Setting social rents beyond 2020

Setting social rents beyond 2020

Matthew Warburton, Policy Advisor at the Association of Retained Council Housing discusses setting social rents beyond 2020.

The Government was right to conclude last autumn that the policy of cutting social rents by 1% a year is not sustainable beyond 2020, according to research[i] commissioned by ARCH and others from Capital Economics and published in February. This may seem an unsurprising conclusion, but experience suggests it is always useful to have the hard evidence needed to back it up. After all, there is scant evidence that, back in 2015 when they decided to impose the rent cuts, Ministers looked seriously at any impact of the policy beyond cutting spending on HB.

This episode was a classic case of governmental short-termism, because Capital Economics showed clearly in an earlier report that building more homes for social rent can, in the longer term, reduce welfare spending and boost incentives to work by enabling households to move from expensive and insecure private rented accommodation to a council or housing association home at a lower rent. This study builds on that result by exploring how many extra council and housing association homes rent income can underpin on various assumptions about future rents policy.

Before they can start thinking about using rent income to support the provision of new homes, councils need to be sure they can fund the costs of managing their existing stock and maintaining it in a good condition to a modern standard. Continuing the rent cuts beyond 2020, or even freezing rents, would have jeopardised the future of existing homes in many authorities. The decision to restore annual increases of CPI + 1% is the least that was needed to avoid this outcome.

Some councils will find it also gives some scope, with or without help from the Affordable Housing Programme, to go ahead with planned housebuilding. Others will need to wait to apply for a share of the £1bn in extra borrowing approval available from April 2019. And many will remain concerned about the risk to their investment plans still posed by the possibility of a levy on their higher value assets, if not next year, then at some future time.

For at least 20 years, and probably longer, government policy has been that council and housing rents should rise by the same percentage across the country each year. But that has not been true of house prices or market rents, or of household incomes. The Capital Economics report explores the case for different rents policies for each English region. Although in much of the country the proposed policy of inflation plus 1% is broadly appropriate, it finds some justification for a faster rate of increases in those areas, particularly London and the South-east, where the gap between market and social rents is largest.

While this may not be the appropriate time for a full-scale overhaul of rent-setting policy, the evidence of regional differences makes a case for loosening the current approach and giving social landlords more flexibility to adopt local rents policies. And, to give councils the certainty they need in order to plan for the long-term, a guarantee that the CPI plus 1% policy will be sustained beyond five years, ideally until 2030.

[1] Capital Economics, Setting Social Rent: Economic analysis of policy options for social rents after 2020.

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