So now we know: unless the government listens to last-minute pleas from the National Housing Federation (NHF) and Council of Mortgage Lenders (CML) housing association rents will fall by 0.9% next year.
The -1.4% September figure for retail price index (RPI) inflation published this morning triggers the RPI plus 0.5% formula that applies to most association rents from next year. However, it could have been much worse for associations: at one stage it looked like prices would be falling by up to -3% by now.
That’s why the Communities and Local Government department proposed a -2% cost floor in a consultation paper in July. In their responses, both the NHF and CML argue that the floor should be 0% and that there should now be a rent freeze.
In a response published yesterday, the NHF argues that CLG has got it wrong: ‘We believe that under the current rent increase formula, a rent floor already applies in the event of negative RPI inflation. The formula was never designed to decrease rents and the guidance refers specifically to the determination of rent increases and not decreases.’
Even since the consultation paper was published, it says that government demands that associations develop apprenticeship and local labour schemes and support family intervention projects and mortgage rescue will all add to their costs.
But the NHF’s core case is that: ‘Our research suggests that a number of housing associations would be forced to make significant cuts to neighbourhood services, stock investment programmes and their plans to develop new homes if rents were cut. In some cases a reduction of this amount could challenge the viability of some organisations or cause them difficulties in complying with lender covenants particularly those relating to stock valuation which are often driven by the value of the rental income derived from properties.’
Even worse, the rent fall would have a continuing effect on business plans well beyond any period in which prices are actually falling.
Tenants who have seen associations increase the pay of their chief executives by an average of 7% may have a hard time sympathising.
However, the irony is that all this is happening because of something that has absolutely nothing to do with housing association rents: mortgage costs Without an 11.2% fall in housing costs - most of which is down to mortgage payments and house depreciation - the RPI figure would have been positive. RPIX, an alternative measure that excludes mortgage costs, rose 1.3%.
Housing associations and their tenants are not the only ones interested in today’s news. Benefits like incapacity benefit, child benefit, and disability living allowance all rise by zero or September RPI, whichever is greater. However, the chancellor is already under pressure to find room for an increase rather than a freeze.
The NHF had earlier estimated that the Treasury would save £109m in housing benefit from a 2% cut - peanuts compared to the cost of increasing other benefits. My back of an envelope says that it will now save £50m. Even in a financial crisis, is it really impossible to come up with a solution that protects associations without penalising tenants who are working?
Have your say
You must sign in to make a comment
Readers' comments (2)
Andrew | 14/10/2009 5:56 pm
My housing association, I suspect like many were happy earlier this year to put up rents by the maximum, based on interest rates of September 08 i.e. over 5%. When my rent was increased in June Britain was deep into the recession and public sector workers like me were facing a pay freeze. So why should tenants sympathise with HA now, when HA didn’t sympathise with tenants then.
Unsuitable or offensive? Report this comment
Christine | 18/10/2009 1:56 pm
As a tenant who is also a housing association board member I have to say that last year's rent rise decision was not made happily but only after much debate and consideration of future needs. HA's have to consider many stakeholders including their funders and the TSA as well as their tenants and any decisions made have to take all these into account.
Unsuitable or offensive? Report this comment