We have a long-term problem with rent

The cracks have been papered over with ad hoc, and at times self-defeating, initiatives that make it look like the government is doing something without ever making serious inroads into the problem.

It would also be fair to say that the problem of short-termism on housing policy is far from new. For example, poor decisions were made about the quality of the homes built in the 1960s because the government cared much more about numbers than it did about long-term sustainability. Then there’s the failure to replace homes sold under Right to Buy.

In many ways, the current architecture of the social housing sector reflects an attempt to prevent short-term political choices creating long-term problems.

Money that local authorities raise from their housing stock – the Housing Revenue Account – is ringfenced to stop politicians raiding the pot at the expense of necessary investment in housing stock. Stock transfer was driven in large part by the failure of the state to maintain homes to a decent standard.

“The government also needs to accept that having changed the rules on rents, it needs to significantly increase grant rates. If it doesn’t, the number of affordable homes we deliver could plummet”

However, the government’s recent announcement on rent capping makes it abundantly clear that the current system does not protect the sector from political short-termism or, judging by the government’s simplistic and panglossian impact assessment, the cakeism that goes with it.

The uncomfortable reality is that control of rent policy means that politicians have a relatively quick and convenient way of diverting funds from housing into short-term priorities.

While it is true that current circumstances are exceptional, it is also true that by 2024, the sector may well have seen its core income reduced by around a quarter in real terms since 2015 – despite a growing housing crisis, the urgent need to get on and tackle thermal efficiency and the costs of fire remediation.

Promises that rent will be linked to the Consumer Price Index (CPI) of inflation will have twice been broken, and the can has been kicked further down the road.

So, what is to be done?

Inevitably, the first step needs to be a robust response to the rent capping proposal.

There is no disagreement about the need to temper rate increases this year, although it would have been reasonable to leave the matter with boards and councillors, who are better placed than ministers to make sensible judgements on the right level of increase.

Given what the government has now said, I would favour arguing for a cap at the higher end of the range, mostly because a lower level could set a deeply uncomfortable precedent for future financial years. Inflation in September 2023 is now forecast to be nearly 10%. We really cannot afford to bake in deep real-terms cuts year on year.

The other key issue is how much money will be lost to social housing over the long term. The government has made a policy and a political error by failing to commit to convergence back to the levels implied by the indexed-link formula.

Such a commitment now, alongside sensible caps, would have made little difference to rent increases over the next two years, but would have given providers a bit more confidence to invest at a time when the economy is destined for recession.

We need to try to shift this by spelling out the consequences of the government’s decision in terms of the new homes and thermal efficiency improvements that won’t be delivered, and the existing homes that will now be sold off.

The government also needs to accept that having changed the rules on rents, it needs to significantly increase grant rates. If it doesn’t, the number of affordable homes we deliver could plummet.

“The government has proved itself such an unreliable partner that it is inevitable that providers and lenders will be wary of further raids on the system and will proceed with more caution as a result – reducing desperately needed investment”

Whatever the precise outcome of the consultation, I think we also need a debate about whether the current system of rent-setting has now been fatally undermined. This should include the government, opposition parties and key stakeholders like lenders.

The government has proved itself such an unreliable partner that it is inevitable that providers and lenders will be wary of further raids on the system and will proceed with more caution as a result – reducing desperately needed investment.

Government control has also created an incoherent ragbag of rent regimes with no underlying logic. We should be able to do better than that.

None of the obvious alternatives are very easy. Complete or partial deregulation of rents, perhaps as part of a grand bargain on zero carbon, is conceptually possible but raises all sorts of difficult issues, for example around the housing benefit implications, the right level of protection for residents, and the treatment of for-profit providers.

A more plausible alternative would be to place rent-setting in the hands of the regulator. It would be much more likely than the latest housing minister to take a rational long-term view about competing priorities. And it is hardly an outlandish model – many regulators have a role in price-setting (albeit one that is getting a difficult press right now).

But, again, the issues around housing benefit would be far from straightforward.

No doubt individual providers will also be debating their future strategy. It may be that regulated social housing will over time increasingly become just one of several business streams, as providers develop and hold an increasing proportion of their assets in non-regulated entities as a hedge against political risk.

Again, this is not free of complications, but given where we are, I am not sure it can or should be ruled out.

Perhaps there is another better answer out there. Whatever it may be, the first step must be to face up to fact political control of rents is a real long-term threat to the social housing system.

If we don’t, we’d be indulging in our own form of cakeism, and we’ve got quite enough cakeism already.

Matthew Bailes, chief executive, Paradigm