Three months to go and the clock is ticking. The inflation rate that matters to housing associations and their tenants is now -1.6% and by September forecasters say it could be almost -3%.
According to a report in Inside Housing last week, that will mean rent cuts of 2%. Associations’ rents are set according to a formula of the RPI in September plus 0.5% and seeing trouble on the way they have been trying for months to convince the government to keep rents flat. But sources said that the government was set to unveil a rental floor of -2% - hardly surprising when rents went up so much last year.
But is that quite it? What about associations and homes (about 850,000) that are below target rent? As Peter Marsh of the Tenant Services Authority has been telling conferences over the last few months [download here], the maximum increase allowed in any one year for these is actually RPI plus 0.5% plus £2 - meaning that RPI would have to be below -4% in September before those rents have to fall.
Confused? The official inflation rate (CPI) does not include housing costs and that has only just fallen below the government’s target of +2% at 1.8%. That’s the one that the Bank of England has used to set interest rates at a record low 0.5%. That means mortgage costs are well down on this time last year and that is the main reason why the RPI (which includes housing costs) is at its lowest in 48 years.
So rents for housing association tenants will effectively be determined by the mortgage costs of home owners. And this at a time when research for the Joseph Rowntree Foundation has just shown that the real inflation rate for someone on a minimum income is actually +5% because they spend more of their budget on food, domestic fuel and public transport and not on paying a mortgage or running a car.
If it’s any consolation, the falling RPI is not just causing problems for associations and tenants. Train companies set their fares according to the July RPI plus 1%, which means they will have to fall from January.
And the uprating of social security benefits from April 2009 is based on inflation in the year to September 2008. Pensions rise by that or 2.5%, whichever is higher.
Benefits such as incapacity benefit, child benefit, and disability living allowance are uprated in line with RPI but it’s hard to see the government risking a political storm by cutting them. Means-tested benefits like JSA, housing benefit and income support rise according to the Rossi Index (the RPI not including housing costs) - and the RPIX (excluding mortgages) is still in positive territory.
And pay negotiations are usually conducted using the RPI. Inflation falling by that much will increase the pressure from employers for pay freezes - or even cuts.
Have your say
You must sign in to make a comment
Readers' comments (3)
Andrew Schofield | 15/07/2009 9:30 pm
What is beyond doubt is that the level of rent in the next few years will require everyone to adjust their costs accordingly. This must be done at the same time as continuing to improve services.
We will have to do MORE with LESS. To get in the required shape by next March we should start to take action immediately. This means starting at the point where our services are delivered and working systematically back through our organisations. Restructuring may take out costs but when did it ever improve service? We should examine carefully our processes with a view to identifying the wastes - then take them out. All housing providers have scope to increase their efficiency by at least 20%. Achieving half of this in the next year would transform the performance of most businesses. Get on with it. Get stuck in to something we can influence - the rent levels will be what they will be.
Unsuitable or offensive? Report this comment
EssexTenant | 16/07/2009 9:44 am
This I believe is a problem with many organisations these days :
"starting at the point where our services are delivered and working systematically back"
Why start at the front line?? Surely it would be better to start at the top where to critically review costs - you generally get as much saving from 1 Director less as you do from 2.5 - 3 frontline staff thereby enabling you to continue to improve the service but still cut out inefficienecies and overheads.
We all understand that the biggest costs to RSLs, ALMOs and LAs with a retained housing function are the staff but slashing frontline staff to save a Director or two will not deliver improved services.
We all have to remember that our purpose is to serve tenants, in the past I would suggest that many Housing providers have not done so and it is this culture that needs to be changed to enable those efficiencies to be made.
Lots of RSLs are saying they can't do new build in the current economic climate yet how many, I wonder, are laying off their Developemnt Directors?
While I appreciate the impact lowering rents will have on Business Plans I cannot have any sympathy for HAs that have for years quite happily used the system to increase rents year on year with very little in the way of improvements to tenants. I suspect that had been more clever about things in the first place they may well have had tenants on their sides when the recent discussions with Govt were held...as it was the tenants are now mostly looking forward to a rental decrease with a certain amount of satisfaction. I just hope that this is not used as an excuse to cut services at the frontline, though I rather suspect I will be proved wrong.
Unsuitable or offensive? Report this comment
Joe Halewood | 16/07/2009 11:46 am
When the economy inflates and then deflates tenants expect less than the inflationary increase. When the econony deflates further they expect a decrease. As the largest expenditure cost is staffing whose salaries dont decrease then social landlords have less money to spend on services. (I could add increases in borrowing as banks dont reduce borrowing rates yet slash investment rates and that landlords also have to suffer the nassive 15 - 35% increases in fuel coists.) These are ecomonic facts.
Yet despite this tenants again EXPECT increases in services from greatly diminishing resources.
Isnt there a need for a culture change with tenants as well to reflect such realism?
Any dispassionate outside observation would suggest there clearly is. Yet to even suggest this will probably bring howls of (emotive) derision. Yes social housing is allocated to vulnerable people, at least initially, and such tenants are more affected by the economic downturn than others. Yet to expect rent decreases AND increased services on already heavily subsidised provision is surely an overexpectancy
IF a social landlords purpose IS to serve tenants then just to maintain the current level of service from diminshing resources is an achievement in itself that should be appreciated in its own right. If even the most ardent tenant was to take stock and reflect they would find the same gas and electric level costs more (with probably lesser service as well!), that other household costs have increased with no service level increase, fuel costs significantly increased, food and insurance costs increased - and i could go on and on.
Yet they expect increased service from their landlord with (at least in real terms) significantly reduced financial resources. That is patently unrealistic and while it may read as being harsh, reality often is, and so that culture of overexpectation has to be reconsidered.
Unsuitable or offensive? Report this comment