Good news for the sector but what will the rent settlement's impact be?
As the government releases long-awaited details of the rent settlement, CIH's senior policy adviser John Perry takes a closer look at its significance.
The announcement that social rents will rise one per cent ahead of inflation for five years from 2020 has been widely welcomed.
The most important aspect of the announcement is the timescale – a five-year settlement, with no further cuts in rents, offers the stability in their incomes that landlords need to plan their investment, in particular new build. This combined with the £2 billion boost to social housing investment means there really will be a step change in the amount of building and – even more welcome – a significant part of that should be at social rents. Of course, this is not enough to compensate for the loss of genuinely affordable rented homes over the last six years, nor will it make much more than a dent in demand for them, but a few months ago no one could have predicted such a shift in direction.
Inevitably though there are several caveats. The policy won’t kick in until the sector has completed four years of compulsory cuts in rents, which started in April 2016. These cuts began after the coalition had made similar promises on rents which were then broken. In July 2013 it said ‘…when we say rent increases of up to CPI + 1% from 2015/16 onwards, that is what we mean,’ but the new policy had barely begun when George Osborne ditched it in his 2015 Summer Budget. Clearly the sector expects the Conservative government not only to promise stability but to ensure it happens.
A second, crucial issue is affordability. Earlier policies based on inflation-linked increases were set in an era when real incomes were increasing ahead of inflation. So rents could rise slightly ahead of prices while maintaining essentially the same level of affordability. Now that real incomes are stagnant, and in some cases even falling, there must be a real affordability concern. Whether this policy makes affordability worse will depend on how it is implemented, and whether the government and landlords seriously address the affordability issue, as we have urge in our recent report Building Bridges: A guide to better partnership working between local authorities and housing associations. This would mean setting a ‘local housing affordability framework’ which would ensure that rents stay within the means of those on low incomes in each housing market area.
A third point is about welfare reform. Again, earlier policies assumed (to use a much quoted phrase from the 1980s) that housing benefit would ‘take the strain’ of higher rents. This is no longer the case. The roll-out of universal credit and its impact on rent arrears is only the latest example of welfare policy affecting tenants’ ability to pay their rents. A raft of other changes over the last three to four years, starting with the bedroom tax, have stretched tenants’ incomes, pushed up arrears and reduced landlords’ capacity to invest. Lack of joined up thinking between welfare changes and social housing finances can’t continue if the government is serious about landlords investing more.
Finally, the focus of attention since the announcement has been on housing associations but of course the new policy affects councils too, and they have much more limited control of their finances than associations. They face a range of additional pressures affecting their investment plans – the limitations on recycling right to buy receipts, the continued threat of the government’s ‘high value sales’ policy, caps on their borrowing and – most recently – the need for urgent investment in fire precautions following the Grenfell Tower tragedy, for which the government is offering little help.
The announcement is excellent news for housing associations and for investment in social housing. Whether it is also good news for tenants and for local authorities depends not only on the announcement itself but on how it is now implemented – and government can’t ignore the other factors that will determine whether their new policy is truly a success.
John Perry is senior policy adviser at the Chartered Institute of Housing.