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Trade bodies say seven per cent is preferred rent cap option, but still warn of impact

News17 Oct 2022Michael Lloyd

Trade groups have told the government that a seven per cent rent cap is their preferred option among the government’s proposals, but said it will still affect investment in new and existing homes. 

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Trade bodies have warned of the risks of a rent cap and said seven per cent would be their preferred option #UKhousing #SocialHousingFinance

The government has run a six-week consultation on introducing a new temporary rent cap for social housing for the 2023-24 financial year, which includes options of a three, five and seven per cent cap.

 

The government prefers the five per cent option, which would replace the current cap of Consumer Price Index (CPI) plus one per cent. 

 

In its response to the consultation, which closed last week, the National Housing Federation (NHF) said: “If the government does apply a rent ceiling, it should be set as high as possible, to give boards discretion to target support below the ceiling."

 

The trade body said a seven per cent cap would mean 60 per cent of its members having to make some reduction in investment in homes and services. 

 

“We state that seven per cent is the minimum level which would give boards discretion to target support and adapt to their organisation’s particular context,” the NHF said. 

 

However, it stressed that housing association boards are “best placed to decide on rent increases in 2023”.

 

The government’s own modelling has found that a five per cent cap would cost housing associations and councils £7.4bn in lost rent over the next five years. 

 

The Chartered Institute of Housing (CIH) warned that “essential investment in social homes is at risk” under any of the government’s rent cap options, but said seven per cent is also its preferred choice.

 

The trade body said its own analysis has found that HAs’ operating expenditure would drop by around three to five per cent if a seven per cent cap is introduced; five per cent would lead to a seven per cent fall in spending, it said. 

 

“CIH is clear that affordability for social housing tenants and residents is of utmost importance, but rents also need to be balanced with the need for ongoing investment in housing quality, development and supply to ensure that tenants and residents continue to see the quality of homes and services that they have every right to expect,” said Gavin Smart, chief executive of the CIH.

 

“We know that social landlords share these concerns and have been working hard to protect affordability and support those most in need while delivering on investment commitments.

 

“With that in mind, we believe that a seven per cent cap (for one year and with an exemption for supported housing) would be more appropriate, recognising that many social landlords will, in practice, opt for a lower increase.

 

“This must be supported by benefits uprating at September CPI and reinvestment of any savings generated to the exchequer.”

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Both the NHF and CIH said that if a rent cap is introduced, it should be for no longer than a year, given the economic uncertainty. 

 

They said supported and sheltered housing should be exempt from any cap, reflecting the tight financial position in which they already operate, and viability risks.

 

They both also called for a commitment to reintroducing a ‘catch-up’ mechanism, so that rents can gradually return to their real-terms level once inflation has dropped.

 

Homes for the South West (H4SW), a group of 11 housing associations, warned the new rent cap has the potential to “significantly curtail” its development plans.

 

It said that the most restrictive rent cap of three per cent would cut the group’s development pipeline by up to 31 per cent, resulting in the delivery of 6,939 fewer affordable homes in the South West over the next five years.

 

H4SW said a five per cent rent cap would lead to a 21 per cent drop in planned developments and the subsequent delivery of 4,708 fewer affordable homes.

 

A seven per cent ceiling would result in 2,621 fewer affordable homes and a 12 per cent reduction in development.

 

The group’s members are aiming to build 25,000 new homes over the next five years, of which 22,000 would be affordable.

 

However, it said that with the cost of labour, energy and material soaring, a cap on rents below true costs will materially affect its ability to fund development programmes at the same scale.

“We recognise there are intense pressures on both individual and public finances at the moment, and the difficulty in finding the right balance.

 

“It’s vital that social housing tenants don’t face rent increases they will struggle to afford, and all of our organisations are working flat out behind the scenes to support our residents through this cost-of-living crisis,” said Victor Da Cunha, chairman at H4SW.

 

“At the same time, we must try to balance this with the future supply of urgently needed new homes for local people. A unique combination of housing prices and income factors make levelling up a priority in parts of the South West, with several councils already declaring a housing emergency. 

 

“As a group, we had planned to invest £4bn to deliver 25,000 new homes over the next five years, which our projections show would also boost economic growth in the region and sustain 77,000 jobs in construction and the supply chain. 

 

“As our calculations show, the situation with rents has the potential to significantly curtail this programme.”

 

Elsewhere, the G15 has called on the government to consider scrapping VAT on housing association activity as one way of helping the sector deal with the proposed tighter rent cap. 

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