when this building is redeveloped.
2.8 Governance of LSH is through a Board which meets at least four times a year. It can comprise up to 15 members, but the current Board currently operates satisfactorily with 7, though this is at the lower end of effectiveness. . A Board self-assessment is undertaken regularly to refresh the Board Effectiveness Improvement Plan and the Board is actively engaged with group recruitment activities to strengthen its membership and widen its skill base.
2.9 The Board delegates specific activities to sub-committees:
2.10The Board elected a new Chair to succeed the Acting Chair during the last year.
3. Mission and Values
It is thought appropriate to adopt a broader vision for the future such as : -
To support the health, vibrancy and wellbeing of our local communities through the provision of housing services which meets the needs and aspirations of economically active individuals in work and study within or supporting public bodies, quasi public sector and commercial organisations.
To fulfil the demand in our chosen market by growing the business over a ten year period to a minimum of 5000 – 7000 units through development, acquisition or the provision of managed services to our client base which includes our referral partners, residents and applicants.
3.3 Our Values
3.4 Our vision will be achieved by
4 Strategic 3 year Goals
LSH wants to establish itself as the provider of choice of key worker accommodation in its current geographic range within London and the SE of England. To achieve that it has created a number of strategic goals:
4.1 The key strategic goals for LSH over the next three years are as follows:
5. Business Plan
The above goals will be achieved in the following way.
5.1 Long Term Viability
5.2 Reposition LSH
5.3 Focus on growth
Short term (three years) - Reduce and rebuild
Medium Term (five years) - Stock size 3,500 units owned or managed
Long term (ten years) – stock size 5000 – 7000 units owned or managed
5.4 Stock Mix Imbalance
5.5 Service Delivery
5.6 Administration, Governance and Risk Management
LSH intends to heighten the financial and administrative controls across the organisation through a structured review of key areas, as listed below. The objective of these reviews is to ensure that, as the company expansion takes place, effective governance arrangements are in place.
Note – many of these reviews have already commenced and are bearing fruit
6 Operating Environment
6.1 Strengths, Weaknesses, Opportunities and Threats
The following strengths, weaknesses, opportunities and threats have been identified for LSH.
6.2 The Policy Context – Key worker Housing as a mainstay of Government Housing Policy
Government Support for Key Worker Housing
6.2.1 For the last six years, Government has given high priority to housing initiatives that support the recruitment and retention of staff working in essential frontline public services. The Starter Homes Initiative (SHI) was the first national funding programme to focus on the housing needs of key workers. To replace SHI, the Key Worker Living (KWL) initiative was launched in 2004, with a £600 million grant allocation. The principal of a new “one-stop shop” for key workers was established. The KWL programme set up area based Zone Agents (now Homebuy Agents) to promote and administer key worker housing initiatives.
6.2.2 The KWL scheme remains the backbone of the Government’s strategy for key workers, promoting tenure options across intermediate renting and low cost home ownership. The definitions of key worker groups eligible for assistance have been broadened. Nevertheless, there continues to be a wide ranging debate over who is a key worker. London Boroughs and other Local Authorities adopt wider definitions of key workers to reflect their local circumstances and priorities and which influence section 106 agreements. LSH has adopted a broad definition of a key worker which enables us to operate throughout the sector, particularly in relation to schemes without grant.
6.2.3 The London Regional Housing Strategy continues to emphasise the importance of additional key worker homes. It recommends that 5% of new homes being developed in the region should be for key workers. Communities and Local Government (CLG) has announced its proposals for the creation of a new housing and regeneration agency - Communities England. The new agency will combine the investment, regulation, and regeneration functions of the Housing Corporation and English Partnerships. It will also take on delivery functions from the CLG covering decent homes, housing market renewal, housing growth, urban regeneration, and housing PFI. This is intended to improve outcomes from work to deliver new homes and create sustainable communities, and to leave CLG to focus on its strategic and policy development role.
