Government rent consultation: NO to above inflation rent increases

The government is consulting on a rent policy of 5 years or more of above inflation rent increases of a maximum of CPI+1%, for council and housing association tenants. We explain below why we are opposed to this proposal.

The premise of the consultation document seems to be that above inflation rent increases for five years or more are necessary to promote building of new homes. It says

“Expectations about future rental income are also important to lenders and to potential new investors in social housing, and partly determine the terms on which registered providers can raise capital….Given the pressing need to expand the supply of social housing, the government must take these effects into account when setting rent policy.”

This suggests that housing associations should take on more borrowing. However, in its annual Sector Risk Profile, in October 2024, the RSH said

“Constrained financial headroom reduces the capacity for the sector to manage downside risk and increases the risk that governance failings will lead to financial distress. While it continues to retain many sources of financial strength, including a strong liquidity position, the private registered provider (PRP) sector’s weakening financial position has continued to intensify. Last year, and for the first time since 2009, the cost of servicing debt exceeded net earnings.”

The Risk Profile was described as “25 pages of depression, doom and gloom”.

Read on below or download a PDF here

The document admits that council Housing Revenue Accounts are in financial difficulties.

“In aggregate across all 162 council landlords with Housing Revenue Accounts (HRAs), spending has exceeded turnover in 3 of the past 4 years, with councils having to use their reserves to plug the shortfall.”

Councils are reluctant to take on more borrowing when their financial situation is so precarious. The Chartered Institute of Housing has estimated that in order to be financially sustainable the government should relieve them of £17 billion of the debt they are encumbered with. Interest rates with the Public Works Loans Board remain prohibitive, at over 5%, even with a reduction for new build.

What will the extra 1% raise each year? It will be somewhere in the region of £74 million for English councils. Compare that with the demands of 100 councils in their “Securing the Future of Council Housing” document. The financial crisis is so severe that they have said they need

• £644 million for two years as a result of the impact of inflation;
• £12 billion over the next five years for bringing council housing up to EPC C;
• £23.5 billion for decarbonising existing stock.

In the light of this, £74 million a year extra income is negligible.

The impact of these increases on tenants is also a major concern. The Chartered Institute of Housing observes that

“In theory it would be possible to change rent policy to allow rents to increase faster and to a higher level – but there would be extra costs in terms of increased benefits payments and risks in terms of social rents beginning to approach or exceed market rents if this was pursued over an extended period.”

Whilst tenants whose rent is covered by Housing Benefit (HB) are guaranteed whatever they qualify for, with Universal Credit (Housing Element) they are not. If you earn “too much” one month, or you have a change of circumstances, you may get nothing.

As well as increasing HB payments, CPI+1% is also likely to push up rent arrears as well. In 2022/23 rent arrears for current council tenants were £397 million, £200.5 million for former tenants, with £45.8 million written off. In London rent arrears of 13 councils were more than 10% of their rent roll (total possible rent).

It’s no secret that ‘eating or heating’ is a choice facing many tenants. Above inflation rent increases will simply ramp up financial pressure on those who do not have all their rent covered by HB or UCHE. Some are also impacted by the increase in the maximum bus fare and other factors. Many have had their rent increase by the maximum of 14.7% over the last two years.

There is another factor which has to be taken into account. Both councils and housing associations are spending more money on their existing homes as a result of the new Customer Standards they have to adhere to and they are cutting back on their commitments to build. This regime is policed by the Regulator of Social Housing with the threat of a poor grade rating hanging over their heads.

Although not yet completed the Review of the Decent Homes Standard will have financial implications; the extra costs of improved standards. That is likely to include decarbonisation of existing stock which councils simply do not have the resources to carry out at the level of their whole stock.

The proposal of CPI+1% in effect is asking largely poor tenants to subsidise the cost of new build with higher rents. It is the responsibility of the government to provide the grant necessary to build/acquire on a much larger scale than currently. The number of households in temporary accommodation continues to rise. For quarter 2 of 2024 there were 123,100 households, including 159,380 children in it. The gap between the actual cost and what the government gives them is pushing some councils to the financial brink. This was a major factor in Newham council’s recent application for “Exceptional Financial Support”. The reality is that £74 million extra for councils will build very little. If there is to be a “council housing revolution” in the words of Angela Rayner, then government grant at least on the scale of the 90,000+ social rent homes a year, that campaigns such as Shelter and others are calling for, will be necessary to begin to cut the numbers in temporary accommodation and on council waiting lists.

For these reasons we are opposed to above inflation rent increases and propose that they should be restricted to a maximum of inflation.

December 2024

You have until December 23rd to send in your submission. You can send in your comments to socialhousingrents@communities.gov.uk or do them online .