Providers plan future rent levels with caution amid uncertainty

“Housing association boards will make their own decisions on rent increases, based on affordability for tenants and their organisation’s ability to invest in new and existing homes and services now and in the future,” said Sarah Finnegan, head of policy at the National Housing Federation (NHF).

 

Bromford Housing Group is one of the providers that have decided to set rents at the maximum 7.7 per cent next year.

 

Director of treasury Imran Mubeen said this will enable the 46,000-home Midlands-based housing association to make the ongoing investment its customers deserve and the landlord will be transparent with its customers on this.

 

He said that in an “elevated rate economy with stubborn inflation and a rising cost of living challenge”, rent-setting and customer affordability remains a “key area” of Bromford’s focus.

 

Mr Mubeen said that the provider remains “resolute” in investing in its existing homes and this year will invest more than £50m in its homes on repairs, addressing damp and mould, and retrofitting.

 

“It is important that we recognise that our operating surpluses, driven in part by how we set our rent, drive the investment we can make into our homes and communities,” he said.

 

Mr Mubeen said that for its customers on benefits, Bromford is also encouraged that their benefits will generally be uplifted by the same (September) CPI figure, and that the group will continue to drive its cost of living working group to support its most vulnerable customers.

 

“Our approach resonates with the feedback we have had from the majority of our customers who want to see the highest levels of service delivery to which we have committed and understand that rental income plays a key part of funding our commitments,” he said.

 

Business-planning for post-2024-25 

 

Because the next financial year is the last year under the existing rent settlement, the sector is awaiting an update from the government for what will follow.

 

The Department for Levelling Up, Housing and Communities (DLUHC) is due to consult on future social housing rent policy, but no fixed date has been given for this.

 

In its response to its rent consultation in December last year, the government said it would consult in 2023 on social housing rent policy post-2025. Now, this consultation is looking more likely to be early 2024.

 

In its response to the consultation on the seven per cent rent cap last year, the government said it continues to support the principle that social housing rents should be “index linked over the long term, to support investment in both new and existing social homes”.

 

In the same document, DLUHC promised to launch a call for evidence on whether RPs should be permitted, gradually over time, to bring rents back up to the level they would have been had a seven per cent cap not been applied.

 

The government said that the evidence request, which would also take into account other factors such as affordability for tenants and welfare expenditure, would help to inform the consultation on social housing rent policy from 2025.

 

DLUHC said in the report: “The government wants to ensure that future policy strikes the right balance between protecting tenants from cost of living pressures and ensuring registered providers of social housing have sufficient income to undertake their activities, including increasing the supply and quality of social housing. We will release details of this consultation in due course.”

 

Rachel Maclean, the previous housing minister who was replaced by Lee Rowley in November, said at the National Housing Summit 2023 in September that she recognised the importance of setting a rent policy that strikes the right balance.

 

When faced with the uncertainty on future rent policy, social housing providers have been modelling a range of scenarios and applying caution to their business-planning.

 

G15 landlord Metropolitan Thames Valley has been stress-testing its whole business model on rents and other key indicators, such as interest rates and inflation and investment needs, including building safety spend, and has modelled a range of scenarios.

 

The housing association said that, with growing uncertainty, it will carry on looking at the levers it could pull, such as reviewing its development programme.

 

“Greater certainty on rents is essential for the sector to continue to make robust investment decisions and focus on investment in our existing stock and the development of new homes,” a spokesperson said.

 

“With increasing uncertainty, we will carry on looking at the levers we will pull as a business to reduce our risks if required. This includes reviewing our development programme. We need a clear rent settlement to ensure significant investment into our homes and new homes.”

 

Tom Paul, executive director of strategy and change at fellow G15 landlord Southern Housing, called the uncertainty on the future of regulated rents a “real headache” for the organisation and the sector as a whole.

 

He said it meant that the 77,000-home housing association had to be “more cautious” in its financial planning, for example by committing to develop fewer social homes.

 

“Caution means we have to commit to building fewer new social housing homes, with consequences for those in need of social housing, for the costs our local authority partners are facing to meet temporary accommodation needs, and for overall economic activity,” Mr Paul said.

 

“We run a long-term business with long-term investment plans. We need to be able to make reliable projections on our core income in order to plan our investments. A long-term settlement on rents is a necessary – though not sufficient – condition for unlocking growth in our sector.”

 

Accent Group, which manages more than 20,000 homes, said that because of the ongoing uncertainty, business-planning is “challenging” and it is “difficult” to model rent settlements beyond the next financial year.

 

The group said that its stress tests incorporate a range of possibilities, including the retention of the existing CPI plus one settlement, more positive scenarios where catch-up is permitted, through to a complete freeze and negative position against CPI.

With net zero and specifications for a new Decent Homes Standard still not fully defined, the provider “cannot have any certainty” over its medium-term costs alongside its income, Accent added.

 

“This makes longer-term planning challenging and means we are running many scenarios and preparing mitigations to allow us to react should they be needed,” a spokesperson said. “Some very difficult decisions may need to be taken if the correct balance is not struck.”