6.2.4 In the Green Paper published in July 2007 the Government stated its commitment to invest in social housing by increasing investment by 50% to £8 billion over the next three years. The number of affordable housing will be increased to 70,000 a year by 2010/11 which will include 45,000 new homes a year for rent and 25,000 shared ownership and shared equity. The government is also looking for more affordable homes for key workers and first time buyers through Council backed local housing companies and through the private sector and planning gain. Within the paper the government has raised the target from 130,000 to 200,000 new homes to be built on surplus public sector land. More directly related to LSH’s work the Department of Health will transfer thirteen new sites into the programme for new and affordable homes and the NHS trusts are identifying the surplus land they hold with potential for further new housing.
6.2.5 Housing Corporation
The Housing Corporation’s National Investment Strategy emphasises the need for housing providers to increase the supply of affordable housing for key workers. The Corporation is increasingly moving away from separate provision for key workers towards integrated development, and continues to give a high priority to low cost home ownership options.
6.2.6 Local Government Support for Key Worker Housing
As key worker housing issues have grown in national importance, most Local Authorities in London and the South East now have specific key worker housing strategies which are feeding into their planning processes. The KW concept is actively supported by the mayor of London and the GLA.
6.2.7 The Thames Gateway will create a number of opportunities in north east London with key development zones at Stratford New Town, Lea Mouth and Barking Reach. The successful bid to host the Olympic Games in 2012 is of national significance and will be a “once in a lifetime” experience for most of the UK’s population. It is predicted that a large proportion of the Olympic Village will be suitable for adaptation to key worker style accommodation after the Games.
From the above we can conclude that there is a long term need to provide affordable working for Key Workers in the London and South East ,which is LSH’s current preferred geographical heartland. Whilst policy variations may require some adaptation of LSH’s activities from time to time, its core service provision has a long term future.
6.3 LSH’s Position within that Context
6.3.1 London Strategic Housing Stock Profile
Of the 1800 homes currently provided by LSH 48% 0f the stock is located in east London in the boroughs of Hackney and Islington, 45% is located in West London in the boroughs of Brent, Harrow and Hammersmith and Fulham and 7% is located outside of London in St Albans, Hertfordshire.
6.3.2 Desirability of Current Accommodation
Recent experience has shown that most key workers express a desire for self contained accommodation in preference to shared accommodation though some may accept shared accommodation at the very start of their working life. Low rents are the main reason for people choosing to rent cluster accommodation which makes it difficult to achieve long term tenancies. Many tenants see cluster accommodation as a short term solution and will choose to move into self contained accommodation as soon as they can afford to.
6.3.3 The redevelopment of Kenworthy Road will create a reduction in the housing stock of 382 units, which includes 282 HMO rooms of which 62% are currently occupied and 100 cluster units of which 70% are currently occupied. There is likely to be a positive impact in the short term on other schemes when decanting commences, however it is difficult to predict whether this will be sustained in the longer term.
6.3.4 LSH has been protected to some extent from the full financial impact of the decline in occupancy levels by long term contractual agreements with void guarantees. Some of the NHS Trusts have suffered financially with void loss penalties and would like to come out of these agreements and it is not ideal for LSH to have long term contractual arrangements with reluctant partners. If these partnerships are to be maintained in the long term occupancy levels need to be improved in all schemes. If the recent upturn in occupancy can be maintained throughout 2007/8 the void penalties levied against the trusts will be considerably reduced. This will help make the trusts more willing partners if there are opportunities and strengthen the position of LSH in any joint opportunities in the future.
6.3.5 Supply Factors
Due to the nomination agreements which we have with the Trusts the main client group which LSH assists is NHS employees. We also assist other key workers such as police, emergency services, local authority employees and transport workers and we house both NHS and non NHS students. We also have agreements with a Housing Cooperative for 54 units.
