Government rent consultation: rent freeze required

The government is holding a consultation on its rent policy for ‘social housing’, i.e. council and housing association homes. It’s existing policy is a maximum increase of CPI+1% each year for five years. In the light of the current inflation level (9.9% in August) it says that its policy objective is “to ensure that social tenants are not exposed to the cost of particularly high nominal-terms rent increases, given wider cost of living pressures that households currently face.” The September CPI figure each year determines the CPI to be applied to the following April’s rent increase. Whilst there was a marginal decrease of 0.2% on the July figure, it is not expected that the September figure will fall below 9%, so a double digit increase would be expected for CPI+1%.

In its consultation the government is proposing a range of options: a 3%, 5% or 7% increase, though they say they are “also open to other percentage proposals”. Their “preferred option” is a 5% increase which would apply to social rent and affordable rent¹. With 4 million tenants facing the prospect of a double digit rent increase the government has had to adjust its policy in light of a ‘cost of living crisis’ more extreme than for decades. However, that doesn’t make their proposal acceptable given the poverty of tenants. Around three quarters of social housing tenants are in the lowest two quartiles of earnings. Sixty percent have a household income of less than £393 a week. Fifty five percent of households have at least one person with a long-term illness or disability.

Exemptions

There are some exceptions to the government’s rent cap. It is proposing to exempt voids (empty properties) from the cap. Landlords would be able to apply CPI+1% to the rent which the new tenant pays when an empty property is let, be it social or affordable rent. So if CPI is 10% that would mean allowing councils and housing associations to apply an 11% rent increase to these properties. The government says this will “only apply to 246,000” properties out of 4 million. However, given that they expect inflation to be above 9% in the following year, that would mean that it could apply to nearly 500,000 over the two years, or one in eight of the 4 million social homes. Neither would there be any restrictions on the initial rent of new properties.

Secondly, landlords can appeal to be exempted from the proposed ceiling. In the case of council landlords they can apply for exemption “where complying would cause the authority unavoidable and serious financial difficulty.” In the case of housing associations they can apply for exemption on the grounds that their “financial viability would otherwise be jeopardised”. The difference in wording reflects the fact that housing associations are private commercial businesses. Whilst the government makes no estimate of how many landlords will be potentially exempted, in the case of housing associations, given the fact that a majority of the 1,400 have fewer than 1,000 homes, and don’t have the large reserves of the bigger and more commercial ones, there could be quite a lot of applications for exemption.

“Flexibility”

The government says that landlords will still have the flexibility to set a lower rent, to freeze it or to even cut it. However, given the fact that they will lose a lot of income as a result of a below inflation increase not many will use this “flexibility”. This year, only 9 English councils set a rent increase at inflation or below, and just two froze it. The government’s estimate of landlord losses for the 5% ceiling option is £4.9 billion for housing associations and £2.5 billion for councils.

In a letter to local authorities the Regulator of Social Housing says:

“We recognise that these proposals would have a significant, challenging effect on landlord finances. Both tenants and landlords face increasing costs and reducing real-terms incomes. They will require you to make hard choices about investment and expenditure priorities, revise your business plans and take action to maintain compliance with the regulatory standards. Although the outcome of the consultation is not yet known, it is essential that these preparations happen now. In making these decisions, the safety of tenants and delivery of essential landlord services must not be compromised. As always, if you identify any material concerns about your ability to meet the regulatory standards you should inform us immediately.”

Despite recognising the potential impact there is no extra money on offer. Council housing revenue accounts are grossly under-funded such that a lower than inflation increase will mean that the value of their income, and what maintenance or renewal it can fund, would fall.² This is not an argument for CPI+1% however, as we explain below.

The exact same wording (above) is in the letter to housing associations though it adds that

“While we will consider applications for exemptions from the rent standard following any revision, these will only be granted where a provider demonstrably cannot maintain its homes appropriately and remain viable while meeting the rent standard.”

The case for a rent freeze

Whilst the government’s proposal will limit the scale of the rent increase, if their preference of 5% was applied it would still mean that most tenants would have had a 9.1% increase over two years. Rent arrears for English council tenants increased by 34% over two years, to £314 million by March 2021 (the last available statistics).

In the context of the cost of living crisis, which is obviously more severe for relatively poor tenants, some already put on their heating sparingly and some not at all. This has and will continue to create problems with damp and mould, threatening the health of the tenants and the condition of the properties. People who can’t afford to heat their homes in winter cannot afford a 5% rent increase. The loss of small amounts of income have a huge impact on the poor. Witness the difference that was made when the £20 a week extra Universal Credit was ended.

We will be putting in a submission to the government’s consultation calling for a rent freeze. We have explained the case for it here. The proposed exemptions should be opposed since it would encourage a two tier rent system even within ‘social rent’ homes, drive up unaffordable rents, and needlessly increase the housing benefit bill.

In the case of council housing we are calling for the government to fund a freeze. For a 10% increase it would cost them in the region of £738 million, barely more than the £620 million handed out to second homes owners to help them with their energy bills.

The government is consulting on whether or not a ceiling should be applied for two years as it is expected that inflation could still be “unusually high” in September 2023. We think we should call for a two year freeze.

The call for a rent freeze is growing. Organisations supporting it include Acorn, Defend Council Housing, Generation Rent, Greater Manchester Tenants Union, Homes4All, London Renters Union, New Economics Foundation/Homes for Us, Social Housing Action Campaign. Some of them are calling for a freeze in the social housing sector. We think that the demand on the government should be to introduce emergency legislation to freeze rent across all three tenures. While we need to put in submissions to the government’s consultation what will shift them is the scale of the campaign. Those directly affected have the greatest interest, of course, so the mobilisation of tenants is critical to the campaign. This demand will offer the possibility of uniting tenants across the tenures.

Martin Wicks

Appendix

Consultation questions

Question 1: Do you agree that the maximum social housing rent increase from 1 April 2023 to 31 March 2024 should be subject to a specific ceiling in addition to the existing CPI+1% limit? To what extent would Registered Providers be likely to increase rents in that year if the government did not impose a specific ceiling?

Question 2: Do you agree with imposing a ceiling of 5%, or are there alternative percentages that would be preferable, such as a 3% or 7% ceiling? Do you have any comments or evidence about the potential impact of different options, including of the 3%, 5% and 7% options as assessed in our Impact Assessment (Annex D)?

Question 3: Do you agree that the ceiling should only apply to social housing rent increases from 1 April 2023 to 31 March 2024, or do you think it should apply for two years (i.e. up to 31 March 2025)?

Question 4: Do you agree that the proposed ceiling should not apply to the maximum initial rent that may be charged when Social Rent and Affordable Rent properties are first let and subsequently re-let?

Question 5: We are not proposing to make exceptions for particular categories of rented social housing. Do you think any such exceptions should apply and what are your arguments/evidence for this?

Submissions should be sent to socialhousingrents@levellingup.gov.uk and headed Social Housing rents consultation

1 Affordable rent is up to 80% of market rents.

2 We have explained the reasons for this underfunding in The case for cancelling council housing ‘debt’