Councils face new year rent headache
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Councils are facing potential cash flow problems after the government altered the council housing subsidy regime.
Some councils revealed the changes would cost them millions of pounds and could lead to service cuts.
The situation is likely to result in some councils dipping into their housing revenue account reserves to tide them over - meaning they could struggle to fund unplanned work.
The changes involve the system under which council rents are due to increase to the same level as housing association rents.
In a December announcement, the government said rents for similar properties owned by different landlords must converge by 2012/13 rather than 2023/24. The change means target rents will increase more steeply than previously expected. Coupled with a drop in inflation, this means more homes’ real rents will be lower than the target levels in 2010/11.
Rhys Makinson, assistant director of finance for the London borough of Camden’s housing department, said the gap between the authority’s target and real rents would increase by £3 million in 2010/11.
The government pays councils compensation to cover the difference between the figures, but hands over the money a year in arrears.
The increase in properties affected means councils will be waiting for a larger sum of money than in previous years, which could cause cash flow problems for some authorities.
The average increase target rent for Camden’s homes was 4.1 per cent but it could only charge 1.4 per cent more because of the limits that have been set on rent increases.
Mr Makinson said that the council would use its cash reserves to cover the difference until the government pays the compensation. ‘It is a cash flow issue and how much of an issue it is depends on whether you have reserves in the housing revenue account to manage it, which we have.’
He expected that councils, possibly including Camden, would lobby the government to see if they can persuade it to compensate them more quickly.
Robin Tebbutt, executive director of finance at consultancy HQN, said some councils could have to dip into their housing revenue account reserves to tide them over until the government paid compensation.
He added: ‘Cash reserves are there for unexpected events and those events could come along and then they would end up not having any money for them.’
Some councils were already living ‘hand to mouth’ on their housing revenue accounts, he added. Another concern was that he received an email from civil servants which said they ‘cannot commit future ministers by providing absolute assurances on spending’.
A housing finance official from another council said it could be forced to cut services as a result of cash flow problems created by having to wait a year for the money. It said it would press the government to make the payments more quickly.
A CLG spokesperson said the rent convergence date had been changed to fix the average guideline rent increase at 3.1 per cent.
The department said caps and limits funding for 2008/09 was £104 million, was provisionally estimated to be £90 million for 2009/10 and that a reliable figure for 2010/11 could not be forecast as it depended on levels of housing stock sales and on whether councils stuck to the government policy of not increasing rent by more than half a percent above RPI plus £2 per week.
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Readers' comments (33)
Melvin Bone | 08/01/2010 1:27 pm
They should put all the council rents up to HA levels straight away.
The amount of subsidy these tenants has been getting is ridiculous.
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john bull | 08/01/2010 3:48 pm
Help!!! HA rents are about half the market rent as it is, for the 40% who actually pay them.
so what a good idea. far too many people are living in a dream world with wonderful properties provided either rent free or half price. paid for by the taxpayers, many of whom are the working poor.
Next step lets stop the massive subsidies of housing. The accommodation should suit what people can afford to pay. if they can only afford a caravan or a studio flat for their family, so be it. all these luxurious 3 and 4 bed semis should be sold off.
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kass | 08/01/2010 8:26 pm
john bull | Fri, 8 Jan 2010 15:48 GMT
"Luxurious?".... I wouldn't mind swapping mine with yours, even if yours is just a caravan. You will see taste the luxry of what is like to become mentally ill in a social housing property.
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Tom | 09/01/2010 11:32 am
'They should put all the council rents up to HA levels straight away'
Really?
And if low paid working tenants people have to claim housing benefit as a result of that,so they can pay their bills,how does that help.
Thinking,you should try it.
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Len White | 10/01/2010 9:52 am
The ignorance of Bone and Bull (dumb and dumber?) knows no bounds. There is no subsidy to council housing, tenants' rents meet all the cost plus quite a significant subsidy to the general account on the side. It costs the taxpayer nothing - and housing benefit is avaliable across all tenures (including the equivalent ISMI for home owners). For people on low incomes, the HB cost is much lower in social housing than in private renting.
The fact that homes can be provided with no subsidy at half the price of the 'free market' just shows what a brilliant system it is.
It spoils IH to have to put up with such prejudice and ignorance. I can only assume that they work for David Cameron.
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john bull | 10/01/2010 6:42 pm
Sorry to disapoint you Len but after ten years as an unpaid Vice chair of a major uk housing association, and many decades on lecturing in accounting
I can assure you both council and housing association houses receive MASSIVE state subsidies. we averaged £100,000 for every house we built a non refundable gift/grant from the tax payer. this kept the rents down. without it few tenants could have paid the actual cost of our properties.
also sorry Kass despite being a top of the scale lecturer I could not afford to own as good a house as the social housing provided. As I could not qualify, as I worked full -time for 50+ years and had aleast one p/t job as well, to pay and upkeep the modest propert I had.
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Tom | 11/01/2010 11:04 am
''As I could not qualify, as I worked full -time''
You seem to be suggesting that one has to be unemployed in order to qualify for social housing?.
Well I have lived in a council house,for over thirty years, paid full rent, all that time, I have also worked,full time, for forty years.
How much has the taxpayer subsidised me then,would you say?.
If you were unable to afford a property as 'good' as a social property,maybe you should not have been buying, in the first place.
That is why the country is in a financial mess,too many people have taken on commitments they can't really afford.
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martin laval | 11/01/2010 11:54 am
'John bull'
You seem almost as confused as Mr bone. Are you are saying that councils receive 100,000 per house built? I'm sure most councils are unaware of this.
As for my LA, most properties were built 40 to 60 years ago and the newest were built in the early 70's.....the 1,100 Pounds spent to build my 1953 property has been paid many times over. Council houses are not being built...your experience on an HA board is irrelevant is it not?
Please feel free to post again, maybe you can explain why council rents need to reflect housing bubble prices? Perhaps 30% of the minimum wage would be fairer? Anyone...?
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john bull | 11/01/2010 12:04 pm
hi Tom
I'm glad you work fulltime and paid the full rent asked.
But the full rent Council's ask, like housing associations, is on average about half the real rent, if there weren't Tax payer grants and subsidies.
so if you paid £100 a week for the last 30 years that means you have received a subsidy £150.000.
No I bought within my means as a lecturer/manager on only £30.000 + which was why it did not have double glazing or radiator CH which was standard on all our 4000 housing association properties, which also had much larger rooms.
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john bull | 11/01/2010 1:48 pm
Hi martin
I do know there are some differences between council and HA social housing.
Explaining why council housing rents should reflect the market price of houses, would take far too long. spend 20 years on accounting,econoics and management courses like I did.
I like the idea of rents being set at 30% of the minimum wage, as a minimum.
Rents should be set at that and 30% of net family income for all people in social housing With no subsidies for anyone the rent should be paid out of the very generous benefits currently paid
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