On Rent Policy (again)

by Ken Gibb

What is going on? Inside Housing has reported (‘Rent convergence plans threaten build rates’, July 12 2013) the threat arising from the UK Government’s recent statement that it was minded to end the English rent convergence process after 2014-15. The threat is that business plans will have to be ‘torn up’ and plans for building and investment will be undermined. The IH story suggested that ending convergence early means that the incremental increase of traditionally lower council rents towards association rents will not occur fully and that this might impinge on their ability to repay debt agreed in the 2012 HRA settlement. As a result, less new homes than planned can be built. Moreover, in London, where several developing housing associations have rents still below target rent levels, would also face reduced development capacity.

This is only the latest in a series of disconnecting policy changes that appear to be doing much to undermine social providers’ capacity and tenants’ ability to make sense of price signals.

We know that it is highly likely that affordability problems will grow through HB increases being capped and that this will be lower than the new rent increase caps recently proposed in England for the next 10 years. We also know that both the current 3-year affordable housing programme and the one recently announced by the Spending Review are premised on reletting vacant properties at ‘affordable’ rents – rents based on the local proportion deemed affordable of the equivalent local housing allowance. The first decision (reported on today) can be rationalized, can make sense on one level or is perhaps inevitable – given the continuing commitment to this form of cross-subsidy and the ongoing lack of alternatives.

I have written several posts now that have touched on this direction of travel. After the pain of rent formula, convergence and lengthy adjustment to business pans, this is in effect now to be dismantled. Yet, development is increasingly to be premised on low capital subsidy, sweat equity from the existing stock and cross subsidy from now higher relet rents. It does not really add up.

This new commitment to localizing (ultimately to individual landlords) social rent-setting will take years to unwind but one cannot but think this has been an expensive and ultimately fruitless business. In Scotland there has never been enthusiasm for a national rent policy, partly because rents are lower and the pressures (at least until recently) have been appreciably weaker. Yet in Northern Ireland, alongside the proposed selling off the Housing Executive stock, there is considerable appetite for a national rent formula and a convergence or harmonisation process.

What I find striking is that the tenant’s perspective and the principle of informed choice have been wholly lost. While one may rightly quibble with the model for the formula rent and its technical shortcomings, it did nonetheless promise to provide consistent local price signals for consumers and thereby make choices a little more transparent. This was, at the turn of the millennium, supposed to be part of a three-part process including choice-based lettings and benefit reform. It is ironic that while the Government struggles to implement its much further-reaching benefit reforms, it is at the same time making non-market price signals that much more obtuse.

Essentially, a short run housing supply programme requires local rent freedoms to work so we give up the coherence of a well-established long-term system thereby creating wider unintended business plan consequences in different parts of the country. Yet, no-one really thinks of, or argues for, the affordable housing programme as a long tem basis for augmenting non-market supply on a large scale into the long term. It is another unhelpful example of short-termism.

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