Grant rate at 7-year high

The housing minister has moved to allay fears over the impact of rent reform by increasing the grant rate to its highest level for seven years.

But the new 60 per cent rate for 2001/2 is well below the figure the Housing Corporation said would be necessary to protect housing associations.

Nick Raynsford announced the new headline grant rate was up six per cent from the previous year and its highest since 1994/95.

He said the increase ought to take into account high development costs and land values, increased borrowing costs due to high interest rates and rents being limited to the retail price index only (RPI+0).

But this was far under the 64 per cent rate which the Housing Corporation recommended.

As the corporation launched the Approved Development Programme bidding round on Tuesday, concerns were mounting that associations would miss the government's target of 56,000 new homes as a result.

In a letter to corporation chairman Baroness Dean, Raynsford said he was not convinced a 10 per cent rise in the headline rate was justified, and instead was opting for "a more measured movement in the grant rate from one year to the next".

"We face a period of transition as the RSL sector adjusts to rent increases limited to RPI+0 and to new rent structures foreshadowed in the Green Paper," he said.

The decision to stick with the proposed RPI+0 was announced just four days after consultation on the Green Paper closed. As Housing Today revealed, it was in fact being factored in to the grant rate calculation last month (Housing Today, 27 July).

Raynsford said associations should make more efficiencies in development and delivery, including adopting the Egan agenda. "Improvements in procurement processes and the wider take-up of more innovative construction techniques such as pre-assembly should start to deliver some significant cost savings over the next few years."

But National Housing Federation head of regeneration and investment Abena Nsia insisted that improved efficiency would not reduce the scale of the problem.

"RSLs will still struggle to deliver the programme over the next 18 months, and the only light at the end of this tunnel is the fundamental grant rate review was delayed until later this year," she said. "Our hope is that the grant rate which results from the fundamental review will finally bridge the funding gap."