10-year rent settlement would generate extra £13bn for social landlords over a decade, CIH and Savills find

A 10-year social housing rent settlement at inflation plus 1% would generate £7.4bn in extra income for housing associations and £5.5bn for councils over 10 years, according to new analysis.

The Chartered Institute of Housing (CIH), in its response to the government’s consultation on social housing rent policy, commissioned analysis from Savills to illustrate the impact of different rent-setting options.

The government is proposing to allow social landlords to increase rents by the Consumer Price Index (CPI) plus 1% for a period of five years once the current arrangement ends in 2026. It is asking for feedback on other lengths of settlement.

However, the CIH and Savills research shows that a longer, 10-year settlement at CPI plus one per cent settlement would allow housing associations to generate an extra £1.4bn a year by 2035/36 when compared to a CPI flat scenario.

Cumulatively, a 10-year settlement would generate £41bn over 30 years, compared to just £21bn under the government’s proposed five-year deal.

For local authorities, a 10-year settlement at CPI plus one per cent would generate £31bn over 30 years, compared to £16bn under a five-year scenario.

The CIH research follows the British Property Federation earlier this month saying that a 10-year settlement could attract £20bn of investment into affordable housing from investors. The National Housing Federation and G15 group of housing associations in London are also backing a 10-year settlement.

The CIH said: “While the government’s proposal of CPI plus 1% for five years is welcome, it is clear from discussions with our members that this will not go far enough to provide the stability required. We would therefore advocate a 10-year rent settlement, if possible set in statute or otherwise given additional certainty, to improve confidence and provide the necessary stability for the sector and for investors and allow for fully effective business planning”

The CIH and Savills research also shows reintroducing rent convergence - a policy which until 2015 allowed cheaper rents to rise more quickly to ensure alignment between rents on different properties - would generate billions of pounds in extra income.

The paper shows £3 per week convergence would enable local authorities to cumulatively generate £6bn in extra income over 10 years, while the figure for housing associations is £3.3bn.

>>See also: MHCLG appears to rule out rent convergence, warning it would hit residents’ disposable income and increase welfare bill

>>See also: 10-year rent settlement could attract £20bn of investment into affordable housing, says BPF

The National Housing Federation has described pushing for the return of convergence as a “priority”, however the government has raised concern about the impact on the benefits bill of allowing some rents to rise at more than CPI plus 1%.

The CIH is also calling for “a more holistic review of what rents should cover”, which “sets the objectives for the sector in terms of standards and new build targets against the required resources in terms of rents, grant, borrowing and sales receipts.”

Gavin Smart, chief executive of CIH, said: “Social housing providers have faced significant financial challenges, compounded by unexpected changes to previous rent policies.

“To address this, we urge the government to introduce a 10-year settlement at CPI+1 per cent, with mechanisms to build confidence and the reintroduction of ‘convergence’, allowing actual rents to move over time to the rent set by the rent formula, which will ensure rents remain fair and consistent.”