Part 2: Planning for maintenance

Housing New Zealand Corporation: Maintenance of state housing.

In this Part, we set out our findings about the Corporation's:

This Part contains two recommendations. Our main concern with the Corporation's systems and processes for planning maintenance work is discussed in paragraph 2.8.

Information about the state housing asset

The Corporation has systems and processes that provide reliable information on the size, form, and value of the state housing asset.

The Corporation's main information management system, Rentel, stores data about state housing properties, tenants, applicants, contractors, and payments. The system produces a basic description of every property and lists maintenance and other changes. The Corporation lists the properties by type, age, and location. It also records other information, including numbers of bedrooms, average floor areas, total floor areas, and valuation data.

The Corporation has about 68,000 state housing properties, with 96% owned by the Crown and 4% leased from private owners. More than half the state housing properties were built in the 1940s, 1950s, and 1960s. About 44% of all state housing properties are located in and around Auckland.

The Corporation's freehold land and rental properties were revalued at 30 June 2008 for financial reporting purposes. The total gross amount of the revaluation, excluding properties intended for sale and selling and other costs, was $15.2 billion.

Assessing the condition of state housing properties

The Corporation does not have enough detailed and specific information about the condition of state housing properties.

The Corporation's Property Maintenance Assessment Policy is to inspect each of its state housing properties at least once in a 12-month period.1 This is done mainly through the annual Property Management Assessment System (PMAS) inspections. The Corporation introduced PMAS inspections in 1997 to monitor the condition of its properties against minimum standards set out in the Corporation's Maintenance Standards Manual. Since 2002, an external contractor (currently PQS Limited) has carried out these inspections for the Corporation.

The main purpose of these inspections is to identify for each property any components that do not meet the Corporation's standards, and to identify and address any health and safety issues.

The PMAS does not produce an itemised assessment of the condition of each property. Accordingly, the PMAS does not provide a basis for estimating the cost of repairs and maintenance required to bring each property up to standard, or for developing a strategy for managing the overall maintenance workload. The PMAS inspector notes defects against the Corporation's Maintenance Standards Manual, but these are not weighted by scale, criticality, or cost. For example, a broken bedroom wardrobe latch counts as "a defect" equally with a bathroom damaged by leaking plumbing. If the total number of defects, regardless of scale, is nine or fewer, the property is deemed to meet the standard. If the total is 10 or more, again regardless of scale, the property fails to meet the standard.

Inspection results are aggregated to regional and national levels to measure overall maintenance performance against the Corporation's Property Condition Benchmark. The Property Condition Benchmark is that at least 85% of the state housing properties have fewer than 10 defects. The Corporation rated its national performance at 88.59% in 2007/08. This included ratings as low as 66.74% and 68.99% in South Auckland, and as high as 99.68% in Christchurch. In our view, this is not a satisfactory performance measure of the Corporation's effectiveness in maintaining its housing stock.

The PMAS generates a high-level or "broad brush" measure of the condition of the state housing properties. The Corporation cannot use the PMAS for accurately measuring, costing, and scheduling its maintenance workload. It does not have any other tools capable of providing detailed and reliable analysis of the condition of the properties. The Corporation's Board is aware of this deficiency and is developing a successor to the PMAS as part of an Asset Management Framework project.

The Corporation is preparing the new Asset Management Framework now, with detailed design and implementation to follow in 2009 and 2010. The Asset Management Framework project is intended to:

  • define a new Property Quality Standard;
  • measure the condition of all the Corporation's state housing properties against this standard;
  • identify maintenance shortfalls and estimate costs to bring properties up to the standard;
  • generate high-quality information for preparing prioritised business plans, sound budget bids, and targeted maintenance programmes; and
  • replace the PMAS and the Property Condition Benchmark with a realistic basis for measuring and reporting on the condition of the properties.

In our view, the Corporation obtains some of the information it needs to manage the maintenance of state housing properties. However, the important exception is that its assessments of the condition of properties are not detailed or reliable enough to accurately measure the overall maintenance workload. This limits the effectiveness of its planning. The Corporation is aware of this deficiency and has set out to remedy it through its Asset Management Framework project.

Recommendation 1
We recommend that Housing New Zealand Corporation's new Asset Management Framework record detailed and specific information about the condition of state housing properties, and that the Corporation use this information to plan its maintenance work.

