Councils are pressing government to commit to a long-term rent policy that will make long-term planning a possibility, particularly with expenditure related to building safety and zero carbon major priorities. Matthew Warburton, Policy Advisor at the Association for Retained Council Housing (ARCH) reports.
Council tenants across England will be notified in the next couple of weeks of the rent they will be expected to pay from April onwards. For many the news will come as an unpleasant shock. The maximum rent increase allowed from April 2022 by the regulatory standard that applies to council and local authority housing is 4.1%, equivalent to an average increase of around £200 a year. Not the best news alongside a continuing upward drift in food prices and major hike in energy costs.
Understandably, some councils have decided not to ask for the full increase, but by easing one problem this exacerbates another — raising the extra income needed to put building safety beyond doubt and make progress towards zero carbon.
April 2022 also marks the tenth anniversary of the self-financing settlement that ended the HRA subsidy system for local authority housing and, it was widely hoped, set councils free to plan long-term for the maintenance and improvement of their housing stock. Councils took on an extra £13bn in debt in exchange for long-term certainty about future rent income and the expectation that this would be sufficient to bring all homes up to the Decent Homes Standard — and keep them there — and repay the debt over a 30-year period. The assumption underlying the settlement was that rents would be allowed to rise annually by up to 0.5 % above the Retail Prices Index, in principle for the full 30 years.
The Government undermined the settlement by changing its rent policy almost from the day the ink dried on the agreement. In 2013 it announced its intention to switch the rent limit from RPI + 0.5% to CPI + 1% with from April 2015, effectively a reduction given the long-term divergence of CPI from RPI. Following the 2015 election the Government implemented annual rent reductions of 1% from 2016/17 to 2019/20. Current policy, announced in 2018, goes back to the CPI + 1% limit, but only until 2025.
Long-term policy
Councils have been pressing for government to commit to a long-term policy that will make long-term planning a possibility, particularly as expenditure needs related to building safety and zero carbon have emerged as new priorities. Certainty about future rents is important, but just as important is whether they will be sufficient to meet the necessary expenditure, and whether tenants will be able to afford them.
Successive governments have concurred on a policy of above-inflation council rent increases for over two decades. Until 2012 this was delivered through annual subsidy determinations; from 2012 it was baked into the self-financing determination, except for a rent reduction interlude, as we have seen.
The origins and justification for this policy are obscure; the assumption may have been that rents should be allowed to move in line with household incomes, which, in the early 2000s, were rising faster than prices. This principle would have justified the policy for most of that decade, but not after the recession kicked in after 2008.
Since then incomes have flatlined, but so, until recently, have prices. The four-year rent reduction means that current rents are barely higher, in real terms, than their level in 2012. This April’s increase will be the first significant hike — in money terms — for more than a decade.
Opinion is divided on whether higher inflation is a temporary blip or here to stay. This is not a propitious time for councils to argue that Government should agree to extend the CPI + 1% policy until 2030. But the demand for greater expenditure on the council stock will not go away. If it cannot be met from rent income councils will need to agree with government on some other way to fund it.
Header image ©ink drop/AdobeStock
