A proposed change to social rents could provide much-needed help to housing associations. Let’s find out more.

Recent years have not been easy for housing associations. Local authorities have left them to pick up the slack when they don’t build enough social housing to cope with demand. At the same time, economic instability has made planning for the future almost impossible. It’s no surprise that many associations have abandoned or slowed down construction projects, and no longer buying affordable properties from developers.

However, help could be at hand from the UK chancellor, Rachel Reeves. The chancellor plans to raise social rents as part of a wider plan to build more affordable homes. In this article, we’ll look in more detail at this proposal and whether it makes life better for housing associations. Let’s get started.

The plan

Rachel Reeves has proposed raising annual social rents in England by the CPI measure of inflation plus 1%. Currently, CPI is 2.2%, so with the additional 1%, the formula would increase rents by 3.2% next year. This formula, which will be included in October’s budget, will last for ten years.

This proposal would replace many years of compulsory below-inflation social rent rises, which have put pressure on housing associations. Even in 2022, when inflation was around 11%, rental rises were capped at 8%. How were housing associations supposed to afford to maintain their properties, let alone invest in building new ones?

While this proposal by Rachel Reeves is sure to delight housing associations, its overarching aim is to get more affordable homes built in England, which has far-reaching effects across the economy.

Why it’s good news for housing associations

Making above-inflation social rental rises compulsory – and setting that requirement in stone for a decade – works well for housing associations. Here’s why:

• Increased rents – Housing associations can expect more money coming, which they can use to make life better for their tenants and build for the future
• Stability – Housing associations can make long-term forecasts and commit to projects knowing the money will come through
• Lower borrowing costs – More money and predictability make housing associations a safer bet for lenders

Challenges

Of course, no idea is perfect. If the chancellor’s proposal makes things worse for anyone, it will be the social tenants who will see their rents rise. While inflation has fallen, the cost-of-living crisis is still affecting many people.

Protecting tenants struggling to pay their bills could mean increasing the government’s housing benefit budget. If this happens, the government is essentially just moving money around. 

Finally, the government can only control inflation to a certain extent. There will always be the chance of unforeseen events that can send inflation spiralling, such as what happened in 2022 when Russia invaded Ukraine. If inflation goes high again, it can lead to exceptional rent rises, and the government will probably need to step in.

Looking to the future

However, let’s focus on the positive aspects of this story. Housing Associations have been the unsung heroes of the housing sector for many years. It’s time that the government did something to take the pressure off.

If all goes well, it will lead to more housing, which the country badly needs, as well as better maintained existing housing association stock. At clixifix, we’re ready to play our part in making that happen.