Collision course

Rent collectors look away now. If you thought 2009 was the year of the rent row, think again. The rumble between landlords and the government over council and housing association rents seems likely to continue into the new decade.

As Inside Housing reported last week, stock-owning councils are fuming over financially punishing rent hikes resulting from an unexpected Whitehall dictat accelerating its rent restructuring programme (Inside Housing, 8 January). Meanwhile, housing associations are maddened because their inflation linked rents are due to fall by 0.9 per cent in April - despite protests by association leaders.

So why the upset? The answer lies in the government’s rent restructuring programme (see box, right). Conceived eight years ago, it is Labour’s grand plan to bring social rents into line, so that identical rents are paid on similar properties, regardless of landlord. A noble aim, most would agree. Why, then, the current pain? And as they tussle with administering next year’s rent changes, there’s one question landlords want answered: what more’s to come?

Inside Housing’s revelation that the government had brought forward the deadline for rent convergence to 2012/13 was a surprise to many - not least the councils caught short as a result.

The deadline move is a turnaround for the books. Just over a year ago, Communities and Local Government department forecasts suggested convergence might not happen until 2024/25 - more than 10 years later than projected when restructuring began in 2002/03. But the latest average increase in council target rents for 2010/11 - 3.1 per cent - is based on the assumption of achieving convergence in 2012/13.

The acceleration is caused mainly by the dramatic fall in the retail price index during the recession. The CLG has taken advantage of the fall, seizing the opportunity to hold average guideline increases at 3.1 per cent.

As to what happens next, experts point out that much will depend on how RPI performs during the coming years.

Steve Partridge, director of financial policy and development at the Chartered Institute of Housing, claims the government no longer has a policy of converging rents by a particular date.
He says it is more concerned that both sets of tenants get similar-sized year-on-year increases.

Historical differences

Historically, council rents have been lower than those of associations. Since 2005, the government has twice bowed to pressure from council leaders and agreed that rents should not go up by as much as the formula requires.

For example, last April council rents were due to increase by just over 6 per cent before a late government U-turn fixed a 3.1 per cent rise. ‘Ministers are unable to resist intervening in the rent increase process,’ adds Mr Partridge.

Officially rents will be deemed to have converged once annual increases in both sectors are determined solely by the common formula. But as housing association homes are generally newer than those of councils, and often situated in areas with higher property values, average association rents are likely to remain higher even when landlords in both sectors have reached target rents in line with the formula.

Steve Wilcox, housing policy professor at the University of York, says most councils and associations are broadly following the formula already, even though there may be ‘a long tail’ of landlords that struggle to reach their target rents. ‘There is far more consistency in rents than there was 10 years ago,’ he says.

The latest Tenant Services Authority data, published this month, shows average association rents are within 5 per cent of their target in every region except London, where rent caps make it harder for associations to raise rents for higher value homes. The number of local authority areas where the average association rent for two-bedroom properties is within 5 per cent of target rose from 225 to 269, from a total of 354, last year. That leaves around a quarter which are not on track.

‘We’re nearing the position where policy objectives are being achieved,’ says Clare Miller, executive director for risk and assurance at the TSA.

There is less empirical data for local authorities, which are also awaiting the results of the ongoing housing finance review. As part of the review, says Mr Partridge, ministers will have to make assumptions about rents over a 30-year period, while also giving councils discretion to vary rents locally. ‘They would have the incentive to do so because they could keep the money,’ he says.

While this could upset rent restructuring again, it would be unlikely to do so before 2012. Some landlords want government action before then. Arm’s-length management organisation Bolton at Home, for example, wants the convergence deadline pushed back to 2014/15 to ease the organisation’s pain. Others are happy for restructuring to proceed as planned, but want officials to speed up subsidy payments they are due as part of the process.

In the meantime, town halls have the tricky task of explaining to their tenants that, although rents are going up this year, they will not necessarily receive better services. In order for one to follow the other ‘the rents process will need to be localised,’ says Ruth Lucas, policy consultant at the Local Government Association. ‘It should be part of local decision making.’

Then there is that other unknown: this year’s general election. Although the Conservatives have backed the housing finance review, they have not said anything on rent restructuring.

Regardless of who wins the election, and even if social rents converge in 2012 or soon after, it seems likely that the rent fixing process may remain somewhat volatile - and potentially painful - for many years to come.

Additional reporting by Chloë Stothart

Average weekly rents 2001/08

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