Associations prepare for loss of £20bn if government uses consumer price index to set rents
Landlords fear approach of rent overhaul
Worried housing associations are planning for a dramatic change to the way rents are calculated which could cost the sector £20 billion.
A number of landlords have started to model the impact of rents being set using a formula based on the consumer price index rather than the current system, which uses the higher retail price index.
Landlords became concerned after the government announced plans to base housing benefit calculations on CPI rather than RPI from April 2013.
Housing association rents are currently based on RPI plus 0.5 per cent. In July RPI was 4.8 per cent and CPI stood at 3.1 per cent.
Three housing associations said they had modelled the impact of rents based on CPI for the first time this year. Consultancy Housing Quality Network is advising its clients to expect a change - although most associations said they did not anticipate the formula would be altered in time for 2011/12.
Robin Tebbutt, executive director of finance at HQN, said: ‘I’d anticipate that the government will confirm the switch from RPI to CPI this year. It would actually be more rational if they were to make this switch as welfare benefits are all switching to CPI. It would be strange if they didn’t do this for rents too.’
Mark Washer, finance director of 55,000-home housing association Affinity Sutton, said it had modelled for rents based on CPI with no additional uplift which would ‘conservatively’ cost the sector £20 billion over 30 years.
Mr Washer, who has for the first time started to plan for a CPI-based increase, said: ‘CPI is clearly where they are going, housing associations are seen as having lots of financial capacity and the government needs to make savings.’
Circle Anglia, which owns or manages 60,000 homes, and 30,000-home association Gentoo said they were taking CPI into account in their financial models for the first time this year.
Philip Ingle, finance director at South Staffordshire Housing Association, said that ‘most finance directors are looking at their business plans and lowering their expectations’.
The National Housing Federation is to speak to associations throughout September to form a policy position on rent-setting ahead of the end of the current rent restructuring programme in 2012.
Based on the current RPI figure rents would increase by roughly 5 per cent next year - the final calculation will be based on September’s RPI.
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Readers' comments (7)
House Mouse | 27/08/2010 9:06 am
No surprises there then and not necessarily a bad thing but....
can someone tell me how this fits with the ill considered push on development towards intermediate rents and lower grant rates?
Surely not a two teir rent system.
Perhaps I'm just an old fashioned sort of mouse.
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Harry Lime | 27/08/2010 9:35 am
Whilst RSL's will squeal about this, they remain strangely silent about the past gains many of them have experienced with rent convergance pushing up the rent levels on many of their older stock far quicker than otherwise have happened, without them having to do anything. When they talk about how much they may "lose" in the future perhaps they should produce how much many of them have gained recently?
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Sidney Webb | 27/08/2010 9:39 am
I agree Harry.
I'd be interested to learn if the cost of services and resources for managing housing faces inflation based on CPI or RPI, as the longer term effect on the ability to fund management services could be considerable if the traditional sector exposure to higher than headline inflation is magnified.
The linking of benefits to CPI is a bit cruel, bearing in mind that the recipients of benefit are more vulnerable to retail price inflation.
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Pendleton Red | 27/08/2010 3:07 pm
Such hysterical head lines are unhelpful.
I assume the three FDs quoted are sensible chaps and I am sure they have been quoted out of context. The change to CPI will NOT cost the sector £20 billion or anything near it. Simply changing one number in a spreadsheet to achieve an attention grabbing headlines is a complete over simplification of the issue. At best it’s disingenuous and worst puerile nonsense.
The change may cause some short term difficulties however any half decent FD worth his salt would, given the change to CPI, plan to ensure that future expenditure increases were realigned with rent increases. A simple example being salaries (a significant overhead to most HAs)- future cost of living awards being based on CPI rather than RPI.
Such false wailing and gnashing of teeth gives further ammunition to those both inside and outside the sector who want to portray all housing professionals as over inflated, uncaring buffoons!
I just hope the Nat Fed doesn’t jump onto this particular bandwagon and make an @rse out of itself, as it did last year when it used similar tactics to argue against the prospect of rent reductions as a result of negative RPI.
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gordon thompson | 27/08/2010 3:31 pm
Agree with Pendleton Red. In my HA there was a 0 increase in rent last year - result = no annual pay rise. No poblem - we all accepted it. Our wages are always sensitive to the economy so when its struggling we dont get as much - if any. We are adults and we accept it. Had the credit crunch not have happened I could have earned more - but I don't wail about what I could have won. I agree this is sensationalist headlining which is untoward.
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Sidney Webb | 27/08/2010 5:09 pm
So your HA in non-compliant with rent convergence, or have the maxed out already?
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Neil Thorneycroft | 30/08/2010 12:15 pm
The key figure is £20billion OVER 30 YEARS. Our sector is well equipped to deal with any such change to CPI.
Also I agree with Pendleton Red how an you possibly know what RPI or CPI or another figure will be. You may assume that the current differential between CPI and RPI might remain but nevertheless it is all speculation.
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