Lowering rents for social housing tenants could force district councils to scrap plans to build an extra 40,000 new homes over the next 30 years, according to new research.
A survey conducted by the District Councils’ Network involving 73 stock-holding local authorities suggests that George Osborne’s Summer Budget announcement to cut social housing rents by 1% over the next four years from April 2016 could result in the construction of 3,700 fewer homes by districts over this time period – because income will have reduced by £600 million by the end of the decade.
Without a change in policy, DCN says this could result in over 42,000 potential new homes not being constructed, because revenues will reduce by £10 billion over the course of the next 30 years.
The findings are released to inform high-level talks being held between DCN officers and senior housing and finance policy officials at the Department for Communities and Local Government (DCLG), as a precursor for a meeting with ministers, formally requested last week by the DCN Chairman, Cllr Neil Clarke MBE.
DCN director Steve Atkinson, said: “A 1% rent reduction is good news for existing tenants, but for future tenants the survey shows an effective 3.5% overall reduction would have a significant negative impact on districts’ plans for building new housing stock, without measures to secure a more effective balance between the needs of present and future tenants in the longer term.
“It is a concern that some activity has stalled already, as a result of this announcement and the level and speed of response from DCN members highlights just how strong are their concerns.
“It is to be hoped that a way ahead can be reached ultimately with ministers on this issue, so that district councils can continue to play their full part in delivering national housebuilding ambitions.”
The DCN research comes after analysis by the Local Government Association showed that the proposed rent reduction will cost all councils across England an estimated £2.6 billion by 2019/2020.
The LGA says the policy, which comes into effect in 2016 and lasts for four years, will rise from £234 million in year one, to £508 million in year two, £795 million in year three, and over £1 billion by 2019/20. The LGA says by that point the annual funding gap will represent 60% of local government’s total housing maintenance budget.
Over the four years the total £2.6 billion will be equivalent to the cost of building almost 19,000 new homes, the LGA claims.
It also points out that because around 70% of council tenants receive housing benefit, any rent decrease will not impact them directly. Instead it will be reflected in the Department of Work and Pensions’ budget, while local councils will have to cope with the additional financial burden.
LGA chairman and Conservative councillor Gary Porter, said: “Many councils have already agreed long-term housing investment plans based on the future rent levels announced in March’s Budget.
“It is right that rents are kept as low as possible, but our analysis shows reducing rents in this way over the next four years will cost councils £2.6 billion by the end of the decade and lead to a further funding gap of £1 billion per year from 2020/21 onwards.
“There are millions of people on social housing waiting lists and councils want to get on with the job of building the new homes that people in their areas desperately need, which is the best way to reduce the housing benefit bill and boost growth.
“It is therefore vital that these costs are considered by the government as part of the wider debate of council funding to avoid the capacity of councils and housing associations to invest in this much-needed housing being put at risk. For instance councils should be able to keep all the receipts from the sales of their own housing stock.
“If we are to see the crucially needed numbers of homes built, councils must have a lead role in housebuilding and be allowed to reinvest in the homes and infrastructure that they are best placed to help deliver. Local authorities could build half a million new homes and transform the lives of hundreds of thousands of families if given greater powers, resources and flexibility.”