6.3.6 The approximate percentages for each group are as follows:
6.3.7 LSH has a high dependency on the NHS Trusts and is therefore inappropriately exposed to potential risks around NHS Trusts restructuring and hospital closures. To lessen this risk LSH needs to increase its client base outside of the NHS sector but this should not exclude LSH from entering into future partnerships with the Trusts where there is a good business case for doing so.
6.3.8 Within the last twelve months a nomination agreement with Thames Valley University for 122 units in Northwick Park came to an end. This has not had an adverse financial impact due to a successful marketing drive to attract students from an adjacent university.
6.3.9 As well as increasing activity with the existing non NHS groups who we currently assist there are other potential markets which LSH needs to access if it is to fulfil its commitment as a supplier of key worker housing to a broad group of workers supporting local communities. This includes immigrant workers, particularly from Eastern Europe and key workers within the private sector. This will require directing some marketing activity to establishing links with private sector employers in areas such as education and health and to establish applicant referral streams.
6.3.10 Demand factors
Future Economic Viability of Existing Schemes
6.3.10 The Development Team have created a model which ranks the economic viability of the existing schemes in the current climate. The model is based on key economic indicators which include:
Each scheme has been assessed against the criteria and a points based ranking has been created. These are summarised as follows:
1 (most economically viable)
16 Kenworthy Road
14 Kenworthy Road
Hill House (+ Clifden Road)
The assessment is based on performance and changes in any of the factors for example occupancy will have an impact on the scores and ranking. This model will be used to assess the viability of schemes at least a bi annual basis.
6.3.11 Principal Products and Services
LSH specialises in the provision of high quality, affordable accommodation for key workers. A range of accommodation is provided, from furnished rooms with shared facilities to self-contained family homes.
6.3.12 LSH commissioned a large scale STATUS survey of resident satisfaction during 2006. The quality of our services was evidenced by an overall residential satisfaction rating of 72% which was 3% above the average result achieved by other London RSLs.
6.3.13 More emphasis will need to be placed upon defining our service offering and products and their relationship with our chosen markets. It is doubtful that an appraoch of one size fits all will suffice in the future.
LSH provides its current range of services to the general satisfaction of its existing tenants. LSH needs to adjust the balance of its accommodation away from shared accommodation to sustain the commitment of key worker tenants in the longer term. In the shorter term there are new groups of potential short term tenants who will benefit from cluster accommodation if it is appropriately marketed. LSH’s management of the financial impacts of nomination agreements will remain important in the short term
6.4 Marketing Activity
6.4.1 It is generally accepted that market definition in this area is poor with low levels of reliable information. In order to counteract this weakness much more survey work and assessment of the marketplace will be needed in the future.
6.4.2 LSH has learned from recent experience that proactive and focused Marketing has had a positive impact on occupancy levels and this learning has to be embodied within the culture of the organisation. In future this marketing activity will need to be supplemented by either business development skills or selling skills to ensure that the initial marketing efforts are not diluted or wasted.
6.4.3 LSH will continue to maintain a broader definition of a key worker being anyone who is economically active in supporting the health and vibrancy of the local community.
6.4.4 During the last twelve months marketing has mainly been focused on the key worker public sector concentrating on the following:
This will be broadened to include other public sector, quasi public sector and commercial organisations such as private companies supporting the public sector.
6.4.5 Working relationships have been established with some private organisations working in the key worker sector that specialise in overseas recruitment of teaching and medical staff.
6.4.6 In 2006/7 occupancy levels were stabilised at an average of 81% the lowest level being 78% in June 2006 and the highest point being 84% in September. The budget for 2007/8 was based on achieving an average occupancy rate of 84%.
6.4.7 Continuous effective marketing of our offering is key to LSH’s future success. The organisation needs to invest in the necessary skills to sustain this focus in the medium term
Rent Collection and Arrears
6.5.1 LSH aims to ensure that all activities are run efficiently and equitably. We have an arrears target of 7% of annual collectable rent and this will reduce by 1% each year over the next three years. We seek to minimise our arrears through the operation of an effective arrears policy and our void losses through our understanding of the recruitment needs of our employer partners.
