So with a very blunt pencil…
- Approximately 4 million social homes.
- Say each home has approx 6 windows and 2 doors
- Assume for each item an average supply and installation cost of £350*
So 4m homes x 8 items x £350 = £11.2 Billion (cost to replace all window and door frames)
Now the scary part (as if those numbers aren’t enough)
These asset components are generally being written down over a minimum of 30 years. What happens then when, because of a lack of planned maintenance, they require replacing 5 years before their depreciation lifetime is reached (see this previous post on why we will get these failures)?
Let’s say (finger in the air) we half the new installation cost to get us an original installation cost – so conservatively £5 billion.
Then straight line depreciation would indicate approx £165 million write down per year.
Put this all together – 5 years x £165m = £825 million would need to be written off balance sheets and £11.2 billion of capital would need to be found.
We need to take the life expectancy of our windows and doors more seriously. This cannot be left to the repairs budget or the repairs manager.
This goes all the way to the top. CEO, FD, Asset Director and Board.
It shines a light on both the depreciation/anticipated life decisions we make for the window/door components as well as how we deliver on this time-frame in the field. I don”t think there is blame to be laid here as this is the first time we are going to experience significant quantities of first generation PVCu windows moving through to the second half of their lifetime.
Our experience over the last 15 years attending to tens of thousands of calls is that the repairs budget is going to spiral out of control. We must see a serious effort in preventative maintenance – but more importantly we need to see realism between the balance sheet decisions and what is really going to happen/happening in the field.
There are options. It is not all doom and gloom. But burying heads in the sand and hoping another tranche of money will come along is unrealistic.
Although many may disagree, the timing of the requirement for asset componentisation is going to help push our depreciation/life expectancy decisions to the fore, and I can only see this as being a good thing. The problem is not being created by visualising it for the first time. And in many stocks there is still time to handle this gracefully and in a cost effective manner.
PVCu windows and doors are not maintenance free and believing that reactive repairs are the most cost effective solution is only going to lead to pain for everyone.
* Cost / Calculation assumptions. I would hope to get general agreement on the number of social homes and the approximate number of frames per property (6 windows and 2 doors). The average installation cost is relevant as of today based on a winning tender for PVCu replacements for “average” social houses.