Confusion reigns over government rent policy for social housing

The chancellor’s recent Spending Review announcement and a subsequent letter from a civil servant to council housing authorities confirm that the government has got itself in a real muddle over policy towards rents in social housing.

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Ed Turner is lecturer in politics at the Aston Centre for Europe, deputy Leader of Oxford City Council, and leads on planning for the LGA Labour Group. The views expressed are his own

The chancellor’s recent Spending Review announcement and a subsequent letter from a civil servant to council housing authorities confirm that the government has got itself in a real muddle over policy towards rents in social housing.

Let’s roll the clock back to 2010. The government announced that it would depart from grant-funding ‘social housing’, where rents are substantially restricted and are thus at 40 per cent of less of the market rent in many places.

Instead, it introduced the new ‘affordable rent’ model, where rents would be at up to 80 per cent of the market level for most new-build, rented affordable housing. It would also encourage housing associations to ‘churn’ their stock, so that new vacancies were let out at the higher, ‘affordable rent’ level. 

At the time many of us pointed out that this would lead to a substantial increase in the cost of housing benefit – it looked like a classic ‘cost shunt’ between government departments, with borrowing costs for new housing being paid by the Department for Work and Pensions (DWP), rather than the Department for Communities and Local Government (DCLG).

For existing social tenancies, the government stuck to the formula deployed by the previous Labour government (although at one stage this was suspended to avoid a particularly high increase). Most social tenancies saw an increase of Retail Price Index inflation (RPI) + 0.5 per cent, but in order to move towards convergence of council and housing association rents, an increase of up to RPI + 0.5 per cent + £2 per week was possible.

Rolling the clock forward to June 2013, and the Comprehensive Spending Review. The government announced that social rents would rise by the Consumer Price Index (CPI) + 1 per cent for each of the next ten years. In a subsequent clarification, it also proposed a departure from the desire for rent convergence, which would particular affect councils.

Since CPI is generally lower than RPI, all of this represents a reduced rate of increase.

In other words, across the sector, the government appeared to have spent three years trying to persuade councils and housing associations to increase rents dramatically – now the same government, led by the Treasury, had reduced the rate of increase to what it was under Labour.

There, are three possible explanations for this, none of which look particularly like a coherent approach to policy:

  • HM Treasury and the Department for Work and Pensions have noticed that higher rents lead to higher housing benefit bills, and have clamped down on Department of Communities Local Government’s cost-shunting.  Such a view is supported by the Office for Budget Responsibility’s projection that this move will save £540 million per year to the exchequer by 2017/18.

  • As Steve Hilditch argues, based on a recent speech by housing minister Mark Prisk, the government wants to push landlords to ‘churn’ more stock to the higher ‘affordable rent’ levels when it can. Strangling social rent increases would be a way of doing this.

  • The relevant departments disagree, and so the Treasury has tried to keep down increases in the Autumn statement, while DCLG’s ministers are encouraging housing associations to increase rent in a different way (presumably without the OBR being informed).

There’s a good debate to be had about the right level for social rents . On the one hand, higher rents give councils and housing associations more scope to borrow against future rental income to fund new stock. On the other hand, keeping rents genuinely affordable brings enormous advantages for tenants, not least in terms of maintaining incentives to work and avoiding benefit traps.

Either way, councils (who have just taken on millions of pounds, each, in historic housing debt, guaranteed against future rental income) and housing associations really need stability in order to plan.

Regardless of the outcome of this debate, the least the government owes us all is a degree of coherence in its policy – and that, at the moment, is a long way off.

2 Responses to “Confusion reigns over government rent policy for social housing”

  1. Jon Davies

    Is this not just part of the trend started by Gordon Brown towards using CPI rather than RPI?

    On the right level of social rent I probably veer towards the higher end of charging but it does depend – a young family may have the capability to get themselves off all benefits whilst the circumstances of a retired person are not likely to change so dramatically.

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