Are you creating a service charge tsunami?

As markets have slowed and cost of living has gone up, more and more organisations are using a period of capped service charges or 'payment holidays' as a way of encouraging buyers to take the plunge.

As we push away the problem and wait for the inevitable to come crashing down, we need to be honest with ourselves. If a development requires capping, it probably isn't affordable.

There are some minor exceptions to this - for example, capping applied by a developer where a large proportion of the public realm has been built in phase 1, but only a fraction of the units that will eventually bear its cost is completing at that time. We did some modelling with the developer, worked out what full completion would look like, and capped the estate costs to reflect this.

This is okay as there is an end in sight, and eventually the unit value tapers and you can remove the cap without drowning your customers. This is the type of arrangement where capping has a place - a temporary solution to a temporary problem.

More often than not, capping is a sticking plaster on a broken leg and a sign that your organisation is involved in the wrong types of developments.

So why does it occur? I have two theories.

One is that the silo culture of housing creates mismatched ambitions in each team which can dilute the purpose of your organisation. For development teams, they are measured on pipeline. Even the sector press, will often write negatively where pipeline targets have been missed. This leads to targets and measures which do not align to purpose and focus on quantity over quality. If you are personally or as a team targeted on your pipeline numbers, but not on quality, does that drive the right behaviour or culture? If you sell a pipeline full of properties you have to cap the charges for, how is that helping you meet your purpose?

Second, which is linked to the first, is that because of this desire to get the numbers, we fail to realise we can just say no. I've seen so many organisations through the acquisition phase make the financial modelling 'work', rather than focus on whether it is a good acquisition. This puts no pressure on developers to produce developments that consider service charge affordability. We have more power as a sector than we realise. The chair of the G15 talked recently about stepping back from S106 developments in the future. If the whole sector took a step back, how long do you think it would be before developers realised they need to change their approach?