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The rent cap was inevitable – but not everyone will be protected and the consequences will be varied

The government is consulting on a rent cap for social tenants, but Jules Birch says that there are many questions to be answered about what this will mean – for tenants, for shared owners, for social landlords and for housing staff

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The government is consulting on a rent cap for social tenants, but @Jules_Birch says that there are many questions to be answered about what this will mean – for tenants, for shared owners, for social landlords and for #UKhousing staff

“Many social tenants are finding that even turning the boiler off does not go far enough – they may be asking why the consultation does not include an option to freeze rents,” says @Jules_Birch #UKhousing

The rent cap proposed for social housing may not have come as a huge surprise, but the consequences will play out in very different ways for different parties.

It says it all about the cost of living crisis that whether rents are capped could be well down social tenants’ list of worries over the next few months.

The energy price cap has already almost doubled in the past 12 months to £1,971 a year. Next month that will rise to £3,549 and the worst forecasts suggest that could double again by next April unless the new government takes radical action.

Effectively, therefore, tenants in social housing could be paying double rent next year unless they take drastic steps to cut their bills.

But many are already doing this and finding that even turning the boiler off does not go far enough – they may be asking why the consultation does not include an option to freeze rents.

One consolation for tenants will be that benefits and pensions are also due to rise by the September rate of CPI inflation but (assuming the new prime minister does not renege on what has already been announced) that will not happen until April, and the crisis is already here and about far more than just gas and electricity.

Faced with all that, plus all sorts of restrictions on benefits, there is a limit to what landlord money advice teams can achieve. Even if the new government steps up with a huge package to freeze energy bills, rent arrears look certain to increase significantly.

And there is one significant group of tenants who are not covered by the proposed cap. Rent increases for shared owners are set out in their leases and are linked to the higher RPI rate of inflation (already 12.3% by June) plus up to as much as 2%. This at the same time as their mortgage costs are rising and some are still facing bills for building safety.


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For social landlords, few things in the consultation on rents will come as much of a surprise even if they are still coming to terms with the “exceptional times” it highlights.

All but one of the chief executives I spoke to ahead of the announcement were expecting both a consultation and cap. The one exception feared that the interim government would run out of time.

Difficult choices for landlords now follow inevitably, with their rental income under the favoured 5% cap forecast to fall by £7.4bn over the next five years in the impact assessment.

Development programmes seem likely to take a severe hit and decarbonisation programmes could be scaled back to the minimum needed to hit the target.

Few would admit to looking at repair and maintenance budgets, especially with tighter consumer regulation on the way, but it’s not hard to join the dots between the four-year rent cut between 2016 and 2020 and the current disrepair scandal.

Construction costs are already rising well ahead of inflation in general, and maintenance problems could increase as more tenants turn off their heating.

All this will be compounded by the fact that the rent cap will probably last more than one year. The impact assessment assumes that inflation will be 9.9% in 2023-24 and 9.5% in 2024-25, implying double-digit rent increases in in 2024 and 2025 unless the cap continues.

“Development programmes seem likely to take a severe hit and decarbonisation programmes could be scaled back to the minimum needed to hit the target”

That would squeeze budgets even further and add to concerns about the cost of borrowing as lenders price in being unable to rely on above-inflation rent increases on top of increases in interest rates.

Most of the chief executives I spoke to ahead of the consultation emphasised the importance of flexibility in whatever is agreed.

That might be something like the plus or minus £2 a week that disappeared under the latest ‘long-term’ rent formula or another mechanism that allowed them to catch up with lost income eventually.

It would also be a chance to address the significant anomalies that already exist between rents paid by neighbours for similar properties. There are big variations between social and affordable rents, rents below and at target rents and rents on existing and new lettings at affordable rent, as well as (in terms of total costs) homes at maximum and minimum energy efficiency standards.

Smaller and specialist landlords could be especially vulnerable to the cap, but the consultation includes an exemption where compliance with the revised standard would jeopardise their financial viability. Despite this, pressure for mergers will grow and diversity of provision could be lost.

Issues like these will feed into the review of rent policy for 2025-26 and beyond expected next year, and could enable some very high rents to be reduced as low ones are increased.

However, the consultation on the cap adds one more anomaly as it proposes that rents for new lettings and re-lets will still be able to rise at CPI plus 1%.

That may be a bright spot amid the gloom for development, and it is what already happens when properties below target rent are relet, but there is also a danger that it will create a perverse incentive for landlords.

Most, if not all, would protest that it would be unthinkable and would contradict their social mission, but evicting tenants who fall into arrears will make hard financial sense.

And that raises big issues for the player who, as things stand, will be the biggest beneficiary of the rent cap: the government.

The impact assessment estimates that 38% of the benefits of a 5% cap would go to tenants who pay their own rent or who are on partial housing benefit, but 62% will go to the Department for Work and Pensions (DWP) in lower housing benefit benefits.

In reality, of course, it is a long-term transfer from DLUHC to DWP budgets and trades lower housing benefit for fewer new homes. If, as seems inevitable, evictions and homelessness rise, the savings will melt away.

“38% of the benefits of a 5% cap would go to tenants who pay their own rent or who are on partial housing benefit but 62% will go to the Department for Work and Pensions in lower housing benefit benefits”

That only strengthens the case for the £4.6bn the DWP is forecast to save over the next five years to be redistributed into higher grant for new development and/or further support for tenants.

The impact on housing staff has gone under the radar so far but it could be severe, especially if the cost of living crisis lasts beyond next year.

It’s not hard to see that below-inflation rent increases are likely to mean below-inflation pay rises – otherwise known as pay cuts – at a time when housing staff are also having to cope with soaring bills along with everyone else.

That could well mean more staff turn to unions to represent their interests, but room for negotiation will be limited when social landlord incomes will also be falling in real terms. One option could be to take whatever budget is available for pay increases and apply it as a lump sum rather than a percentage.

“It’s not hard to see that below-inflation rent increases are likely to mean below-inflation pay rises – otherwise known as pay cuts – at a time when housing staff are also having to cope with soaring bills along with everyone else”

A solidarity increase like that would deliver the greatest benefits to the lowest-paid staff but mean a minimal percentage increase for the highest paid, who will be making the decisions. They, however, will benefit far more from the new prime minister’s tax cuts.

Finally, if social rents can be capped, why can’t private rents? There are currently no plans to ease the cost of living crisis for private renters beyond support for energy bills.

But private rents are rising rapidly, especially for new lets, and Local Housing Allowance rates have been frozen since April 2020 regardless of that. Tough decisions lie ahead at the Treasury and DWP over what to do next year if the result is not to be even more evictions and homelessness and all the long-term costs generated by that. That would dash DLUHC’s ambitions to end rough sleeping for good.

Whatever happens on energy bills this week, the tough choices will keep on coming.

Jules Birch, columnist, Inside Housing

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