In an effort to boost the construction of affordable homes, UK Chancellor Rachel Reeves is planning to introduce a 10-year formula in the upcoming October Budget. This formula will allow for annual rent increases in England based on the Consumer Price Index (CPI) measure of inflation, which is currently at 2.2 percent, plus an additional 1 percent. The objective is to provide stability in cash flows for housing associations and councils that are currently facing significant debt and maintenance challenges.
The government’s strategy to establish rent levels in subsidized social housing through a national formula is expected to be welcomed by housing associations. However, it may exacerbate the cost of living for many tenants and increase the government’s benefits expenditure. The housing sector has been advocating for long-term clarity regarding annual rent adjustments in social and affordable housing, with a return to CPI plus 1 percent being a prominent demand.
This follows a similar commitment made by the previous Conservative government in the early 2010s, which was not consistently upheld, leading to instability in the sector, as noted by Gavin Smart, chief executive of the Chartered Institute of Housing.
Labour has pledged significant efforts to tackle the UK’s severe affordable housing crisis, with Angela Rayner, the deputy prime minister and secretary of state for housing, promising the “biggest increase in affordable house building in a generation” in the upcoming Budget. She also assured that “appropriate protections” would be in place for tenants against excessive rent increases.
Rent certainty has been a crucial demand from 20 of the UK’s largest local council landlords, who have recently highlighted that England’s council housing system is “broken” and projected a £2.2 billion “black hole” in housing budgets by 2028. The high costs associated with maintaining existing homes have led many associations to halt or reduce their new building programs and their acquisition of affordable units from private developers.
While a 10-year rent agreement could raise rents and decrease borrowing costs for housing associations, Polly Neate, chief executive of housing charity Shelter, stressed the importance of tenant protections to keep rents affordable. As the UK government seeks to reform its housing and planning systems, the forthcoming fiscal event will outline their strategies to address this critical issue.
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