Posted by: Jules Birch11/11/2009
How many housing association tenants will actually see the 0.9% rent cut they should apparently be expecting next April?
Not many is the clear implication of the detail of the government’s response to its consultation on directions to the Tenant Services Authority (TSA). Its apparent confirmation of the cut has sparked a furious reaction from the National Housing Federation (NHF) and also led to threats of legal action.
The response concedes that most respondents wanted a rent freeze rather than a floor of -2%. Some argued that there is no provision in the legislation for a reduction in rents; others that it could reduce finance for new homes, leave them in breach of their loan covenants, affect their credit ratings and send negative messages about the sector to private investors.
That’s quite an agenda but the government rejects those arguments on three main grounds. First, the RPI has not fallen by as much as feared and it needs to balance those arguments with the interests of tenants and the implications for the housing benefit bill.
Second, associations were able to set relatively high increases of up to 5.5% in 2009/10 thanks to a high RPI in September 2008. (By the time the increase was implemented in April, inflation had fallen back to virtually nothing but it’s hard to remember any of them protesting about the impact on their tenants.)
But it’s the third reason that’s the most interesting to me - that rents on most homes are not actually restricted to RPI plus 0.5% at all. For homes that are below target rent and associations that want to get them up to target quickly, the formula is actually RPI plus 0.5% plus £2 - which works out as an increase next year.
Conference presentations by Peter Marsh of the TSA earlier this year put the number of homes affected at 850,000. Far from insignificant - but still a minority of homes.
However, the government response goes much further. It points out that the higher formula applies to rents below 105% of target and that analysis of more than 1.7m homes by the TSA showed only 201,000 homes in excess of 105% of target rent - less than 12%. ‘This 12 per cent is reasonably concentrated within the sector, which will provide a focus for TSA engagement,’ it says. ‘However, this also means that many RSLs should be able to avoid an overall cut in rental income.’
And that’s not the end of the flexibility. The draft direction also gives the TSA scope to allow extensions to rent restructuring where there might be ‘a threat to RSL viability or any breach to a funding covenant’ or where promises made to tenants as part of a stock transfer deal might be broken.
From Inside edge
Housing commentator Jules Birch puts the latest news in context