1 The effect of profit requirements on the maintenance costs of housing companies in Sweden Henry Muyingo Royal Institute of Technology, Sweden ERES 2009 June 24-26

2 Background Rent control and company profits blamed for low level of maintenance in housing stock Research at KTH into efficient property maintenance management Aim of 3 part study: analyse the effect that ownership category has on reported maintenance costs 1.Analysis of concept of maintenance 2.Survey causes of differences in maintenance of private and municipal housing companies 3.Quantify what companies actually do through an econometric analysis of their reported costs Results show that the ownership category accounts for approx. 41% of the reported costs and that political pressure and time based maintenance are major causes of the difference in housing maintenance between private and municipal companies.

3 The survey Response from 33 municipal companies and 22 private companies Electronic internet based questionnaire on 1.Basic facts on company and respondent 2.Demarcation and classification of activities 3.Factors behind the company’s maintenance levels 4.Maintenance organisation in the company 5.Maintenance planing and documentation 6.On neglected maintenance in sector 7.Causes of differences between the categories

4 Some results of the survey Statement (% in each category who fully agree)MP Company demarcates between planned or acute maintenance4418 Change of roofing is maintenance8776 The company’s efforts to maintain the portfolio are higher than accounted for227 The company’s efforts to maintain the portfolio are in the level of comparable companies 5642 The company has a general plan that covers 10 years or longer309 The company has a detailed plan that covers < 1 year2146 Maintenance activities would be higher if there was less restriction on the rents 1852 The private companies have other categories of tenants228 The private owners accept a lower standard in their properties3415 The municipal companies carry out unprofitable activities that a private company would not do 2139 The municipal companies are pressurised by politicians and the media to carry out unprofitable activities 2439 The results from the survey are used in the econometric analysis

5 Econometric analysis of reported costs Criteria for Data used: Reports from 2004 to 2007 Minimum managed space: 200,000m 2 At least 30% housing in portfolio Financial reports available on internet Clear demarcation in reports between maintenance and repairs and central administration costs The method used Unbalanced panel data in STATA Robust estimation Correction for autocorrelation using Prais function Limited sample size = Not tested for stationarity

6 The model The variables TYPE: a dummy for ownership 0=M, 1=P HSNG: % of housing in portfolio built between as ratio of total rental area of company per year RENT: reported gross rent. Not considered to be endogenous because of the rent control policy. AREA: total rental space under company’s management, proxy for economies of scale POLITIC: ratio of social democratic votes in the municipal elections of the year Proxy for political influence. SOLVENCY: reported solvency as a ratio of the total area, proxy for dividend policy of the company

7 The results ABC coefficientt-valuecoefficientt-valuecoefficientt-value Intercept -6,303-3,955,171,677,9541,94 TYPE -0,532-2,37-22,99-5,34-21,45-4,25 HSNG 0,1731,670,2002,070,2222,43 RENT 1,0924,750,1140,38-0,298-0,59 AREA 0,2952,84-0,049-0,370,0190,18 POLITIC -0,152-0,27 HSNGTYPE 0,8093,290,6332,61 RENTTYPE 1,6904,662,1093,91 AREATYPE 0,9014,230,4111,75 SOLVENCY 0,2371,31 SOLVENCYTYPE -1,590-2,37 F-test 0,240,810,19 R2R2 0,8960,8750,874 D-W 1,561,351,32

8 Analysis (based on Eqn C) -ve and significant effect due to change to private +ve effect due to ratio of housing in portfolio. More so if private Municipal do not spend more with increase in rent. Opposite and significant effect for private. Same analysis on space under management. Variable for political influence was statistically insignificant and dropped No effect due to solvency for municipal, –ve and significant for private. Multicollinearity problem = difficulty with conclusive analysis

9 Conclusions The ownership category significantly affects the maintenance costs reported Political pressure and time based maintenance are major causes of difference in housing maintenance between private and municipal companies Lack of consistency in classification of activities hinders development of effective maintenance strategies between the private and municipal companies More and better data needed for conclusive econometric analysis