Government to allow a rental floor, but it will be set at -2 per cent
Landlords lose rent cuts battle
Housing associations face rent cuts of 2 per cent next year after closed-door negotiations failed to persuade the government to keep rents flat.
Sources close to the discussions this week said that the argument had been lost, and the government was set to unveil a rental floor of -2 per cent.
Government rules require associations to set their rents in line with the retail price index of inflation, which is expected to fall to between -2.5 and -3 per cent this September.
Associations have been lobbying for months to be allowed to set a ‘rental floor’ at 0 per cent, warning that rent cuts could stymie social home building programmes.
But a source said: ‘The Treasury view is that £109 million savings on housing benefit is a prize sufficiently worth having that the costs associated with it are worth bearing.’
The Communities and Local Government department confirmed an announcement on a rental floor was expected but refused to confirm or deny the details.
Associations are expected to set their rents within 0.5 per cent of RPI as it stands in September, meaning they would be expected to make a 2 per cent rent cut. The fear is that this loss of income could threaten some associations’ viability.
In January, Tenant Services Authority chief executive Peter Marsh said: ‘We need to take a very cold look at whether or not association business plans could weather a reduction by 1.5 per cent in rental streams. Some probably could not.’
But it is implausible that the regulator would compel an association to make a rent cut that would trigger financial collapse.
When contacted by Inside Housing this week Mr Marsh refused to comment on any plans for a rental floor.
But he observed that the TSA had a legal duty to ensure associations’ viability, and ‘if the consequence of us taking a course of action was that an association became unviable, we would be in breach of our statutory objectives.’
If an association was unable to meet rent targets without threatening its viability, the TSA would discuss ‘what other approaches there might be to rent setting in 2010/11,’ he added.
As Inside Housing went to press, the CLG was unable to make any comment. It was due to issue its direction on rents this week.
An announcement is also anticipated suggesting the TSA will start charging associations for regulation in April next year.