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Welfare Reform & Work Bill: Impact Assessment of Social Rent Reduction 02/10/2015

The government has published their impact assessment of the measures included in the Welfare Reform and Work Bill to reduce social housing rents by one percent per year over the next four years.


The Impact Assessment states that the policy objective is to tackle the deficit and rebalance the welfare state to achieve an in-year housing benefit saving of £1.995bn.


It seems to focus almost exclusively on the impact on housing associations but contains no separate assessment of the impact on stock retained councils.


The Housing Minister states that the savings are set alongside the rapid increase in housing association surpluses in recent years and states that surpluses in the housing association sector have continued to rise to a total of £2.4billion for 2014 - an increase of 22% compared to 2013.


However the government's Impact Assessment fails to acknowledge that local authority stock retained councils only entered into the self-financing regime in 2012 and HRA Business Plans are not generating the same level of surpluses that the housing association sector are.


The Impact Assessment states that Ministers considered three options:


  1. Continue the current policy of an annual rent increase limit of CPI +1% for ten years
  2. Reduce social housing rents annually by one percent for four years from April 2016
  3. Reduce amounts of housing benefit paid to cover rent in the social sector


Impact Assessment fails to recognise that the position of housing associations and stock retained councils is fundamentally different. While many housing associations generate significant surpluses, local authorities entered into a self-financing arrangement less than three years ago and significant numbers of stock retaining councils have not yet met the "rent convergence" targets and council house rents remain on average lower than housing association rents.


It would appear Ministers did not consider the option of applying a different approach to rent setting in the stock retained sector by for example considering the option of applying a differential approach to the stock retained sector (where rents and surpluses are not as high as in the housing association sector) and for example applying a rent freeze (as opposed to a one percent rent decrease) to council housing.


There is some potential relief for social landlords in that the Impact Assessment states there will be a number of exceptions from the rent reduction requirements including low cost home ownership and shared ownership. However, ironically most of these types of schemes will apply to the housing association sector rather than the stock retained sector.


The Impact Assessment recognises that the reductions will have an impact on housing association balances but contends that the strong balance sheets mean that they are well placed to manage these reductions and that they estimate that the new "pay to stay" will create additional rental income of "hundreds of millions of pounds per year" to support their Business Plans.


The impact assessment makes no attempt to assess the impact on council HRA balances nor does it recognise that any additional income that may accrue to stock retained councils as a result of the proposed "pay to stay" scheme will be required to be paid by local councils to the Exchequer and unlike housing associations will not be available to councils to support their business plans to invest in services for council tenants, maintaining and improving council housing or delivering more new council homes.


ARCH believes that because of the different financial positions of the stock retained sector and the housing association sector Ministers should have considered a fourth policy option in addition to the three set out in the Impact Assessment by considering a differential approach to the stock retained sector and either maintaining the existing social housing rent guidance issued in May 2014 for council housing or imposing a rent freeze on council house rents (as opposed to a one percent rent reduction) in line with the freeze in the Local Housing Allowance.


Read the full Impact Assessment of Social Rent Reductions.

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