6.5.2 A best value review of rent collection and debt management will be undertaken during the summer of 2007 identify service improvements and explore the use of other payment methods.
6.5.3 Ensuring LSH’s properties are fully occupied not only maximises income, but also assists employers with recruitment and retention needs.
6.5.4 The annual turnover of properties is high, at over 70%. This is significantly greater than general needs housing and is the result of planned short stay tenancies, particularly for junior doctors and shared accommodation, as most tenants aspire to self-contained property. Therefore LSH has always planned for a level of voids above that in traditional affordable housing, although turnover issues should not lead to overall voids in excess of 5%, as long as there is demand for the accommodation that is available.
6.5.5 Repairs related turnaround delays are offset to a large extent by our successful handyperson service using directly employed staff for redecorations and minor repairs. The target for completing all inspections, safety checks and repair work is one week and the target re-let period for normal management voids is three weeks.
6.5.6 Occupancy levels have decreased to around 81% as a result of the slow down in nominations from the NHS partner trusts. Opportunities to build relationships with a wider range of nominating bodies are actively being pursued to increase occupancy levels and reduce reliance on the NHS sector.
Allocations and Lettings
6.5.7 Most of LSH’s allocations are received via Nomination Agreements, primarily with the NHS. LSH also has some approved nominating employers ready to take up accommodation should the employer with nominating rights be unable to take up their allocation. An increasing number of enquiries are received via the LSH website.
6.5.8 LSH uses a number of marketing initiatives to ensure that employers and individual key workers are aware of the accommodation which includes:
6.5.9 LSH monitors each Nomination Agreement individually for every employer and seeks to manage is lettings to create optimal value from each agreement. This includes the percentage take up of accommodation and performance in nominating tenants in accordance with the agreement. The target times that have been agreed with individual employers vary between 10 and 15 days.
Repairs and Maintenance
6.5.10 LSH’s objective is to ensure 95% of repairs in all categories are completed within its contracted timescales. Cyclical & planned maintenance programmes and major repairs are administered under a Service Level Agreement with Stadium's Property Services Department. Most day to day repairs and void works are carried out by LSH’s in-house maintenance team, to minimise costs and re-let times.
6.5.11 LSH’s high turnover of residents makes traditional processes for involving tenants difficult to manage effectively. However, given the new regulatory requirements relating to Board memberships, and the relatively low satisfaction on participation revealed in the STATUS survey, LSH gives priority to strengthening activity in this area through the implementation of scheme based resident meetings.
6.5.12 In addition it will also be important to find Board representation from amongst our client groups or partners.
Risk Appraisal and Management
6.5.12 LSH uses the Network Group’s Assurance Framework. A comprehensive risk management strategy utilising a robust control framework is in place.
6.5.13 An executive Risk Panel has been established from the senior staff team. There is an annual meeting with the Head of Internal Audit to agree the Audit Plan. The Group’s Business Assurance Team facilitates and monitors the risk appraisal and management process. The Panel provides recommendations for review and ratification by the Board. The Board undertakes a full risk appraisal annually. Additional support is provided by the Group Risk Panel and the Group Audit Committee.
6.5.14 As part of the business planning risk assessment process, a number of key risks have been identified and evaluated. The most significant risks for 2007-08 have been identified as:
6.5.15 These risks will be kept under regular review and reported on quarterly to the board. It is LSH’s opinion that by pursuing the strategies set out in the Business Plan, and with the continuing support of the Group, all these risks are capable of successful mitigation.
6.6.16 LSH is clear about that which it has to do to keep the day-to-day management of the organisation on a tight rein to satisfy both tenants, the Group and the regulatory authorities.
6.6 Summary of initiatives for 2007-08
6.6.1 Key priorities for service enhancement in 2007-08 include:
7. Financial Commentary
To be added
To be added