Above inflation rent increase won’t resolve the council housing financial crisis

Rather than proposing to increase the financial pressure on tenants with above inflation rent increases, councils should be seeking the support of tenants in a campaign for the government to fund HRAs sufficiently to maintain and improve existing homes.

Support for the government’s proposal for 5 years of above inflation rent increases for council and housing association tenants is almost universal with housing associations and, even supported by some councils that have signed the document “Securing the future of council housing”. London Councils are calling for 10 years of CPI+1%. Clearly councils are short of the funding they need to maintain and improve their homes. Yet above inflation increases are, in our view, short-sighted and counter-productive. It will further impoverish already poor tenants who do not have their rent covered by housing benefit.

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Evidence of the impact on council tenants of higher rents is to be found in government statistics on rent arrears. For England as a whole, in 2023/4 current tenant arrears reached £397,006,149. That is nearly double the £203 million in 2015-16 (see table below). Outstanding arrears of former tenants rose from £126 million to £200 million. This is despite the fact that for four of those eight years there was a 1% rent cut, each year. Arrears still rose in each of those four years. There will inevitably be a further increase in arrears in the current financial year 2024/25, since the maximum increase was 7.7%, marking a two year maximum increase of 14.7%.

In London, where rents are much higher than the rest of the country, the statistics are extraordinary. Over the same timescale arrears more than doubled from £75 million to £179 million. Former tenant arrears rose from £46 million to £88 million. Whilst outside of London there are 10 councils where the arrears are more than 10% of the rent roll (the rental income that councils would receive if all the rent was paid) in London there are 13 councils with more than 10%. The worst ones are Newham with 15%, Croydon with 17% and Haringey with 25%.

Given this context, what will be the consequence of 5 or 10 more years of above inflation increases other than increasing arrears, putting more financial stress on more tenants? They are being penalised for the under-funding of Housing Revenue Accounts which results from central government policy. The Chartered Institute of Housing warned

“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.”

“Securing the Future of Council Housing”, supported by 109 councils, has warned that HRA finances are unsustainable. The extra 1% a year only provides around £74 million extra income which is a negligible amount, which will have little impact on the financial crisis. Instead of supporting above inflation increases councils should focus on campaigning for the government to fund them sufficiently to maintain and renew their existing stock. What sense does it make to drive rents up to a level where more tenants won’t be able to afford them and councils will collect less and less of their rent? If a tenant cannot afford a council rent, what can they afford? Private sector rents are way beyond their reach.

A recent survey by Southwark council, answered by 76 councils, with more than 800,000 homes, reinforced their warning. It reported that “two thirds of council housing budgets are on the brink of collapse”, at risk of being unable to set a balanced budget by the next general election. “Years of financial strain have forced councils across the country to reduce their maintenance of council homes, cancel new build projects and even sell off existing housing stock.”

Whilst most council rents are way below Housing Benefit level, rents will be driven up to the point where it does not cover the rent. This is already the case with some “affordable rent” levels.

The government has to be faced up to the question, are you going to allow the deterioration of existing council housing? Unless they address the demands of “Securing the future of council housing”, then the living conditions of tenants will worsen. This is a future which we cannot accept. There can be no renaissance of council housing unless this problem is resolved.

Since April of last year new Consumer Standards were introduced. To check whether councils are adhering to them, the Regulator of Social Housing has begun to carry out inspections of Housing Revenue Accounts. The results of these inspections underline a deepening crisis. They are showing some serious problems with the condition of existing stock and the work of councils. Out of 27 councils so far given grades, 15 of them have been graded C3, indicating “serious failures”, 2 C4, “very serious failings”. Whilst the problems include poor management, the fact is that HRAs were underfunded from the outset of the “self-financing” system introduced in 2012. The financial position has deteriorated since then. That’s why one of the demands of “Securing the Future of Council Housing” is for reopening the 2012 ‘debt settlement’ – essentially they are calling for some debt write-off. (More than a billion pounds a year goes on debt service charges.)

Rather than proposing to increase the financial pressure on tenants with above inflation rent increases, councils should be seeking the support of tenants in a campaign for the government to fund HRAs sufficiently to maintain and improve existing homes.

Even the New Labour government, which had a terrible housing policy (it opposed councils building council homes and prevented them from even applying for social housing grant until the Great Crash of 2007/8) provided funding through the Major Repairs Allowance which modernised homes with double glazing, central heating and UPVC doors. With more demands on councils, with an upgraded Decent Homes Standard due, and decarbonising housing urgently needed, this government needs to provide it’s equivalent of the MRA.

Martin Wicks

February 11^th 2024

Council rent arrears England

England	Current arrears	Former tenant arrears	Maximum rent increase
2015/16	£203,602,712	£126,805,216	2.20%
2016/17	£205,818,346	£130,214,212	-1.00%
2017/18	£234,945,823	£147,622,805	-1.00%
2018/19	£245,408,322	£153,358,284	-1.00%
2019/20	£283,552,693	£162,618,287	-1.00%
2020/21	£317,187,988	£163,012,710	2.70%
2021/22	£334,665,237	£178,279,487	1.50%
2022/23	£370,805,364	£179,214,560	4.10%
2023/24	£397,006,149	£200,524,724	7.00%

Council rent arrears, London

London	Current arrears	Former tenant arrears	Maximum rent increase
2015/16	£75,776,287	£46,358,739	2.20%
2016/17	£74,421,511	£47,319,017	-1.00%
2017/18	£93,155,190	£57,054,558	-1.00%
2018/19	£95,315,725	£54,794,869	-1.00%
2019/20	£109,809,314	£60,791,377	-1.00%
2020/21	£135,177,389	£64,536,953	2.70%
2021/22	£139,097,289	£72,897,142	1.50%
2022/23	£160,983,982	£72,626,348	4.10%
2023/24	£179,035,835	£88,514,840	7.00%

Note: rent increases are set by central government as a maximum, though most councils set increases to the maximum level. In 2023/24 inflation set CPI+1% at 11.1% but in the light of such a high inflation level the government set a maximum of 7%.