Financial management of planned maintenance for housing associations

Abstract

Since the Housing Act 1988, UK housing associations (HAs) have been responsible, with the removal of government grants, for funding all maintenance necessary for the upkeep of new stock over its lifespan. Sinking funds (SFs) have to be created, out of rental income, that are adequate to finance the long term projected maintenance demand. This paper reviews the use of SFs for building asset management with particular reference to the requirements being made of HAs. Current assumptions of what constitutes an adequate level of SF investment by their funding agencies are questioned with an analysis of case study data. Using linear-programming, the benefits of modelling an SF over merely calculating it are demonstrated. The technique is used to formulate SF strategies, some of which admit the possibility of going into deficit in the future, and these are compared with results from conventional SF projections. Finally, the effect that varying element and component lifespans can have on SF projections are investigated by using Monte Carlo methods to simulate profiles of long term maintenance expenditure, and observing how well funds projected with the original SF strategy match them. The results show the importance of reviewing regularly the SF policy in order that it remains relevant to the needs of the stock.