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Osborne rips up settlement and cuts rents by 1% a year
Rents on social homes will fall by 1% a year for the next four years, after George Osborne tore up the 10-year rent settlement at today’s Budget.
In a bid to cut the housing benefit bill, the chancellor announced the surprise change which throws out the existing plan to allow associations to increase rents by the consumer price index (CPI) of inflation plus 1% until 2026.
Housing associations had modelled business plans and secured loans on the understanding that rents would increase, after the previous rent settlement was agreed in 2013.
Mr Osborne said housing associations would have to ‘find efficiencies’ to pay for the cuts in rent.
‘We are going to end the ratchet of ever-higher housing benefit chasing up ever higher rents in the social housing sector,’ he said.
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‘These rents have increased by a staggering 20% since 2010… This will be a welcome cut in rents for those tenants who pay it and I’m confident housing associations and other landlords who operate in the social housing sector will be able to play their part and find the efficiencies needed.’
The rent reduction will kick in from next April. After four years the rent formula will return to CPI plus 1%
Rents have gone up since 2010 as landlords were required to convert vacant properties and new builds to higher ‘affordable rents’, which can be up to 80% of market rates.
The Budget briefing documents assumed the change would save £165m in 2016/17 and £1.45bn in 2020/21 from the housing benefit bill, saving a total of £4.3bn over five years.
According to the Homes and Communities Agency’s global accounts for 2013/14, the sector generated turnover of £13.1bn from social housing lettings, up £646m from the previous year.
A global 1% reduction in rent would therefore reduce housing association income by around £130m.
The proposed rental change will also affect local authorities, which had previously increased rents according to the same formula.
UPDATE: 08.07.15, 3.21pm
This article has been amended slightly from an earlier version.
