‘Setting Social Rent’ by Capital Economics, commissioned by SHOUT, provides a detailed but accessible analysis of different social rent setting levels and their impact. It models social rent setting policy in England (Wales, Northern Ireland and Scotland having devolved rent setting powers) to establish the optimum level which delivers on the different stakeholder demands of the policy. It considers impacts on the government’s fiscal position, social landlords’ operating margins, landlords’ ability to invest in new housing and housing benefit levels. The main report is brief, with the methodology and useful analysis by region making up some substantial appendices.
The report provides a strong evidence base for how to set social housing rents, it has a transparent methodology and takes into account, in its modelling and analysis, the needs of the different stakeholders. This work helps to fill a gap in our current understanding of rent setting. Despite lots of discussion in the sector, and by government, there has been very little analysis commissioned or academic focus on the impacts and implications of rent setting policy.
The reports main findings are that:
• The 1% rent cut was unsustainable regarding housing associations operating margins and ability to invest in new homes.
• Differences in regional housing markets mean a single national policy cannot achieve an optimal impact on different stakeholders (government, social landlords and tenants) in all places (hence the regional analysis in the appendices)
• The government’s proposed policy of consumer price inflation plus one percent after 2020 is broadly appropriate in much of the country, but differences in regional housing markets mean a single national policy cannot achieve an optimal impact on different stakeholders (government, social landlords and tenants).
• It finds that the sustainability of real increases in social rents is dependent on corresponding increases in the overall benefit cap.
• It argues the longer-term settlement on rent is needed, and the future framework for investment could be strengthened by:
o allowing local flexibility to increase rents by more than consumer price inflation plus one percent where a clear case can be made regarding building additional units and achieving reductions in private sector housing benefit caseload,
o lifting or up-rating the overall benefit cap,
o making long-term guarantees on rents and their relationship with the welfare system,
o resuming grant for social housing and allowing councils to borrow for HRA development, subject to the prudential code.
The report gives providers information to nuance their rent setting, offers governments knowledge on what the trade-off is for social rent setting and stimulates debates on how we set social housing rents in the future.
This report deals with the principal policy setting concerns well, but rent setting has complex consequences, and had the budget allowed it would have been good to see it address some of the impacts in further detail. For example, it doesn't analyse the poverty trap that might be created by rising rents without accompanying wage rises or the possible disproportionate effects on single working tenants or single parents. Also out of scope was an analysis of impact by particular stock types, as some may become unaffordable for those in work or hit by the bedroom tax. The method also assumes housing benefit will meet increases in rent, which after the recent threat of the LHA cap is not a given. To build this further analysis into the report would make for a more detailed picture of rent setting. It would also take a substantial amount of work, which someone would need to fund, to explore these issues in a level of detail for it be worthwhile.
What this report also doesn’t do, or aim to do, is compare different levels of increases in rents and benefit payments and levels of government capital investment in social housing stock. This is a shame as Capital Economics have looked at this in other research they have produced (Building New Social Rented Homes, An Economic Appraisal, 2015). Maybe that’s the next report they will produce? I hope so!