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UK chancellor Rachel Reeves is planning to raise social rents by more than inflation for the next 10 years in an attempt to boost the building of affordable homes.
Reeves intends to introduce a 10-year formula in October’s Budget that will increase annual rents in England by the CPI measure of inflation — currently 2.2 per cent — plus an additional 1 per cent, according to government insiders.
The move is aimed at encouraging the building of more affordable homes by providing certainty over cash flows to housing associations and councils — which are grappling with heavy debt burdens and large maintenance backlogs.
In recent years local authorities have almost stopped building homes, leaving housing associations — not-for-profit organisations — to build most new social housing in the UK.
The government sets rent levels in subsidised social housing using a national formula. Guaranteeing higher rents will delight housing associations but could worsen the cost of living for millions of tenants and could land the government with a much higher benefits bill.
“The sector needs long-term certainty over how rents in social and affordable housing change each year, which means returning to CPI plus 1 per cent — and with absolute clarity that the government intends to stick with that plan,” said one person involved in the discussions.
The previous Conservative government made a similar promise in the early 2010s but ministers subsequently ripped it up on several occasions.
David Cameron’s coalition set a 10-year annual rent settlement in 2012 based on the retail price index, plus 0.5 per cent. But then-chancellor George Osborne reneged on the agreement in 2015 with four years of below-inflation increases in order to reduce housing benefit costs for the Treasury.
More recently, the Conservative government announced a five-year settlement of CPI plus 1 per cent in 2020, but was then forced to cap rent increases at 7 per cent following a jump in inflation to more than 11 per cent in 2022. It extended the settlement for one further year this April.
Although that provided relief for the 30 per cent of the 4mn households in the social housing sector whose rent is not covered by housing benefit, it put further pressure on already cash-strapped providers.
Gavin Smart, chief executive of the Chartered Institute of Housing, the professional body for those in the housing sector, said the multiple changes to the previous 10-year commitment had destabilised the sector.
“It is clear that ministers and officials understand that a rent settlement needs to be one that landlords and investors can rely on for a long period,” he added.
Labour has made big commitments to address the UK’s chronic affordable housing shortage that has left a record 109,000 households in England living in temporary accommodation, including more than 142,000 children, according to the latest government data.
Angela Rayner, the UK’s deputy prime minister and secretary of state for housing, told MPs last month that the Budget would provide “rent stability” to help deliver the “biggest increase in affordable house building in a generation”. She also promised “appropriate protections” for tenants against exceptional rent rises.
Guaranteeing rent certainty was a critical demand of 20 of the UK’s largest local council landlords who published a report last month warning that England’s council housing system was “broken”.
It warned that councils were facing a £2.2bn “black hole” in housing budgets by 2028, partly as a result of the Osborne-era cuts that they estimated had reduced council landlords’ rent revenue by £2.4bn between 2016 and 2020.
In a list of 21 recommendations, the council leaders included a rent settlement that “lasts for 10 years” alongside a £644mn emergency one-off injection of cash to account for losses resulting from the last rent cap imposed for 2023-25.
The Local Government Association said a long-term settlement was “vital” to ensure councils could regenerate their existing stock and invest in new stock alongside steps to restore “lost revenue” from the recently imposed caps and cuts.
The huge costs of work on their existing homes has led many associations to stop or slow down their building programmes for new homes, and their buying of affordable units built by private sector developers.
A senior executive at one the country’s largest housing associations said a 10-year rent deal would increase rents and lower borrowing costs. “It would go such a long way,” added the executive.
Polly Neate, chief executive of housing charity Shelter, said tenants also needed protection to ensure their rents remained affordable. “As inflation can spiral out of control very quickly, there needs to be mechanisms in place to protect tenants from extreme rent rises that put them at risk of becoming homeless,” she added.
A spokesperson from the Ministry of Housing, Communities & Local Government said: “Work is ongoing to fix the foundations of our housing and planning system and we will set out our plans at the next fiscal event.”
