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A step too far?

After taking on increased debt to fund affordable rent landlords may lack the appetite for another high-risk house building scheme

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In the run-up to the October 2010 spending review, the Treasury was desperate to squeeze more homes from English social landlords for less taxpayer funding. The result was the bold/madcap (delete as appropriate) affordable rent scheme. At the time many social landlords decried the plan as unworkable. Yet most came round to the idea and the affordable homes programme is set to deliver 170,000 homes in England by April 2015.

Fast-forward to the present day and you can see why the Treasury might be tempted to roll out another bold/madcap scheme in this year’s spending review on 26 June. On the face of it, although the details of the mooted rental incentive scheme are sketchy, a deal whereby social landlords take the financial risk of developing sub-market rented homes in exchange for a higher rate of rent inflation sounds interesting. However, it would face the following problems.

First, how would you ensure landlords play ball? There is no legal requirement for English social landlords to stick to the rent formula of retail price index plus 0.5 per cent plus £2 a week when calculating their annual rent increases. Landlords currently do so as this is required by the regulator, the Homes and Communities Agency. However, if the stakes were raised and non-developing landlords’ business plans were fatally undermined by the new rent regime, there would be a strong temptation to test whether the regulator would force organisations to go bust.

Second, how would you decide on an appropriate level of development to qualify for more generous rental growth? If there were some grant to further incentivise landlords to build (as we are calling for in our Grant Britain Homes campaign), what approach should be taken with those who miss out? Any attempt to penalise organisations as a result would surely be met with a legal challenge.

As we report this week, social landlords in Warrington and elsewhere are already finding ways to squeeze more homes from the current system. Smaller landlords in London are already clubbing together to pool development resources. Is it really worth throwing everything up in the air once again?

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