So our responses to the rent cap consultation have been submitted. The next few weeks of waiting for the Government’s decision will feel like an eternity for many finance directors. Let alone development and assets directors who are potentially watching budgets evaporate as housing associations (HAs) scenario plan the trade-offs necessary for a restrictive rent increase.

My impression is there was near unanimity in August amongst HAs looking to protect existing tenants from very high rent increases. And, once people knew that using rent waivers could radically reduce the compounding nature of a one-off rent restriction, there was real momentum behind supporting tenants who were facing major cost of living increases. But the Government’s consultation paper has reduced the chances of the sector being allowed to implement its own practical and realistic solution that would have smoothed annual rent increases to protect current tenants but without undermining investments for safe and warm homes for future tenants.

The latest painful challenge to HA finances has been the increase in interest rates since Kwasi Kwarteng’s mini-budget. Many HAs were already facing the need to find circa 3% annual cost savings in 2022/2023, being the difference between the 4.1% rent increase in April and the actual cost inflation they have been experiencing this year. Now, the recent interest rate changes have typically added another 3% to operating costs through increased interest costs of existing floating borrowing arrangements. Even though the vast majority of HAs have fixed 80 to 90% of their borrowing, a small variable element has a material impact on operating conditions for next year - and that is without thinking about the current eyewatering cost of new money due to the gilt rates (and the threat of subsequent downgrades). Any rent increase cap will apply further pressure in addition to these cost savings. 

What started out as a survivable 5% rent increase cap in the consultation paper could be much worse for some HAs. Let’s hope the Government sees sense and either picks a higher rent cap with a convergence mechanism or allows the sector to do what it is supposed to do: independently serve current and future tenants by reducing the 2023 rent increase and reserving the right to catch up in future years. This will protect current tenants and preserve future investment to provide safe, warm and truly affordable homes for the next generation.