Strategic position of long-term planning for maintenance

Long-term planning for maintenance is set within the Corporation's overall asset management strategy, which is based on legislative requirements and the Government's high-level strategic goals.

The Housing Corporation Act 1974 (as amended in 2001) set up the Corporation to administer the Crown's housing operations. Under the Act, the objectives of the Corporation include:

... to give effect to the Crown's social objectives by providing housing, and services relating to housing, in a businesslike manner, and to that end to be an organisation that operates with good financial oversight and stewardship, and efficiently and effectively manages its assets and liabilities and the Crown's investment...

The Corporation's outcomes framework for managing its state housing properties is based on the Government's transformational goal relating to "Families Young and Old". The Corporation states in its asset management strategy for 2007 to 2010 that "state housing directly contributes to strengthening families through providing decent housing in strong stable communities that match their needs". Its mission statement in support of the Government's goal is that the Corporation "provides access to decent homes, helping New Zealanders manage their own circumstances and contribute to community life".

The Corporation's state housing properties form a major part of the Government's response to social housing needs. In our view, the maintenance of these properties is appropriately a component of the Corporation's overarching asset management strategy, which is a framework for managing, developing, and using the Corporation's housing asset in the short and long term.

Planning and programming

The Corporation's plans, programmes, and budgets for maintenance take into account important factors that cause maintenance to be required, but do not measure the overall maintenance workload.

The Corporation's maintenance planning and programming is based on its Maintenance Management Model. This has a schedule of 27 major building components, and the Corporation has a detailed understanding of the cost structure for each of these 27 components.

The Model extracts historical maintenance and capital expenditure information for each property from Rentel, and adds assumptions about the likely timing and cost of component replacements during the next 30 years. Examples include planning to replace hot water cylinders on the basis of set lifecycles and to paint exteriors on 10-year cycles. Further assumptions take into account projected growth of the housing asset, allowances for wear and tear and damage, a general allowance for the maintenance backlog, and allowances for other risks and variables. In our view, this approach covers the important factors that cause maintenance to be required, as a basis for the Corporation's long-term annual forecasts.

The Corporation expects maintenance volumes and resource requirements to increase for three main reasons:

  • the increasing number of state housing properties;
  • increasing external costs, particularly for labour and materials; and
  • continuing physical deterioration of the properties because of their age, and wear and tear.

The Corporation also forecasts a three-year expenditure increase from 2011/12 as components from a substantial investment in the mid-1990s begin to wear out.

The Corporation does not have a detailed and reliable basis for measuring, costing, and scheduling its overall maintenance workload. Its Regional Asset Management Plans indicate an increase in deferred maintenance from factors including the increasing age of the properties, increasingly hard wear and tear, the effects of dampness and poor ventilation, the poor quality of components in some cases (such as fibrolite cladding, particle board floors, and lath and plaster interior walls and ceilings), and limitations on planned maintenance (see paragraphs 3.16-3.19).

In our view, the new Asset Management Framework will enable the Corporation to measure and manage its deferred maintenance workload.

The Corporation's long-term annual forecasts incorporate calculations to cover component replacement, responsive maintenance, and some aspects of planned maintenance. However, the forecasts include only a general provision to cover the maintenance backlog. The lack of detailed information and tools to accurately measure and cost the overall maintenance workload limits the value of the Corporation's forecasting work, and its overall maintenance planning and programming.

Maintenance funding is allocated by the Corporation's Board from its revenue. Allocations have increased during the last four years, from $149.1 million in 2004/05 to $187.7 million in 2007/08. In recent years, the Board has allocated additional funds for maintenance from revenue during the year.

The Corporation has an established process for preparing and approving its operating budgets, including the maintenance budget. The Board is able to base its funding decisions on sound information about major maintenance components and costs. However, it does not currently receive a clear picture of the amount of the overall maintenance workload, nor of how important it is.

In our view, the new Asset Management Framework will enable the Corporation to make accurate provisions to cover its maintenance backlog in its annual forecasts. It will also enable the Corporation to give the Board all the information about the overall maintenance workload it needs when it considers funding decisions.

Recommendation 2
We recommend that Housing New Zealand Corporation's new Asset Management Framework include tools for accurately measuring and costing the overall maintenance workload.

1: The Corporation's tenancy managers also carry out at least one inspection every 12 months under its Tenancy Management Policy.

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