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An end to convergence? Matthew Warburton - 12/07/2013

rent_measure_300Last week I commented on the CLG's proposal to end any further provision for rent convergence after 2014/15. In the last few days I have taken some time to look at the implications. The CLG's letter (see last week's post) seeks to defend its proposal as follows:

"We expect most landlords to have achieved rent convergence by 2015. By that point, rent convergence policy will have been in place for almost 15 years - this is a significant period of time for landlords to make full use of the rent flexibilities the Government has provided, and most have done so."

The implication is that if councils have not achieved convergence by 2015/16 it is because they have failed to "make full use of the rent flexibilities" available. This is a distortion of the truth. The great majority of councils affected have increased rents each year by the maximum allowable under CLG guidance, but the £2 a week limit on the additional increase for convergence for any individual tenancy means that the time take to reach the fomula rent on that tenancy simply depends on the size of the gap at the start of the process.

Where the initial differential was large, convergence will take longer. The only way these councils could have used the "flexibilities" provided by Government to reach convergence would have been to spurn CLG guidance and increase rents by more than the £2 maximum.

Much has been made of the need for government to provide some long-term certainty on rents policy beyond 2015. But this was always more of an issue for housing associations. Councils could have been forgiven for believing that the CLG self-financing documentation provided a clear statement of policy for the long-term, including on convergence. In "Self-financing: planning the transition", published in July 2011, CLG stated:

"The self-financing valuation assumes that councils will set their rents in line with the Government's national social rent restructuring policy. This policy assumes the following:

 

  • that guideline rents will converge with formula rents in 2015-16
  • rent increases of just above inflation year on year after 2015-16
  • a limit on individual annual rent increases of RPI + 0.5% + £2 per week up to convergence and thereafter for annual increases in formula rents of RPI + 0.5%. …

Government does not have any plans to change the national rent policy set out above."

 

In the February 2011 document "Implementing self-financing for council housing", there is more detail on convergence policy, including a clear acknowledgement (see para 3.4) that the £2 limit will prevent some rents converging with the formula by 2015/16. "An estimate will be made", it goes on, "for each landlord about the number of tenants whose rents could not move to the formula by 2015/16 without breaching this element of rent policy. We will then reduce the assumed income in the valuation by this amount."

And then there is an exhortation to councils not to increase rents by more than the £2 limit: "As this shortfall in income will be reflected in the settlement price, all landlords should apply the rent limit in setting actual rents and pass this benefit on to their tenants." Now, it would seem, councils which followed this advice are being told by CLG that they were wrong not to use their discretion to ignore it.

The allowances made the self-financing valuation for non-convergence provide an indication of the numbers of tenancies affected and the financial impact of CLG's proposal. Provisional estimates of the sums involved suggest that ending convergence would reduce rent income by around £50 million in 2015/16, £30 million in 2016/17 and £13 million in 2017/18. Around 500,000 tenancies are likely to be affected. But of course the long term impact is much greater, since HRA income would be reduced by these amounts every year for the remainder of the business plan.

We will be making these points in the forthcoming consultation on the proposal.

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ARCH Member Comments 6 people like this

  • Liz Kenny, HouseMark - 15 August 2013

    There's an interesting housing association perspective on the current dog's breakfast of rent levels in this blog post from David Montague, chief Executive of L&Q Group: 'We Need To Talk About Rents' http://www.lqgroup.org.uk/services-for-residents/media-centre/blog/chief-executives-blog/1899/12/30/we-need-to-talk-about-rents/

Housemark