weeks ago Inside Housing ran a story revealing what it
described as a Treasury plot to allow developing housing
associations to charge higher rents than those not building.
Non-developing housing associations would see rent increases pegged
to inflation. The aim would be to encourage associations to
make greater use of their balance sheets to develop more homes, but
an important side effect might be that the housing benefit bill
rises a little more slowly.
There has been growing speculation that a similar approach might
be taken to council and ALMO rents. The self-financing debt
settlement was calculated on the assumption that rents would rise
by half a percent more than RPI for 30 years. ARCH and others
have been pressing for council debt caps to be removed so that
councils can build more homes because the settlement provides the
financial capacity for them to do so.
Councils' circumstances differ, but nearly have been looking at
scenarios which involve a growing rent surplus over the business
plan period once the needs of the existing stock are met. In
most cases these surpluses are more than enough to repay debt over
the business plan period. Additional resources are available
for investment in new housing, the rate at which debt is repaid
just affects how they are distributed over the business plan
period. The darkest cloud over this rosy scenario has
been the impact of welfare reform on the rent income stream, which
remains a major risk. An adverse intervention by the Treasury
next week could, however, wreak serious disruption.
Limiting future council rent increases to RPI would have a major
impact on business plan assumptions and take a sizeable bite out of
the resources available for investment. The worst case is
that campaigning for removal of debt caps has convinced the
Treasury that self-financing has handed councils control of much
too much money, and the rent increase assumption should be cut to
claw it back.
In theory, changing the rent assumption should be grounds for
re-opening the self-financing settlement and adjusting council
debt. But it cannot be assumed that such an adjustment would
fully compensate for the impact of the rent changes. A
particularly hard-nosed government could argue that the original
settlement was too generous. Compared to this nightmare a
policy that only pegs the rents of non-developing councils doesn't
look so bad.
The great majority of councils want to build and where they have
the resources are planning to build. Only a small
number might be affected - and they might be prompted to rethink
their plans. On the other hand, a much better policy
for the government to pursue would be to lift council debt caps so
that council housebuilding could deliver its full potential boost
to the economy. This time next week we will know what the
government has decided.