Rent increase: tenants should not pay the cost of government underfunding of council housing

Swindon council will argue that their proposed above inflation 2.7% rent increase for council tenants in 2020-21 is acceptable because we have had a rent cut of 1% a year for 4 years. However, that does not mean that every tenant’s rent had gone down by 4%. They have increased the rent of some properties by two means.

  • Increasing it to a so-called ‘target rent’ when properties become ‘void’ (empty owing to a tenant leaving or dying). They have not applied the rent cut to these. So new tenants pay a higher rent than the previous tenant would have paid if the rent cut had been applied to all properties. As you can see from the table below, last year a new tenant’s rent was higher by an extra £2.25 to £7.34 a week .
  • They have converted some properties from ‘social rent’ (another name for council rent) to “affordable rent” which can be up to 80% of market rents1. The average “affordable rent” in Swindon for the last available year, 2017-18, was £32.29 a week higher than the average ‘social rent’ (the actual rent paid on a 48 week basis).

When the government announced it would introduce a policy of rents being increased by a maximum of CPI inflation + 1%, for five years, our housing management was at pains to say that this was a maximum. Rent would not necessarily be increased to that level, they told us. In reality we knew that because of the under-funding of council housing they would propose an above inflation increase. The prospect we face is for 5 years of above inflation increases. What happens after that remains to be seen. However, the council’s Medium Term Financial Plan for its council housing, passed by the Cabinet in September, had built into it the assumption that rent would increase by 3% each year for the 25 years after that.

What happens depends on government policy which beyond the next five years is as yet unknown. But the application of above inflation increases for five years would be bad enough.

The average rent of £80.72 if the increase goes ahead is not what people pay, but the average over 52 weeks. The rent paid on a 48 week basis is higher. The level of rent will seem low to many people. However, you have bear in mind that rents for a certain number of bedrooms are not all the same. They vary considerably (see Table below, lowest and highest rents). Some are much higher than the average; up to £48.24 a week difference between different properties with the same number of bedrooms.

Obviously if a tenant has their full rent covered by housing benefit then the increase will not mean much to them. Universal Credit is more problematic since it can vary according to your circumstances, month by month. Given the fact that many jobs in the town are low paid and precarious, we now have a situation where council rents are too high for some applicants to the council’s waiting list. Some applicants who have bid for a property, and come top of the list, have been refused a tenancy because council officers don’t think that they can afford the rent. If our tenants face year after year of above inflation rent increases then more people are likely to be prevented from having a tenancy essentially because they are too poor. If council housing is unaffordable for poor people who are in work then where are they supposed to go? Private sector rents are much higher than council rents.

Under-funding

The undoubted under-funding of council housing is a problem which cannot be resolved by increasing council rents year after year above the level of inflation. Swindon council’s Medium Term Financial Plan for the Housing Revenue Account (HRA) suggests that it is £81.4 million short of the funding it needs for capital spending, that is for renewal of key components (roofs, bathrooms, kitchens, boilers etc) of our housing stock over the next five years alone. Over 30 years the shortage is estimated at £311 million. If ageing components aren’t renewed in good time then the condition of the stock will inevitably deteriorate. This increases the cost of maintenance and future costs of putting things right.

The shortage of funding, compared to what is needed, is the result of central government policies, including

the imposition of £138.6 million bogus debt in 2012 (see Note below) when a new housing finance system was introduced.
The 4 year rent cut.

Higher discount for Right to Buy sales which increased the number of sales fourfold, meaning far more rent has been lost than originally planned for.

Essentially our HRA has insufficient money to maintain and renew its existing council stock over the long term. This is the case even assuming, as the MTFP does, rent increases above inflation for the next 30 years.

This is not just a problem for Swindon Council. All councils with council housing stock face the same problem.

We understand that Swindon Council Leader David Renard now holds a senior position on the Local Government Association. He is, therefore, in a position to influence it to demand that the government reopens the ‘debt settlement’ (see Note below) and at the very least cuts the debt in line with the amount of projected income loss over the next 30 years which is a direct result of central government policy.

An inflation level increase is acceptable, but above inflation increases cannot resolve the under-funding of our HRA. They will simply increase the numbers of people who cannot afford council rents. Ultimately the ‘debt’ problem needs to be resolved or the condition of our homes will deteriorate.

Martin Wicks

Note on HRA ‘debt’

In 2016 we did manage to get the agreement of the Lead Member for council housing to write to the government to press them to reopen the ‘debt settlement’ of 2012 under which they imposed on the HRA an extra £138.6 million ‘debt’. The government shared out what it said was the national council housing debt in a final ‘debt settlement’. In reality this ‘debt’ was a result of Treasury manipulation. We know that under the previous ‘council housing subsidy system’ council tenants nationally had paid £91 billion rent over the 25 years to 2008 but councils had only received £60 billion in annual ‘allowances’. In effect the Treasury stole £31 billion rent from tenants. This was more than the historic debt (the borrowing which councils took on for their large scale building programmes). That’s why even the LGA at the time of the debate over the new finance system called for the debt to be cancelled.

Under the 2011 Localities Act the government has the power to ‘reopen the settlement’ and readjust the debt if a council’s income or expenditure changes significantly. In the case of Swindon if you compare the rent income that it was projected to take in over the next five years (when it first drew up its business plan), with what it is now projected to collect, it is £49 million less. More than £8 million of our rent each year is wasted on servicing this bogus debt. Over the next 30 years it is estimated that Swindon’s HRA will have £311 million less income than is required for the capital expenditure on its existing homes. If rent increases are below the 3% a year which the council has built into its plan then the shortage will be greater still. This is not a problem created in Swindon but by central government. It needs to be resolved by central government.

Download a PDF to see Table rent2020

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