Inevitably, the first step must be a vigorous response to the rent cap proposal.
There is no disagreement on the need to moderate rate increases this year, although it would have been reasonable to leave the matter to councils and advisers, who are in a better position than ministers to make sound judgments on the correct level of increase.
Given what the government has now said, I would prefer to argue for a cap at the higher end of the range, mainly because a lower level could set a deeply uncomfortable precedent for future exercises. Inflation in September 2023 is now forecast at close to 10%. We really cannot afford to make deep cuts in real terms year after year.
The other key question is how much money will be lost for social housing in the long term. The government made a policy and a policy mistake by not committing to return to the levels implicit in the indexing formula.
Such a commitment now, alongside reasonable caps, would have made little difference to rent increases over the next two years, but would have given providers a bit more confidence to invest at a time when the economy is set to recession.
We must try to change this by setting out the consequences of the government’s decision in terms of new homes and thermal efficiency improvements that will not be delivered, and existing homes that will now be sold.
The government must also accept that after changing the rules on rents, it must significantly increase the subsidy rates. If not, the number of affordable homes we deliver could drop.
“Government has proven such an unreliable partner that it is inevitable that providers and lenders will be wary of further attacks on the system and proceed more cautiously as a result – reducing desperately needed investment”
Whatever the precise outcome of the consultation, I think we also need a debate on whether the current rent-setting system has now been fatally undermined. This should include government, opposition parties and key stakeholders like lenders.
The government has proven to be such an unreliable partner that it is inevitable that providers and lenders will be wary of further attacks on the system and proceed more cautiously as a result, reducing desperately needed investments.
Government control has also created an incoherent ragbag of rent schemes with no underlying logic. We should be able to do better than that.
None of the obvious alternatives are very simple. Full or partial deregulation of rents, perhaps as part of a grand zero carbon bargain, is conceptually possible but raises all sorts of difficult questions, for example around the implications of housing allowances, the right level of protection for residents and treatment of profit-providers.
A more plausible alternative would be to entrust the setting of rents to the regulator. It would be much more likely that the last housing minister would have a rational long-term view of competing priorities. And it’s not a far-fetched model – many regulators have a role in setting prices (although it’s got some tough press right now).
But, again, the problems with housing allowances would be far from straightforward.
There is no doubt that individual suppliers will also debate their future strategy. It may be that over time regulated social housing will increasingly become one of many lines of business as providers develop and hold an increasing proportion of their assets in unregulated entities as cover. against political risk.
Again, it’s not without its complications, but given where we are, I’m not sure it can or should be ruled out.
There may be another better answer out there. However, the first step must be to realize that political rent control is a real long-term threat to the social housing system.
If we don’t, we will indulge in our own form of cakeiness, and we have enough cakeiness already.
Matthew Bailes, Managing Director, Paradigm