Property Maintenance : Concepts and determinants

Abstract: Introduction Strategic property management aims at balancing the question of how the needed space is to be secured, maintained, increased or disposed of in a cost effective manner under a mixture of decisions and actions. In recent years, the interest in building maintenance has increased as more and more of the housing stock built after the Second World War is in need of major renovation.  For example, approximately 1 million dwellings were constructed in Sweden in the period 1960-1970. Currently there is growing concern about the expected huge cost of maintaining this aging housing stock especially in the portfolio under municipal ownership. Private housing companies have been shown to report lower maintenance costs than those in the public sector but which are the factors that can explain the apparent differences? During the last decade there has also been a growing trend of governments diversifying themselves of their properties and/or outsourcing the property management. A question of interest is whether it is advantageous to do so and if the maintenance management differs substantially between the government sector and the industrial sector which is seen as business oriented and with a production centred maintenance strategy. In a number of industries there has been a paradigm shift in maintenance whereby the focus is no longer only on availability but reliability and cost effectiveness. New maintenance strategies and policies such as reliability centred maintenance have seen the light of day though without winning ground within property management. Shouldn’t building maintenance be handled in the same way? This licentiate thesis focuses on the strategic management of housing properties under public and private ownership as well as the management of special purpose properties in the government and industrial sectors in relation to the ongoing discussion about neglected maintenance. The purpose is to contribute to the process of cost efficient and effective maintenance both in the housing sector and in the management of special purpose properties through underscoring the factors that lead to differences in the maintenance levels in the different categories. Method The questions above are analysed through a theoretical part that discusses the concept of maintenance and strategies in building maintenance in relation to other industries. The thesis also contains an empirical part that is based on a survey in the form of a questionnaire on housing maintenance and an econometric analysis of the maintenance costs contained in the financial reports of the municipal and private housing companies as well as a questionnaire on among others how state and county governments as well as industrial companies have secured the availability and management of their special purpose properties. The thesis consists of four papers the first two of which are co-authored with Hans Lind. It starts by demarcating the concept of maintenance in the context of standard investment theory followed in paper 2 by a discussion of the term “maintenance strategy” and some stylized facts concerning building maintenance in Sweden. Maintenance strategies and approaches used in some other industries are presented as a background to an analysis of why building maintenance is different. The various factors that affect the maintenance costs reported within the housing sector are surveyed and analysed in paper 3 before the results from a survey on management of special purpose properties in the state and county governments as well industry sector are presented in paper 4. A questionnaire was used to get a broader material about aspects that were difficult to observe directly, including views about underlying factors. Results From the perspective of investment theory everything that is usually classified as maintenance is also an investment. The concept of maintenance can in a number of situations be taken to be unnecessary. A review of strategies from other industries reveals a focus on systematic data collection and cost analysis before action is taken and a move away from time scheduled maintenance to acting on the condition of the object. However building maintenance contains a substantial degree of corrective maintenance with a high degree of opportunistic maintenance and detailed maintenance planning is not ideal due to constantly changing needs and demands. An important result is from the surveys and econometric analysis which indicate that the ownership category has a significant effect of approx. 35 per cent on the maintenance costs reported by the housing companies. Furthermore a major factor affecting the cost level in the housing companies is the influence of external factors such as pressure from the media and politicians. The degree of special property ownership in the surveyed companies is high and the probability of the leasing market increasing in the coming five years is very low. According to the respondents there is very little neglected maintenance in the industry in contrast to the government sector especially in the counties. Furthermore, the maintenance plans in the public sector were shorter than those in the private sector. Discussion The outstanding result from the surveys is that classification of activities as maintenance or investments in both housing and special purpose properties differs in that the public sector companies lean more towards maintenance than investment in their accounting and have a higher degree of adherence to laid maintenance plans. The distinct difference in the pay-back duration used by the government sector as compared to that in the industry sector in effect lowers the effectiveness of the government sector as the lower required rate of return allows the government sector to have more activities that appear to be profitable.  Maybe the problem to worry about should not be that of neglected maintenance in this sector but that of unprofitable maintenance that should not be carried out. This might also just explain why more activities are classified and dealt with as investments by the industry and not by the county or state companies or the municipal housing companies. Conclusion There are strong arguments for saying that building maintenance rationally differs from the kind of maintenance and maintenance planning that could be observed in some of the other industries and the concept of maintenance is much more suitable in a world where there are smaller changes and where it is believed to be possible to know long in advance what is rational to do. The divergence in classification of activities even within the same category and company revealed by the two surveys is problematic as it complicates comparison of activities and services provided as well as benchmarking and it should be given appropriate attention by the managers. This goes to show the great need to use the same well defined concepts in order to benchmark and develop more efficient maintenance management strategies. Future research Though each building is unique the goal should be to develop a model that is rational given the specific uncertainties that characterise a building and the institutional system in which decisions are made. The limited size of the sample and the lack of transparency and uniformity in the financial reports constrain the research efforts in this study. However research is needed towards a clearer and more transparent classification of maintenance activities with the purpose of not only reducing the gap between the reported maintenance costs of the companies but also increasing the comparability in the branch. This will help to isolate and possibly limit the external influence in the management of the companies especially in the municipal housing sector.