Reform agenda enhances property managers’ role

Property management hasn’t always been considered the most exciting part of the residential sector. It is often associated with routine work: changing lightbulbs; tending to communal gardens; managing the car park.

We’ve always known that our role is about much more than this. While we often work in the background, what we do is fundamentally important. Events in 2018 have confirmed this. Changes to the residential sector – including growth of new products and ongoing reform from government – have brought property management to the fore.

Responding to reform

The changing role of property management is likely to be brought into sharp focus next year as government continues to reform the residential sector – and in particular the leasehold system.  

Following some high-profile failings, leasehold is under pressure. Consumers understandably want more involvement and control in decisions about their home, greater transparency about what happens to their money and stronger rights of redress when things go wrong.  

The government plans to ban the sale of new leasehold houses and is consulting on the case for further reform to the leasehold system, including how to strengthen commonhold.

“Changes to the residential sector, including growth of new products and reform from government, have brought property management to the fore”

We support much of this programme. Resident control of leasehold sites can be hugely positive, but it can equally create significant adverse consequences and it is not a panacea. We should recognise that it can place onerous responsibilities on officers of resident management companies, including significant obligations with regard to fire safety.

We believe we can and should take a more ambitious approach than to just distil the debate into a simple leasehold vs commonhold choice. There is an opportunity for a ‘third way’ that combines the very best of both systems, with professional building oversight backed by transparency and strong consumer choice.  

Reform should deliver greater confidence – through clear minimum standards for property managers, mandatory regulation, new requirements for professional qualifications, improved redress processes and other measures to build consumer confidence.

It should also bring clarity, through increased transparency among agents, especially on financial matters, and better information for leaseholders and commonholders on their rights and responsibilities.

Reform should also promote greater choice, by considering new systems that would help residents to influence their managing agent and to exercise fair, democratic choice about its work.

Ultimately, many of the desired outcomes can be achieved by improving the system, including property management. That is why FirstPort supports government proposals to introduce mandatory minimum standards and a regulator that has real clout, as well as a requirement for managing agents to have professional qualifications.  

The industry will welcome the right kind of reform and regulation that aims to root out rogue landlords and poor agents, while offering incentives to innovate or adopt best practice. While the best managing agents are already self-regulating, this should now be made universal.

Managing risk

More than ever, property managers need to provide a point of connection between those who develop buildings and those who occupy them.  

In May, Dame Judith Hackitt published her review into building safety in response to the Grenfell Tower tragedy. She outlined how, in future, we need to have more clearly defined responsibilities for building safety (each building will have a ‘dutyholder’ with overall responsibility), as well as better record-keeping about what materials are used in a building, how it has been built and how it has been modified (known as the ‘golden thread’).

Crucially, Hackitt calls for a ‘whole building’ approach to fire safety. This means ensuring that each building has a robust and transparent safety case including all parts of shared buildings, not just communal areas. To make the whole-building approach work, residents must maintain minimum standards of fire safety in their homes, communicate potential risks to the dutyholder and ensure that they do not interfere with effective compartmentation.

Dutyholders for building safety will in turn need the authority to set and enforce these minimum standards. They will also need to rely on a property manager to monitor and manage building safety thoroughly.

It is also likely that in future property managers will be required to access individual properties to assess fire risk, so establishing trust and transparency with residents will be crucial. This area requires much closer attention and is likely to require significant changes to legislation as the government implements the review’s recommendations in the coming year.  

It is clear that the need for competent and effective property management will remain at the heart of the issue.

Supporting investment

Modern residential buildings are often denser, taller and more complex. Residential also increasingly forms part of mixed-use developments. Good property management is therefore becoming more important to residents’ enjoyment of their home and developers’ confidence in building.

This is clearest in the UK’s nascent build-to-rent (BTR) market, where £32.7bn of institutional equity will target the UK’s private rented sector over the next five years.

However, relatively few BTR schemes are in operation yet and there are several barriers to investment. The first is lack of scale – there is little institutional-grade product of the size funds are looking for. Secondly, BTR is a unique, customer-facing product, so whereas investors in traditional alternative assets can trust that their hotel and student accommodation properties are being managed by seasoned operators, this is less clear in BTR.

A third barrier to investment is property managers’ lack of capacity. Investors rely on managers to market and let units, collect rent, manage treasury functions and look after health and safety compliance, but many new entrants to the BTR sector lack the scale to carry out these functions across multiple schemes in multiple locations, while ensuring consistently high standards of customer service.  

Investors need partners that can do the basics to a high standard and at a large scale. With investment flowing into the market, the supply chain needs to be ready. Ultimately, BTR relies on high occupancy and low churn to create a strong yield. So the property management industry must step up and play its part in helping meet demand.  

Welcoming change

Change is afoot in the residential sector. It is clear that in both BTR and government reform, the customer is king. We need to understand residential as a long-term asset. There is a new generation of long-term investors in BTR and other emerging residential products and it is clear that Hackitt’s golden thread will need to extend through the whole lifecycle of a building.

Everyone has a role to play in this – from investors and owners, to operators and occupiers. As property managers, we need to play our parts in connecting these groups together.

Nigel Howell, chief executive, FirstPort