Management of Housing Companies: Challenges, Success Factors and Barriers

16th Annual European Real Estate Society ConferenceStockholm

24-27 June, 2009

Moritz Lohse, Andreas PfnürTechnische Universität Darmstadt

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Problem: Changing conditions of business environment dare the management of housing companies

Supply side: Two decades ago, implementation of market principles in German housing markets changed the business environment of the whole industry.

Demand side: Expectations for the next decades predict a demographic development which is characterized by accelerated ageing and simultaneously shrinking. Rise of diversification between regional sub-segments may be expected (quality and quantity).

Importance of efficiency and effectiveness in managing housing companies grow. Same is true for knowledge about capabilities for optimization and the right strategies in housing.

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Problem: Changing conditions of business environment dare the management of housing companies

Supply side: Two decades ago, implementation of market principles in German housing markets changed the business environment of the whole industry.

Demand side: Expectations for the next decades predict a demographic development which is characterized by accelerated ageing and simultaneously shrinking. Rise of diversification between regional sub-segments may be expected (quality and quantity).

Importance of efficiency and effectiveness in managing housing companies grow. Same is true for knowledge about capabilities for optimization and the right strategies in housing.

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Which challenges housing companies are faced with? Which success factors are relevant to advance housing

business models? Which barriers of success can be identified?

Crucial points for housing

management

Agenda

1. Problem and aim of the study

2. Concept of the study

3. Challenges of housing companies

4. Success factors

5. Barriers of success

6. Conclusion

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Concept of the study: Empirical research

Telephone interviews with executives in housing companies – accomplished by a professional call center

Questionnaire: Design of a success factor concept for the housing industry which considers challenges, success factors and barriers

Modus operandi: 5 steps of execution Initiation: Fixation of objectives, content and theory of the research Definition: Population of the survey, methodology, pretest Field period: Identification of executives, commissioning of the market research

institution Statistical analysis Interpretation: Conclusions and implications

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Concept of statistical data analysis

Descriptive statistic to get first impressions of data to characterize the participated housing companies

Factor analysis Identification of major success factors Identification of barriers of success Four steps of data analysis

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1 2 3 4

Research design: Standardised questionnaire

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Part A: Structure characteristic of the housing company (e.g. type, size, structure of portfolio, expectations of the corporate owner etc.)

Part B: Requirements of the business environment (Situation dependent challenges)

Part C: Success factors of housing companies (resources, processes and products)

Part D: Barriers of influencing the identified success factors (detection of the potential for optimisation of resources, processes and products)

Questionnaire contains over 80 items divided in 4 survey sections

Example: “In our company the used IT-solution has a high relevance for success.”

Answers may range from [1] „absolutely agree“ to [6] „ don‘t agree at all“

Results are partly illustrated by the Top-2-Box-Value: Sum of all Companies who answered with [1] „totally agree“ or [2] „agree“

Structure characteristics of the participated housing companies

Contacted housing companies: 1038

Conducted interviews: 304

Participation rate: 29,3 %

Average duration of Interview: 27 Min.

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Besides residential tenancy: Important elements of housing business models

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The most housing companies apply a multi-purpose business model

Majority functions in office renting, own development and property management

Real estate trading do a quarter of housing companies (e.g. development for sale, privatization of properties)

Agenda

1. Problem and aim of the study

2. Concept of the study

3. Challenges of housing companies

4. Success factors

5. Barriers of success

6. Conclusion

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Expected competition on regional housing markets

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Round about half of the housing companies expected a clear rise of competition

Differences between categories of housing companies are comparatively small – whole industry is affected

Only a abundantly clear minority will be exposed to low competition

Exerted pressure from stakeholders on the housing business

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Every third housing company expect an increasing pressure from the most important stakeholders (politics, owners and tenants)

Every fifth housing company expected more restrictive banks

A growing dependence of suppliers (e.g. construction firms) can’t be assumed.

Objectives of owners: Equity return vs. social return?

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Social, sustainable and non-economical target systems still dominates the housing industry

Nearly half of the housing companies have no problems with equity return entitlements of the owner

But: 17 % are forced to escalate their efforts concerning equity return in the future On the other side 22% of all questioned housing companies must generate a clear

defined social return, which is difficult to achieve by trend.

Top 5 challenges of housing companies

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Over all 17 challenges were queried

Important differencesMunicipal housing comp. are more effected by operating escalationsHousing companies affected by private investors are more concerned by changing demand but less by sustainable aspectsChallenges through maintenance and modernisation affect every group on the same level

Agenda

1. Problem and aim of the study

2. Concept of the study

3. Challenges of housing companies

4. Success factors

5. Barriers of success

6. Conclusion

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Factor analysis: Identifying success factors of housing companies 1/2

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Used method: Explorative factor analysis

1. …to identify unobserved variables in data (called factors)

2. …to reduce complexity of comprehensive data

Used items…

1. 46 queried success factors of the questionnaire

2. e.g. “In our company the right IT-solution has a huge relevance for success”

Fitness of results…

1. Measure of sampling adequacy (MSA) (>0,5): 0,872 (“meritorious”)

2. Significance (Bartlett): 0,0000 (highly sign.)

3. Explained total variance (>50%): 61,3% (OK)

Explorative detected success factors satisfy the statistical requirements

Factor analysis: Identifying success factors of housing companies 2/2

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Agenda

1. Problem and aim of the study

2. Concept of the study

3. Challenges of housing companies

4. Success factors

5. Barriers of success

6. Conclusion

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Factor analysis: Identifying barriers of success of housing companies 1/2

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Used method: Explorative factor analysis

1. …to identify unobserved variables in data (called factors)

2. …to reduce complexity of comprehensive data

Used items…

1. 33 queried barriers of success of the questionnaire

2. e.g. “In our company information about tenants are absent”

Fitness of results…

1. Measure of sampling adequacy (MSA) (>0,5): 0,916 (“marvelous”)

2. Significance (Bartlett): 0,0000 (highly sign.)

3. Explained total variance (>50%): 64,3% (OK)

Explorative detected barriers of success satisfy the statistical requirements

Factor analysis: Identifying barriers of success of housing companies 2/2

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Agenda

1. Problem and aim of the study

2. Concept of the study

3. Challenges of housing companies

4. Success factors

5. Barriers of success

6. Conclusion

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Conclusion

Perception of high intensity of competition only regards a part of the housing industry.

Legitimization of business activity towards the general public becomes more and more meaningful.

Compared to equity return, the focus of external presentation is more important –relationship to key stakeholders, adequate quality of portfolio and stable quarters and the image of the housing company have to be managed proactive.

Sustainable aspects of housing supply defines successful operations –especially ecological modernization, reduction of operating escalation.

Highly trained and educated members of staff will be a growing bottleneck for housing businesses.

Improvement of relationship management, especially towards the tenants, should be realized.

Information transparency and the supporting IT-systems are weak points.

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Management of Housing Companies: Challenges, Success Factors and Barriers

Thank You very much for Your attention!

Contact details:

Moritz LohseTechnische Universität Darmstadt

lohse@bwl.tu-darmstadt.de

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