Working for tenants and residents
 

Disappointment at Government announcement to cap rents at 7%

TAROE Trust has received the news about the Government announcements to cap social housing rent increases at 7% with disappointment. Whilst we welcome the move to cap rents below the previously agreed index linked formula, a 7% increase still represents significant additional pressure on already fragile household finances. 

We are fully aware of the arguments presented by landlord lobby groups on the need to protect landlord viability and investment in housing and services. 

However, the options presented in the original rents consultation that took place over the Summer was a “blunt instrument”.

In our response we put forward to Government a more progressive option that sought to achieve a fairer balance between tenants and landlords. In this approach, we suggested the lower 3% option, but with a longer period of rent restructuring that would effectively allow for landlords to liaise with their tenants about important future investment choices and to mitigate the impact of the compound effect on landlord finances through flexibility for a “catch-up” spread over several years. 

The rationale for this is simple. We feel that landlord finances – subject to financial stress testing and prudent long-term financial planning – are better able to weather the cost inflation storm than individual household finances. 

The approach would also have given comfort to lenders that some of the effects of the cap could be recovered to service long term debt over a longer period and prevented landlords having to make as severe cuts to services and investment that they may have otherwise been forced to make.

One positive move is the voluntary agreement that members of the National Housing Federation will look to apply the same caps to shared owners. We had expressed concerned in our own response that shared owners were omitted from the consultation, yet also faced even higher percentage increases in their rent payments. 

We will need to await the final Government Impact Assessment undertaken on this decision, but as the hybrid policy approach we put forward was not one of the options offered, it is unlikely to have costed up the impact of this approach. 

What the Impact Assessment will hopefully highlight is the significant effect a 7% rise will have on individual households. Strategies will need to be developed to support tenants through the difficult period ahead. Some matters to remember are: 

  • The cap represents a maximum that landlords are permitted to increase their rents. We hope that enlightened landlords will have sensible discussions with their residents around the strategic allocation of resources and that some will choose to apply a lower rental increase (the blunt controls applied by Government in this area make this more difficult since landlords will still be subject to caps in subsequent years and so the options to spread increases over a longer period in the way we had proposed, in agreement with tenants, is usually not available). 
  • Tenants need advance notice to be able to plan ahead, where they have the luxury to do so, to prepare for these large increases. A look at the energy sector highlights how, albeit subject to market volatility, longer term projections of likely cost increases can be made. There is no such volatility for rents, the increases are now known. It is usual for tenants to only be informed about rent increases approximately one month ahead of them taking effect through the statutory notification process. The sector needs to do better than this. Landlords need to be communicating with their tenants now to explain what will be happening to their rents in April next year (when most rent increases take effect), and to explore what support might be available to assist tenants to meet their rent payment obligations. 

The announcements on the rent cap this year shine a light on how broken the system of finance is in the regulated housing sector. It is not the right time to explore the details, but it does highlight how: 

  • It is telling that the announcement was only for one year and the approach ignored our proposals that would have potentially compromised the next sector rent settlement due in 2025. We need to remove decisions on rent from short term politics. 
  • Rents do not reflect real affordability. There are alternative approaches that can be taken, and perhaps now is a good time to explore these alternatives. 
  • Let us not forget that the reason why landlords are usually permitted to increase rents at above inflation levels, year-on-year, is to enable such landlords to borrow against this income stream and take on additional debt to support investment in existing properties, but also fund new housing supply. Some of the sector responses highlighted the impact that a cap on rents would have on reducing new housing supply. Years of under investment in the sector has limited new supply, meaning access to the regulated sector is subject to considerable hurdles to demonstrate “need”. Housing should be a universal right. As a nation, we should collectively bear the cost of new supply. Yet grant levels for new supply in the sector have been slashed for the building of genuinely affordable rented homes and it is tenants themselves that are required to fund new supply through their rents. Surely a more equitable settlement can be reached.