Weigh up social rents cut debate
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There has been much lobbying by the National Housing Federation and others to ensure that housing association rents do not decrease in line with September’s drop in the retail price index.
In August the NHF in a press release said: ‘The rent increases that housing associations can levy on their tenants are limited by a formula of September’s retail price index plus half a per cent each year. Despite the fact that the formula does not mention cuts at all, the government says it’s being generous by limiting cuts to 2 per cent against a Treasury predicted RPI of -3 per cent for this September.’
In the article Legal battle against rent cuts mooted (Inside Housing, 16 October), QC Rhodri Thompson advises that ‘the consultation was based on a false premise - that rents could go down - and therefore the current consultation could be quashed if the government was taken to court’.
Both assumptions are incorrect. The Department of the Environment, Transport and the Regions in its publication of March 2001, A guide to social rent reforms, said: ‘If a property has a rent which is currently 15 per cent above its current target level, its rent will need to fall over the 10-year period by the equivalent of 15 per cent, offset by the national average increase in rents for its sector.’
So the government has said in this publication which is the one that links rents to RPI, that social rents can drop.
The NHF also says that a rent decrease could mean a reduction in income of £260 million and would affect investment in new build properties, yet the RPI figure in September 2008 of 5 per cent means that rents in April 2009 went up by 5.5 per cent. And because inflation and costs are down by 1.4 per cent thus results in a net revenue gain of 6.9 per cent. So, if rents were to drop by 0.9 per cent for 2010/11, this would mean that, in a two-year period, income to housing associations would average out at 3 per cent per annum.
I’m sure that this figure is as high or higher than any housing association uses in its business plan.
If the NHF and its housing association members would genuinely like to see greater investment in new social housing, they should look closely at their own income and expenditure accounts.
In the 2008 Global Accounts of Housing Associations, management costs on a turnover of £3.4 billion were 23 per cent but a housing association that achieved three stars in an Audit Commission inspection has a management costs of 9 per cent which extrapolates to a saving (if associations were well managed) of almost £500 million.
Alan Coxon, tenant consultation panel, Hartlepool Housing
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Readers' comments (2)
Joe Halewood | 23/11/2009 5:28 pm
How crude and nearsighted!
So inflation (RPI) has fallen but does this mean that HA costs of service have fallen? No, have tenants all other household costs such as food, gas, electric, etc all fallen by 1.9%? No - quite the contrary in fact as we have seen massive year on year increases in utility costs than tenants (and owner-occupiers) and businesses including HAs have had to bear.
Have staff salaries fallen by 1.9% - no they have at least remained the same - so it is incredibly naive to assume and state that because RPI has fallen that HA costs should fall.
As for 9% or 23% - if all a landlords properties are within say a 10-mile inner city area then their management costs will be higher than a RSL with a large rural dispersed element - or as many RSLs have a dispersed geographical range of stock. This is just one obvious reason why this can be different. Another may be a high proportion of atff to tenants as seen in cat2 or extra care or supported housing than RSL b who may all be general needs stock.
It may well be the case that the 23% management cost HA is in like-for-like terms more efficient than the 9% one. Sothe claim that this is mismanagement is just a pure guess and one that is ignorant of any like-for-like comparison.
And finally the quote used (DETR 2001) is fact specific and only applies when a rent is more than 15% ABOVE the traget rent and does not applt to all properties - only those that fit this specific criteria.
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Alan Coxon | 25/11/2009 9:28 am
The argument that I was making in my recent letter was that a rent decrease of 0.9% in 2010/11 (not 1.9% which was never mentioned), would result in rent increases over a two year period of 3% per annum which is in line with most HAs business plans.
The 23% management costs I used was derived from the Global Accounts of 2008 which means this figure is an average for all HAs therefore not determined by property distribution. The 9% figure was used as an example of how a three star HA could keep down costs thus giving Value for Money.
The RSL sector is populated by overpaid executives making excuses for being incompetent and when the inevitable public expenditure cuts arrive the high subsidies will disappear and if HAs want to develop they will have to find capital from their income stream and redundancies will ensue.
Alan Coxon
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