England: Rent reduction to set back affordable housebuilding

George Osborne
George Osborne

The UK government’s commitment to 1 per cent annual rent reductions in the social rented sector will negatively affect affordable housebuilding, according to independent analysis.

A report by the Office for Budget Responsibility (OBR), an advisory non-departmental body set up by the government, says the UK government plans will “directly reduce social landlords’ rental income, and therefore their financing for, and returns to, investment in new housebuilding”.

Delivering the Budget Statement in the House of Commons yesterday, Chancellor of the Exchequer George Osborne said he was going to “end the ratchet of ever higher housing benefit chasing up ever higher rents in the social housing sector”.

He told the House: “These rents have increased by a staggering 20% since 2010.

“So rents paid in the social housing sector will not be frozen, but reduced by 1% a year for the next four years.

“This will be a welcome cut in rent for those tenants who pay it and I’m confident that Housing Associations and other landlords in the social sector will be able to play their part and deliver the efficiency savings needed.”

However, the OBR has reduced its forecast for residential investment in England in light of the announcement.

The Economic and fiscal outlook report for July 2015 states: “Over the forecast period, our assumptions suggest around 14,000 fewer ‘affordable homes’ will be built.”

David Orr, chief executive of the National Housing Federation, said: “The housing association sector will be faced with a £3.9bn hit as a result of this announcement.

“Housing associations are the most successful public-private partnerships in history and have created their business plans based on the current rental formula. A reduction in their rental income will damage their capacity and ability to keep building.

“At the very least it will prevent them from building 27,000 desperately needed homes, but that figure could be much higher. Housing associations want to work with the Government to meet its housing ambitions, but this policy will make it much harder for them to do so.”

It is not clear whether the move will have a significant impact on housing in Scotland.

Mary Taylor, chief executive of the Scottish Federation of Housing Associations (SFHA), said the devolution of housing meant there was “no means to apply a national rent reduction”, but that the SFHA would “await further detail regarding what this will mean for our colleagues in England”.

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