Social housing plans to be abandoned as Government cuts tenants’ rents

Published 18th Aug 2009

Plans to build thousands of new social homes will have to be abandoned because of the Government’s decision to cut the amount tenants will have to pay in rent next year, The Times has learnt. Housing associations will warn today that their income will fall by at least £260 million next year if the Government continues to link social housing rent to inflation.

The retail prices index is expected to fall below minus 2 per cent in September, the month when rent is set for the next year, presenting the prospect of real cuts in social rental payments for the first time.

In a consultation paper sent out last month the Government said it would set a floor of a 2 per cent reduction in rent and would absorb the deficit if inflation dropped even further. Ministers hoped this would protect both the tenant and housing associations, who have lost millions during the recession due to falling house sales. But the National Housing Federation, which is pressing for a rent freeze, said that although tenants would only benefit by a small rent reduction of £1.36 a week the impact on housing associations could be critical.

Ruth Davison, NHF campaign director, said the formula linking rent payments to inflation was designed for positive inflation. “Rents have never been cut in the history of social housing, even during the Great Depression and two world wars,” she said. “The decision to reduce rents at the same time as Gordon Brown has announced a £1.5 billion social housing programme is political ineptitude.”

Housing associations now own 2.4 million homes as the shift over the last 30 years has turned from council houses built by local authorities to those built by independent bodies who supplement government grants through sales and bank loans. Housing associations get half of the cost of building a home from government and raise half themselves.

Ms Davison said that the impact of a 2 per cent reduction would cut the number of homes that could be built next year by 4,000 at a time when nearly 5 million people were waiting for council homes. “This is bad economics and bad politics,” she said. “We desperately need new homes. And as the public finances deteriorate we will need more private borrowing to ensure we can continue to build these new homes,” she added.

“Taking capacity out is precisely the wrong thing to do. A fair deal would be to freeze rents, giving a real benefit to tenants but still allowing the capacity to build new homes and provide good services.”

She said that many housing associations would not only have to freeze building plans but also cut services such as wardens and play schemes.

Matthew Gardiner, chief executive of the Trafford Housing Trust, which owns more than 9,000 homes near Manchester, said: “In the first year we would lose about £1 million, which we can probably cope with by restricting services, but the 2 per cent reduction would be built into all future years leading to a loss of £30 million over 30 years.” A reduction of this scale could jeopardise a proposed development of 1,400 homes on the edge of Manchester, he said.

Mr Gardiner gave warning that community services may also have to be cut. One service under threat is a “teen tamer” project where mothers with difficult children are given help to prevent their children turning to anti-social behaviour.

Tenant groups have said they are prepared to back the NHF if they get some return when inflation rises. Michael Gelling, chairman of Tenants and Residents Organisations of England, said his members did not want to see landlords go under, “but tenants have to get something out of this too. If we have to forego our reduction in rent this time we would expect to have to pay less when inflation starts to rise,” he said.

A spokesman for the Department for Communities and Local Government said ministers recognised associations’ concerns: “We are consulting on proposals which will protect housing associations from a drop in rental income of more than 2 per cent, striking a balance between the interests of tenants and the taxpayer, whilst supporting the need for continued investment in new affordable housing.”

Source: ' Times '

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