Don’t limit the potential of the housing association sector with a blunt rent cap

Insight & comment12.10.227:05 AM by Kate Henderson

Kate Henderson argues that the government rent cap could set back construction, frontline services and even building safety work

Picture: Getty

If a week is a long time in politics, six weeks is a lifetime. Since 31 August, we have seen a change of prime minister, a change of monarch, significant economic turmoil with an interest rate hike, and a complete overhaul of the ministerial team who will decide how social housing rents will be set next year.

But since the launch of the government’s consultation on rents, little has changed about the impact a very low cap could have on the sector’s ability to meet housing need now and in the future.

As I wrote in Inside Housing in the summer, housing associations are acutely aware of the impact the cost-of-living crisis will have on many residents. I have yet to meet a housing association leader who isn’t redoubling efforts to provide hardship support for people who are struggling.

“In most cases, housing associations would not choose to raise rents by anywhere near the full amount next year”

At the end of last month, the sector reconfirmed its pledge that no one will be evicted from a housing association home as a result of financial hardship, where they are working with their housing association to get their payments back on track.

Simultaneously, the cost of maintaining, improving and building homes keep rising well above inflation and the vast majority of these costs are met through income generated from rents.

In most cases, housing associations would not choose to raise rents by anywhere near the full amount next year. We also know that every housing association has a clear strategy for supporting residents who are struggling with costs, to keep them securely housed in these troubling times.

From a survey we carried out over the past six weeks, a cap set at 3% would cause 90% of organisations to reduce investment in development, repairs and maintenance and the retrofit of homes substantially.

“We also know lenders to the sector are worried about this one-size-fits-all approach, which could increase borrowing costs for the sector, and reduce housing associations’ capacity to invest in homes and services for tenants significantly”

At 5%, there would still be substantial reductions in core activities and half of housing associations would have no choice but to reduce front-line services for tenants. In the worst-case scenarios, there would be a threat to the viability of some organisations, which would need urgent help to prevent closures.

We also know lenders to the sector are worried about this one-size-fits-all approach, which could increase borrowing costs for the sector, and reduce housing associations’ capacity to invest in homes and services for tenants significantly. With recent interest-rate increases, this concern has become more acute.

“We have called for the government to commit to reintroducing a convergence or catch-up mechanism into rent regulation to mitigate the impact of any rent ceiling on long-term investment”

Even where building safety is concerned – the first priority of housing associations – with a ceiling of 3%, 41% of respondents to our survey said they would have to slow down the rate at which safety works are completed.

Crucially, decisions about how a housing association weathers the difficult year ahead can be balanced and targeted better if boards are left to set next year’s rents based on their detailed understanding of their residents’ needs and organisation’s costs. This is exactly the argument we have made in our consultation response and when I met Lee Rowley, the housing minister.

At the very least, the cap must be set so that housing association boards have the greatest level of discretion to manage the inevitable trade-offs their organisations will need to make while inflation is so high.

We have also argued for an exemption for supported housing. And to ensure housing associations can continue to support growth for the long term, we have called for the government to commit to reintroducing a convergence or catch-up mechanism into rent regulation to mitigate the impact of any rent ceiling on long-term investment.

At a time when the government is focused on growth, the sector holds much potential. In previous years, managing and maintaining our existing homes directly added £11bn to the economy annually. The homes we build each year generate 36,000 jobs. If we can work with government to find the best path through the year ahead, we will be ready to drive prosperity on the other side.

Targeting financial help at people struggling through the cost-of-living crisis is the right thing to do, but capping social rents without additional equivalent support for housing providers to manage the impact is not the answer.