 

Matt Cowen, senior associate at Winckworth Sherwood, said that given the lack of certainty, the law firm is aware that a number of providers are being “very conservative” with their modelling relating to rent increases.

 

He said it is “crucial” that providers’ boards undertake “robust and wide-ranging stress-testing, data-modelling and risk analysis so they are prepared for a range of different outcomes”.

 

“In addition to thorough stress-testing and risk analysis, RPs might wish to consider other creative approaches to benefiting their tenants,” Mr Cowen said. “For example, might a rent increase be offset by other means such as introducing a less punitive policy on tenant arrears?”

 

Samantha Grix, partner at Devonshires, said it is “very difficult” for RPs to have any confidence that their business plan for one year will run for the period planned because of the amendments seen to rent settlements over the last eight years.

 

Even more recent than the seven per cent cap on rented properties in the sector, the government intervened to change the rules for shared ownership rent rises in October without any consultation. And previously, in 2015, government tore up a previously agreed 10-year rent settlement after just one year, telling providers to reduce rents by one per cent annually for four years from April 2016.

 

“RPs are having to plan and re-plan as and when changes are introduced, which is unsettling and means that business plans are somewhat fluid,” Ms Grix said.

 

On top of the challenge of managing uncertainty, RPs’ business-planning has been difficult for years due to the financial impact from each government intervention on existing rent settlements.

 

An impact assessment published by DLUHC last year estimated that a seven per cent rent cap would result in RPs losing £4.9bn in rental income between 2023 and 2028. This included £3.2bn from housing associations and £1.7bn from local authorities.

 

According to the NHF, social rents fell by 8.5 per cent in real terms between 2015 and 2021.

 

“This comes at a time when housing associations are investing record amounts in their existing homes and services, whilst also meeting their building safety and net zero obligations and building new homes to meet spiralling demand,” said the trade body’s Ms Finnegan.

 

Calls for a long-term rent settlement

 

Many in the sector have called for a long-term rental settlement, preferably a 10-year settlement of CPI plus one.

 

James Prestwich, director of policy and external affairs at the Chartered Institute of Housing, said that the group would welcome a 10-year rent settlement.

 

He said: “This would provide the certainty the sector needs to business plan effectively, making the long-term investment decisions required to improve existing stock and fund new supply.

 

“Of course, it is vital that a new long-term rent settlement is affordable for people living in social housing and there is a balance to be struck that will deliver for landlords and tenants.”

 

Paul Price, chief executive of the Association of Retained Council Housing, which has around 70 members, said that long-term business-planning is challenging without a clear guide from government about income and expenditure.

 

He said the group has advocated for a longer-term settlement of 10-plus years with some sort of guarantee about certainty or assurance that it would not be meddled with given the government’s past record.

 

Mr Price said: “We have long argued that our members operate a multibillion-pound business, and long-term planning and investment is difficult when its income is subject to unplanned change driven by an external and separately motivated government.”

 

Ms Finnegan said that ahead of the election, the NHF is calling on all political parties to commit to a long-term rent policy, as part of a holistic long-term housing plan.

 

The trade body launched a report in June, which used research to back up its campaign for a plan to end the housing crisis, which is focussed on outcomes.

 

Ms Finnegan said that a new rent policy should offer “certainty and stability” while also being resilient to a changing economic environment.  

 

“To ensure this, we are calling for rents to remain CPI linked but for a return to rent convergence so we can achieve parity on rents; and the introduction of a set minimum and maximum level for all future annual rent increases,” she said.

 

Catherine Ryder, chief executive of PlaceShapers, a network of more than 100 housing associations, said a long-term rent settlement that the sector can rely on will be “critical” in ensuring housing associations can secure the finance and support necessary to build new homes and improve the quality and energy efficiency of existing homes.

 

“We recommend the government starts a conversation with the sector now about the post-2025 rent settlement and commits to bringing forward a settlement that recognises the challenges and contribution of the sector as soon as possible,” she said.

 

“This would allow the sector to plan long-term and shore up investment in a range of activities, including the development of new homes.”

 

Last month, at the Social Housing Annual Conference on 30 November, both RPs and funders called for long-term housing stability, including a rent settlement.

 

However, speaking at the same event, housing policy expert Toby Lloyd expressed his belief that raising rents by one per cent in addition to CPI was unfair, because it meant that the poorest in society were being asked to pay ever-higher rents in order to provide cross-subsidy.

 

Mr Lloyd is a former head of policy for Shelter and also worked as a special advisor to 10 Downing Street from 2018 to 2019. He told the conference: “The affordability for people in the social housing sector is really, really tight and that was before we saw the cost of living crisis and everything in the last few years. So no, I don’t think we should be accepting ever-higher rents against CPI at all.

 

“Ideally, I think we should be looking for inflation-pegged rents and then having confidence that will stay that way pretty much forever. And if we can’t deal with that as a sector, then I think we have to ask what’s wrong with our business models?”