Once the initial euphoria over the April 2000 housing Green paper – “the most comprehensive review of housing for 23 years” – calmed down, the realisation dawned that two paragraphs about bringing council and RSL rents in line could ruin it all.
“In line with our view that social rents are broadly at their right level,” the paper said, “we propose that, after 2001/02, there should be no further increases in real terms in the average level of rents charged by RSLs.
“In other words, starting in 2002/03, the average level of rent increases in the sector should be limited to the rate of inflation.”
RSLs would have to “restrict” any rental changes arising as a result of this to £2 either way.
It sent shockwaves through the sector, especially among those who took the LSVT route before 1998.
Rent increases have been capped by the inflation-setting retail price index plus 1 per cent since 1998. But housing associations that took on stock before then had business plans that assumed much greater rent hikes.
LSVT landlords reckoned their lenders might agree longer loan repayment periods – but it also hit valuations.
And if valuations drop, associations feared they would have difficulty drawing down loans.
The panic spread. More and more RSLs realised that, in many cases, rental income would fall. Business plans across the country would feel the bite.
Reinvestment would be under threat – which meant government repairs targets were also at risk. The lenders did not like the apparent government assumption that diversification into non-core business would make up shortfalls. Higher margins and harsher covenants were predicted.
As the sums were worked out, the next contingency area was discussed: staff pay. In many cases rent increases were used to cover pay rises, and Unison warned it would be watching closely.
Black and minority ethnic associations – traditionally relatively high-rent landlords – were justifiably worried they would be hit in the pocket. Work to promote regeneration and social exclusion might get re-examined in the light of the rent restriction.
The National Housing Federation, realising RPI flat would threaten the viability of large scale transfer landlords, BMEs and supported housing providers, called for a £100m fund over the 10 year implementation period for “worst case scenarios”.
By September 2000, ‘RPI flat’ claimed its first victim. Hastings-based 1066 Housing Association came under Housing Corporation supervision.
A 1996-vintage transfer, its plan assumed rent increases of RPI plus 2 per cent. Demand problems, a partnering strategy that needed more redevelopment than expected and the inflation-only cap had made matters “difficult”.
By this time last year it became clear the then DETR would have to concede. It did, but not by much. The sector was given an early Christmas present – RPI plus 0.5 per cent.
The wrangling continued – would waivers be allowed? What about valuations?
The corporation bowed to pressure in July this year and agreed that market rent and key worker housing would be exempt from rent reform.
Supported housing providers would be safe until 2003, and waivers would be granted, subject to detailed investigations.
But the rows continued well into the summer. BME landlords warned of challenges under equal rights legislation. Councils and their representative bodies warned tenants could see rent rising with no attendant benefits thanks to the Housing Revenue Account.
South Somerset Homes – with a business plan assuming RPI plus 1 per cent increases – found itself under supervision in August.
That same month, new housing minister Lord Falconer climbed down a little further. The new regime could cause “unjustified anomalies”, he admitted, so restructuring could be phased in on new developments over 10 years.
But Falconer has been less willing to accept the fears of social housing providers of late, even though regeneration in parts of the east midlands is increasingly unviable and councils complain reform could lead to a £1bn bill.
After 18 months of panic, U-turns and blanket denials, Falconer’s announcement last week proves rent reform is still a government priority.
The announcements have divided council providers from RSLs, by allowing the former to levy average, not individual, target rents for this first year.
Liz Potter, policy director at the federation, believes the measures were not entirely asymmetrical. “It’s only for one year, and the same is true for RSLs who haven’t got valuations in time,” she said.
But ironically, by allowing housing associations to use their reserves to subsidise rents, chasms could open between the rent intentions of neighbouring RSLs.
And while some London tenants – and councils – breathed sighs of relief that top rents could only be £100, albeit rising by RPI plus 1 per cent each year, the scheme’s coherence is again under fire.
Home Group chief executive Malcolm Levi welcomed the government’s recognition of the need to have affordable rents for low income families in London.
“However, the need to make this change is explicit recognition that an artificial, imposed formula does not work,” he said.
“Taking £5 or £10 off the rent will not create a market to reverse outward migration. People are much more concerned with the quality of service received.”
David Hucker, chief executive of Orbit Housing Association, said one scheme in Kensington and Chelsea had rents higher than £100 and several where it would go over the limit in the next few years. Without income, cutting rents in low value areas would be a struggle, he said.
“Restructuring is the biggest thing to hit us for years,” said Hucker.
“RSLs thought they had certainty but now we don’t. The policy was drawn up on a common formula for all. The government has to stick to it or RSLs simply don’t know where they are. Every time the rules are changed, even slightly, that brings more uncertainty.”
Chartered Institute of Housing policy analyst Mark Lupton said: “London markets and [their] political impacts are bending the principles of reform and dictating what happens elsewhere.”
And a housing expert based in the north questioned whether cutting rents in low demand areas is the key to bringing abandoned housing back into use.
The concessions have come to London – where tenants certainly need them. But other areas, such as Cornwall and Cumbria, seem still to be struggling in silence, one source noted.
Cumbria has two problems, she explained. One of high house values and building costs in the national park, and the other of high official earnings figures skewed by particular local employers. “Everyone else has very low earnings,” she said.
And what of the government’s agenda for community renewal? It has said that it thinks it vital to meet the needs of black and ethnic minority communities.
But Aman Dalvi, chief executive of London-based Ujima Housing Association, said that last week’s announcements made restructuring “unworkable”.
“Where councils are asking us to produce five, six or seven-bedroom houses, BMEs are not going to be able to make the stock up. We already have a net present value loss, and have subsidized this ourselves. But there is a limit.”
Tenants are still fuming. While Ron Lawrence, vice-chair of the Hammersmith and Fulham borough forum of housing association tenants, has praise for the housing minister, he thinks the rent restructuring outcomes show that “social housing tenants are second class citizens.”
Reaching target rents in London is such a distant and abstract prospect that there is no hurry to meet them, Lawrence explained. There is therefore no reason why rent rises as high as £4.20 are needed.
“Tenants have had practically no consultation on this. If the government values us, then they should come and talk to us. We are intelligent people. This government wants more tenants to be involved but they don’t want to consult us on this,” he said.
“We could still have rent restructuring but in an affordable way.”
Source
Housing Today
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